Lawmakers Say Baker Tilly Has Financial Incentive to Overstate SEA 1 Losses
Two state lawmakers told a property tax forum in Warsaw on Sept. 29 that fiscal advisor Baker Tilly overstated how much Senate Enrolled Act 1 would cost local governments.
Baker Tilly is the same firm that presented a tax forecast to the Blackford County Council one day earlier. That forecast showed the county facing a budget squeeze after 2030.
Sen. Chris Garten, R-Charlestown, told the crowd that local units using Baker Tilly should fire the firm. Rep. Craig Snow, R-Warsaw, said fiscal advisors profit when local governments take on debt.
What Blackford County Was Told
Jason Semler of Baker Tilly Municipal Advisors presented the county's forecast at a Sept. 28 special council meeting. Though the meeting mostly focused on local income taxes (LIT), county property taxes were discussed and projected to increase in losses for the county's collectable taxes over the next few years due to Indiana's circuit breaker. Semler said Blackford County gets "hit pretty hard" once the new rules take full effect around 2030.
What the Lawmakers Said
The forum drew about 230 people to the Zimmer Biomet Center Lake Pavilion in Warsaw, according to the Times Union. Sen. Ryan Mishler, R-Mishawaka, led the event to present his own property tax proposal. Garten and Snow joined him on the panel.
A Greene County property investor asked the panel whether counties had lost 20% to 30% of their revenue because of SEA 1. He said courthouse staff in his county had told him to expect cuts in that range.
Garten answered first. He said about 80% of local governments contract with Baker Tilly.
"You should fire them," Garten said.
Garten said Baker Tilly built its SEA 1 property tax projections on 0% growth in assessed values.
"That's never happened in Indiana history. Ever," Garten said. "Zero percent growth is not a truth."
He said that assumption made local budgets look far worse than they would be with normal growth.
Garten pointed to one of the largest cities in his district. He said that city warned of public safety cuts. He said it is actually collecting about $500,000 more in property taxes and about $750,000 more in local income tax under SEA 1. He did not name the city.
Garten said local governments are paying a firm that is "financially incentivized" to describe SEA 1 as a problem. He said state staff projections have been accurate.
"The reality is, it's a bogus product," Garten said.
Snow on Debt and Referendums
Snow said lawmakers tried last year to hold Baker Tilly and other fiscal advisors accountable and did not succeed.
He described a meeting with Baker Tilly partners. He said he told them fiscal advisors have been the biggest winners in Indiana since 2001.
Snow said advisors tell local units how bad things will be and urge them to prepare referendums and bring in more money. He said advisors push local governments to put more debt on the books.
"They make money when you have a bond," Snow said.
Snow said that practice is common in private business. In the public sector, he called it "egregious."
Snow said he did not object to all debt. He said he uses debt in his own business. He said some local governments do not know how to manage it, and Baker Tilly makes that worse.
Snow said he has talked with House Ways and Means Chairman Jeff Thompson about legislation to hold fiscal advisors accountable. He said he plans to try again in the coming session.
How Baker Tilly Gets Paid
Baker Tilly's own contracts disclose the conflict Snow described.
Baker Tilly Municipal Advisors does both kinds of work for Indiana local governments. It builds budget and tax forecasts, and it advises on bond deals.
A March 2023 engagement letter between Baker Tilly Municipal Advisors and the Whitestown Parks and Recreation Department lays out the firm's standard disclosures. The letter came from the firm's Indianapolis office.
On how the advisor is paid, the letter states: "The fees to be paid by the Client to BTMA are or may be based on the size of the transaction and partially contingent on the successful closing of the transaction."
The letter then states: "Although this form of compensation may be customary in the municipal securities market, it presents a conflict because BTMA may have an incentive to recommend unnecessary financings, larger financings or financings that are disadvantageous to the Client. For example, when facts or circumstances arise that could cause a financing or other transaction to be delayed or fail to close, BTMA may have an incentive to discourage a full consideration of such facts and circumstances, or to discourage consideration of alternatives that may result in the cancellation of the financing or other transaction."
A second affiliate, Baker Tilly Wealth Management, can be hired to invest the money after a bond sells. On those fees, the letter states: "The fees paid with respect to investment services are typically based in part on the size of the issuance proceeds and Baker Tilly may have incentive to recommend larger financings than would be in the Client’s best interest."
The letter describes how the firm handles these conflicts: "BTMA manages and mitigates conflicts related to fees and/or other services provided primarily through clarity in the fee to be charged and scope of work to be undertaken and by adherence to MSRB Rules including, but not limited to, the fiduciary duty which it owes to the Client requiring BTMA to put the interests of the Client ahead of its own and BTMA’s duty to deal fairly with all persons in its municipal advisory activities."
Federal rules require these disclosures. MSRB Rule G-42 requires municipal advisors to disclose in writing any conflicts of interest arising from pay contingent on the size or closing of a transaction.
Sources:
About our reporting: The Blackford Ledger builds its government coverage from official public records, and every report is reviewed by an editor before publication. Read our Editorial Policy & Corrections or request a correction.