Republican state Sen. Ed Charbonneau said he filed a bill this week to reinvent the state board Gary City Hall has relied on for years of budget relief.
His proposal would give the Indiana Distressed Unit Appeals Board power to appoint an "emergency manager" to help distressed Hoosier taxing units. It would also offer local governments a path to bankruptcy not available now.
"Hopefully it will never be needed," Charbonneau, of Valparaiso, said.
Though Charbonneau said his Senate Bill 105 is not aimed at Gary, no other city has sought help from that board. Budget relief offered for two years by the DUAB to Gary has come in the form of higher tax caps for property owners.
Because Hoosiers passed a referendum to write those caps into the state's constitution, though, the DUAB will become powerless to raise caps in 2012.
When that time comes, Charbonneau suggests the DUAB should be reduced to a three-member board made up of the director of the state's Office of Management and Budget, the commissioner of the Department of Local Government Finance and the examiner for the State Board of Accounts.
The new DUAB could only declare a government unit distressed if that unit or a qualifying creditor files a petition.
As proposed, the emergency manager would be able to "exercise the authority and responsibilities of the executive and fiscal body of the distressed unit." That includes reviewing budgets and salaries, developing a written financial plan and renegotiating labor contracts. It could also recommend a bankruptcy filing.
Municipal bankruptcy is governed by federal law, but that law requires states to pass an authorizing statute. It's been seen as a possible path for Gary after 2011.
Rep. Vernon Smith, D-Gary, said he supports the bankruptcy provision of Charbonneau's bill and he said previously he might file bankruptcy legislation himself. He said he'd need to review the other details before commenting.
Both lawmakers said Hoosier governments other than Gary might one day need to file for bankruptcy.
"Yes, it's Gary now," Smith said. "But there's going to be a whole lot of people in trouble before it's over with."
Republican Gov. Mitch Daniels has said he'd entertain the idea of a municipal bankruptcy bill and Charbonneau's bill will be considered first in a Senate where his party holds a supermajority.
Gary Mayor Rudy Clay said his city's trips to the DUAB mean it won't need to take advantage of the bankruptcy option.
"We're better prepared as it relates to administrating the government under these tax caps," Clay said.
Indiana's property tax caps were lifted by the DUAB for Gary in 2009 and 2010, and the city filed a petition for similar relief in 2011. Those caps limit tax bills to 1 percent of a property's assessed value for homeowners, 2 percent for landlords and farmers and 3 percent for commercial properties.
A fiscal monitor said last year that, if Gary were forced to operate under the caps, it would only have enough money to pay the salaries of its police, firefighters and EMS workers.
Gary Controller Celita Green said last week the city would be forced to operate with a levy of $30 million if it didn't seek DUAB help. It's seeking approval for a levy of $41.1 million.
The combined 2011 budget for Gary's police, fire and EMS departments is about $25.6 million.
Clay's administration has balked for years at the idea of filing for bankruptcy, but it's not clear who will be mayor when the caps go into effect. Several people are already vying to take over Clay's job that year.
Among them is attorney Karen Freeman-Wilson, who said she will attend hearings where Charbonneau's bill is considered. She questioned whether an emergency manager should take over the duties of the city's elected officials.
"You just become a ceremonial mayor," Freeman-Wilson said. "Who wants to do that?"
Another is City Council member Ragen Hatcher, D-at large, said she has a proposed budget of about $40 million she said can be implemented in January 2012 with the tax caps in effect that will satisfy Gary's creditors.
"We won't be going back down to the DUAB," Hatcher said.