Gov. Mitch Daniels has ordered an outside audit of the Department of Revenue after officials discovered a second programming error that led the state to short cash-strapped local governments $206 million in income tax payments over the past 16 months.
The state sent those payments – plus interest – to counties on Thursday as well as increased estimates of what local governments should expect to receive in the coming months.
Meanwhile, Daniels has accepted the resignation of Department of Revenue Commissioner John Eckart, although he will stay on temporarily to help with the transition of the agency through the tax season.
Also two Department of Revenue senior managers – Chief Information Officer Roy Gabriel and Chief Financial Officer Darrel Anderson – left the agency Wednesday. Gabriel retired and Anderson resigned, said department spokesman Robert Dittmer.
"We're taking this very seriously," said Adam Horst, director of the Office of Management and Budget, an umbrella agency that oversees the Department of Revenue and discovered the mistake. "Clearly controls (at the agency) are an issue."
House Minority Leader Pat Bauer, D-South Bend, called the problem a "debacle" and said the administration "has caused a huge mess" for local governments.
The announcement comes just months after Daniels revealed the Department of Revenue had made an unrelated programming mistake in its corporate tax software that essentially hid some $320 million in payments made by companies but never transferred into the state's main checking account.
That led Democrats to call for an audit of the Department of Revenue – and to make that request formal at a State Budget Committee meeting – but majority Republicans, included Horst, voted to reject the demand, saying that an internal review would be sufficient.
On Thursday, Horst said that internal review uncovered the most recent error and led Daniels to decide an outside look was necessary.
Bauer said Daniels should now consider whether Horst – who joined the budget agency after Daniels was elected in 2004 – should be ousted.
"If they had been willing to go with an independent audit before, they wouldn't have to be taking the hit now," Bauer said.
But Daniels, who is traveling in Israel, said through a spokeswoman that, "Adam and his group discovered the problem and fixed it."
"If anything, he'll get a commendation," Daniels said. "And when I want management advice, I won't start with Mr. Bauer."
Republican legislative leaders, meanwhile, lauded the governor's decision to hire an auditor now but made clear they want to participate in that step.
"Joint engagement of an independent auditing firm will allow the administration and legislative leaders of both parties to have full access to the results of the audit and provide the most transparent opportunity to confirm accountability for all public funds," House Speaker Brian Bosma, R-Indianapolis, and Senate President Pro Tem David Long, R-Fort Wayne, said in a joint statement.
Long and Bosma said they want a preliminary report presented to the bipartisan State Budget Committee by early September.
But former House Speaker John Gregg, a Democrat now running for governor, wants to ensure his party also is involved. "This is exactly what happens when you have one party control," Gregg said. "Nobody is looking over anybody's shoulders."
"I want to know who's minding the store," Gregg said.
The repayments to counties come as many local government officials have been implementing layoffs, pay freezes, budget reductions and other cost-cutting moves to make up for lower revenue.
David Bottorff, executive director of the Association of Indiana Counties, said the back payments could allow local officials to reconsider those decisions.
The lower tax revenues have "caused additional hardship, additional anxiety in county offices," Bottorff said.
Some of those officials had been complaining that the state has been cheating them of income tax payments, which are collected initially by the state and then distributed locally. It's a complicated system that has been repeatedly revamped but is still prone to management problems, largely because distributions are based on the previous year's collections, which can vary widely.
Horst acknowledged Thursday that rebuilding trust with local officials will take time and effort.
The independent audit will help, said Rhonda Cook, director of governmental affairs for the Indiana Association of Cities and Towns.
The group notified mayors and other local officials Thursday that they could be expecting additional tax payments. "It will definitely be put to good use," Cook said. "They've been struggling with budget cuts."
Horst said he initially learned that there might be an issue with the local income tax distributions several weeks ago but had only recently learned the scope of the problem. He told Daniels on Tuesday and said the governor's reaction to the error was "disappointment and frustration."
But he said Daniels "very quickly turned to how do we make this right."
The governor left for a trip to Israel on Tuesday and his press secretary, Jane Jankowski, said he could not be available by phone to answer questions. Democrats criticized that move Thursday.
"This is incompetence of the highest order. It is only right that people are losing their jobs. It is only a shame that the governor himself didn't appear before the press and accept his share of the blame," Bauer and Senate Minority Vi Simpson, D-Ellettsville, said in a joint statement. "This administration has done a great job of shredding its credibility as a fiscal master of state government.
The statement ponders that additional problems may be yet to be discovered as Daniels finishes the final year of his second term.
"Perhaps they can try and explain this latest mistake away by saying 'oops' and comparing it to finding millions of dollars stuck in the cushions of a couch, just as they did last year," Simpson and Bauer said. "But these aren't small mistakes to be shrugged off."
Despite the mistake – and the resulting repayments to local governments – the state is still projected to finish the fiscal year on June 30 with more money than expected in its main checking account and reserves. That's largely due to cost cutting efforts by state agencies, Horst said.
That means the Department of Revenue's mistake will not jeopardize planned taxpayer refunds, which are expected to mean about $65 each for Hoosiers.
Lesley Weidenbener is the managing editor of TheStatehouseFile.com, a news website powered by Franklin College journalism students.