INDIANAPOLIS - Now that the Legislature has passed a complicated, massive property tax relief and restructuring plan, supporters say it will protect homeowners against big property tax increases, while critics warn of its impact on schools and local governments.
With a Friday deadline for adjournment, the Indiana House and Senate both approved House Bill 1001 that would cap residential property taxes at 1 percent and make other changes, and also passed Senate Joint Resolution 1, which would amend the property tax caps into the state constitution.
Republican Gov. Mitch Daniels, who had advocated for the package, said Friday he would sign the bill into law.
It contains several modified parts of a plan that Daniels proposed Oct. 23, including raising the sales tax from 6 percent to 7 percent beginning April 1 to help pay for part of the property tax relief. The legislation would also start the process of eliminating township-level trustees from all but 42 of the state's 1,008 townships and transferring their duties to county assessors.
Lawmakers and the governor had been under pressure to reform the tax and assessment system since July, when several large taxpayer protests broke out over greatly increased property tax bills in Indianapolis and elsewhere.
Daniels called the passage a historical win for taxpayers that would end an era of "business as usual" for Indiana's property tax system. He had warned lawmakers that he would call them back into special session if they failed to pass a plan that provided immediate, significant and lasting property tax relief and reform by the adjournment deadline.
After House-Senate negotiators reached an agreement Thursday, House members had only a short time to review the 662-page relief bill before voting Friday morning. Representatives debated House Bill 1001 for more than an hour Friday but spent only minutes debating SJR 1, which encompassed some of the same concepts.
"I want everyone to recognize that it's the good, the bad and the ugly, it's gain and it's pain," state Rep. Russ Stillwell, D-Boonville, said. He was among 15 Democrats and one Republican in the narrowly divided House who voted against the bill.
Evansville Mayor Jonathan Weinzapfel said the city did not see the major changes to the legislation that it had hoped for to avoid possible cuts in public safety, which accounts for 75 to 80 percent of the city's overall property tax budget.
"From the information I have received, it appears that the city will need to cut $3.2 million from its budget in 2010. This represents 5.4 percent of our property tax levy," Weinzapfel, a Democrat, said Friday. "Nonetheless, we will move forward and continue to focus on ways that we will make our city and region grow and prosper. This bill makes our job a lot more difficult."
State Rep. Suzanne Crouch, R-Evansville, voted for it, saying it provides immediate and permanent relief, as well as exemptions for senior citizens on fixed incomes.
"You can choose to look at this bill as glass half-empty or half-full. I choose to look at it as a glass half-full," she said.
The Senate had a similarly vigorous debate on both the bill and the amendment. Sen. Bob Deig, D-Mount Vernon, called the plan a "Band-Aid" and predicted major problems that the Legislature will need to address next year.
Deig said his biggest worry is that schools and local governments - especially those that already operate on a frugal budget - won't have enough revenue.
Among the highlights of the package:
It will provide additional homeowner relief this year by adding $620 million from the increased sales tax revenue to $250 million already allocated for homestead credits in 2008.
Homeowners' tax bills this year should be cut by about 30 percent on average from last year. When fully implemented in 2010, the plan would reduce homeowners' bills by an average of nearly 28 percent that year from 2007 levels.
The caps will be phased in over the next two years. Homeowners' tax bills will be capped at 1 percent of their homes' values in 2010, with 2 percent limits for rental property and 3 percent caps on property taxes.
The tax caps are projected to save property taxpayers about $524 million when fully implemented, but that is money schools and local municipalities would not get that year. The compromise plan sets aside $120 million for schools over the next two years to soften the caps' impact.
Proponents said the caps would give taxpayers an assurance that their bills could be only so much, but opponents said it would force many schools and local governments to cut services or raise local income taxes to offset shortfalls.
Under another major component of the plan, the state will absorb all school operating costs, four child welfare levies, local juvenile detention costs, local governments' debts for pre-1977 pension plans for police and firefighters, and property taxes used to subsidize costs hospitals incur treating the indigent.
Senate Tax Chairman Luke Kenley was the Senate Republicans' top negotiator on the property tax restructuring deal. Kenley of Noblesville, said the property tax reform package will be a "revolutionary change" for both taxpayers and local government that will "propel us into the 21st century as a leader across the nation as far as how tax systems should be constructed."
Courier & Press staff writer Mark Wilson and the Associated Press contributed to this report.