INDIANAPOLIS The Democratic speaker of the Indiana House said Thursday the state might not be able to afford to implement all of Gov. Mitch Daniels' property tax relief plan at once because of the sluggish economy's effect on state revenues.
"You have to recognize we have less revenue than we did when we started," House Speaker Patrick Bauer said during a news conference with reporters.
Bauer, D-South Bend, said he believed the state could still raise the sales tax from 6 percent to 7 percent and use the revenue to cut homeowners' property tax bills by $1 billion, through a 35 percent homestead credit. But Bauer said the nation was in a recession, and the state might be unable to absorb all local levies for school operating and transportation costs and child welfare expenses beginning next year.
Daniels' proposal calls for doing that, and the Indiana House passed a bill to do that, but Bauer now says taking over some of those costs might have to wait.
"I believe we can do $1 billion of property tax cuts. It is regrettable that the recession has hit us and it jeopardizes some of the things we want to take over. But we can set that in motion to take it over at a time when the economy recovers," he said.
The Daniels administration is sticking with a statement by the governor that slower than expected revenue growth is reason for exercising "great caution in state spending, which the state is already doing."
"It's not a reason to give property taxpayers less relief than he has proposed," the statement said.
Current state law already directs $250 million for home-owner property tax relief this year. Daniels' plan calls for raising the sales tax this session, and using the $700 million it is projected to raise through the rest of 2008 for additional homestead credits this year.
Taking over the school and welfare levies would cost the state about $3 billion. Under Daniels' plan and the House bill incorporating it, the state would assume those costs beginning next year. It would largely pay for them with revenue from the sales tax increase and using about $2 billion the state now sends to local governments to keep tax bills lower.
Bauer suggested the state could still use the proposed penny increase in the sales tax to provide homeowners with $1 billion in tax credits next year. But he said removing the levies, especially picking up the remaining 15 percent of property taxes used to help fund school operating costs, might have to wait until better economic times.
"It's only the time frame that may have to change," Bauer said.
Senate Tax Chairman Luke Kenley, R-Noblesville, is expected to propose changes to the House-passed tax relief bill. He would not say Thursday what the changes would be, but said the plan would include a more cautious approach to ensure that the state could afford to pay for any levies it takes over.
"If we are really committed to property tax relief, we push ahead because we're always going to have these changing economic circumstances," he said. "We need to get away from property taxes whether in great times or recessionary times."
The version passed by the Democratic-controlled House would eliminate all 1,008 township assessors. But the version passed in the Republican-controlled Senate would keep assessors in the state's 44 largest townships, those with 15,000 parcels or more. "The art of legislation is compromise," Bauer said. "We will be negotiating between (keeping) 44 and zero (assessors)."
Officials from schools, city governments and counties all have testified at recent hearings of the House Ways and Means Committee about the financial impact of the Senate version of the Daniels plan. Mayors and municipal employees warned, for example, that the property tax "circuit breakers" in the plan would so limit their revenue that it could force cuts in public safety.