INDIANAPOLIS - The state Senate passed a modified version of Gov. Mitch Daniels' property tax relief plan late Tuesday.
By a vote of 33-14, the Republican-controlled Senate approved House Bill 1001, the wide-ranging package the House approved in a somewhat different form last month.
As amended by the Senate, the bill still raises the 6 percent sales tax to 7 percent to fund property tax relief. It would cap residential property taxes at 1 percent of assessed value.
That sets the stage for what is expected to be complex negotiations between the Senate and Democratic-controlled House on differing versions of the bill. The House had based the 1 percent property tax cap not on assessed value but on household income.
"This is Mile Marker 99 on a 100-mile road trip," Senate Tax Chairman Luke Kenley, R-Noblesville, said of the Senate's vote Tuesday.
By raising the sales tax to pay for property tax relief, Kenley said, the bill would immediately reduce taxes on homesteads.
The bill shifts a number of costs now covered by local property taxes - including child welfare, school-operating costs, teacher pensions and police and fire pensions - onto other state sources.
Moreover, the bill attempts to address concerns about funding shortfalls to school districts by providing $50 million each of the next two years to public schools, Kenley said.
"The vision is that dependence and reliance on property tax is no longer an appropriate way to fund local government," Kenley said. With the change to a new court-ordered assessment system, he said, there was a "disconnect" between the market value of property and taxpayers' true ability to pay.
"In dealing with those problems, we have tried to change the (revenue) mix for local government," Kenley said.
Reacting to taxpayer outrage at skyrocketing property tax bills last summer, lawmakers from the Senate and House held weeks of hearings. The governor announced his proposal to cap property taxes on homesteads, increase the sales tax and reform the assessment system Oct. 23.
The Senate's vote Tuesday will trigger conference-committee negotiations with the House to reach a compromise on the 900-page bill by the Legislature's March 14 deadline to adjourn.
Among Southwestern Indiana legislators, voting yes on House Bill 1001 were senators Vaneta Becker, R-Evansville, Lindel Hume, D-Princeton, and John Waterman, R-Shelburn.
Voting no were senators Bob Deig, D-Mount Vernon, and Richard Young, D-Milltown.
The vote came a day after the Senate deadlocked 23-23 on an amendment to House Bill 1001 to eliminate all 1,008 township assessors - something the governor has advocated - instead of keeping 44 of them.
Also on Tuesday, the House turned back a Republican attempt to restore the original version of Daniels' property tax caps within the state Constitution.
The House on Tuesday voted 50-49 against a proposal that would reinstate the original wording that a House committee removed last week. House minority Republicans lodged a protest that a Democrat, Rep. David Orentlicher of Indianapolis, did not vote Tuesday, even though he was at his desk.
As passed last month by the Senate, the proposal, SJR 1, would have amended the Constitution to declare that a homeowner's property taxes could not exceed 1 percent of a home's assessed value, something Daniels has advocated.
But last week, the House Ways and Means Committee chairman, Democratic Rep. William Crawford, changed the wording of SJR 1 to say property taxes would be capped at 1 percent of household income, not 1 percent of assessed value.
House Republicans blasted Crawford's change, saying it had not been studied and its property tax impact was unknown. House Democrats defended it, saying the change would protect senior citizens and homeowners on fixed incomes.
Tuesday, Rep. Randy Borror, R-Fort Wayne, tried to amend the SJR 1 further - basically, to take out Crawford's wording and reinstate the original version the state Senate passed.
In both versions, the property tax caps would be 2 percent of assessed value for rental properties and 3 percent of assessed value for business properties. The difference is whether the 1 percent residential cap would be based on household income or assessed value.
By a razor-thin margin, the House defeated Borror's proposal, meaning SJR 1 is now eligible for a third-reading vote in the House.
The House is expected to vote on SJR 1 by Thursday.