INDIANAPOLIS (Reuters) - Indiana state legislators will work to amend laws that allow local governments to stash hundreds of millions of dollars in reserves, even as the state attempts to boost its lagging economy and prevent cuts in education spending, lawmakers said on Sunday.

Officials confirmed that Indiana townships, which are micro units of government that range in size from hundreds to several hundred thousand residents, had retained nearly $300 million in cash reserves at the end of 2009.

Estimates have put that number north of the $300 million range for 2010, although no official numbers are available.

It is far better to accumulate money than it is to spend it, said Jeff Espich, chairman of the House Ways and Means committee, but he intends to change the tax laws this year to incorporate increased flexibility.

“The townships put in place the maximum tax the law permits. Then they get this money and save it. We need to change the law so the townships don’t have to levy at the rate of inflation and it’s not tax it or lose it,” Espich told Reuters.

The cash is evidence of too heavy taxation and the townships could redistribute the cash in the form of lower taxes or charitable contributions, critics say, but some politicians believe the better alternative is to enact more flexible policy.

Espich said he would favor decreasing taxes but not using the funds for charitable giving.

“We are being eaten alive as a state from charitable or welfare spending. We need to keep taxes low for Hoosier families and let them decide on their own how to spend it,” Espich said.’

Indiana Gov. Mitch Daniels said he favors merging the funds at the county level and removing townships altogether.

“If the funds are still far in excess of expected needs, I’d recommend they suspend collections until the reserves subside to a reasonable level of safety,” Daniels said in an emailed statement on Sunday.

In a sample of almost 500 townships surveyed by the Indianapolis Star, 226 finished 2009 with cash balances at least two times what they spent during that year. From the same group in 2007, there were 161 such townships.

State Sen. Luke Kenley, Chairman of Senate Appropriations Committee, told Reuters he believes the township governments are mostly unnecessary but each should decide, by referendum, whether or not to fold itself into a county’s jurisdiction.

In the 2011 State of the State address last week Governor Daniels lambasted townships as an antiquated and inefficient structure of government.

“They are sitting on hundreds of millions of dollars in reserves. Some have eight years of spending needs stashed in the bank, yet they keep collecting taxes. Some townships are awash in money, while the township next door does not have enough to provide poor relief to its needy citizens,” Daniels said.