Funding Swaps

Instead of assuming $500 million in local school transportation costs, as Gov. Mitch Daniels has proposed, the Senate plan unveiled Tuesday would have the state spend $386.4 million a year on the following categories. Here's the breakdown:

$123.6 million in local school pension debt

$90 million in local pensions for police and firefighters hired prior to 1977

$50 million to offset budget cuts schools face under proposed tax caps

$22.8 million in juvenile incarceration costs now covered by counties

$100 million for additional tax credits to homeowners

Senate, Daniels' plans compared

How the Senate tax relief blueprint advanced Tuesday squares up with the plan Gov. Mitch Daniels released last fall.

Impact

Daniels: 33 percent cut in homeowner property taxes.

Senate: Cut homeowner taxes by at least a third, or perhaps in half if counties OK income taxes.

Tax Hikes

Daniels: Penny state sale tax hike, from 6 percent to 7 percent.

Senate: Same.

Income

Daniels: County option taxes available as "last resort."

Senate: Counties encouraged to adopt 0.5 percent income tax for property tax relief. If they do, they could impose 0.25 percent income tax to fund public safety -- police, fire, etc.

Circuit Breaker

Daniels: Constitutionally cap tax bills at 1 percent of assessed value for homeowners, 2 percent for rental properties and 3 percent for businesses, beginning in 2009.

Senate: Phase in the cap over two years. The circuit breaker would be 1.5 percent next year for homeowners, 2.5 percent for landlords and 3 percent for businesses. Caps would go to 1, 2 and 3 percent in 2010.

Assessment

Daniels: Get rid of all 1,100 elected assessors -- have each county appoint one assessor.

Senate: Keep the 92 county assessors and 44 local assessors in townships that handle more than 15,000 parcels.

Construction

Daniels: Let voters decide via referendum whether costly school and local government projects go forward.

Lawmakers: The same, but referendum-approved projects would not be subject to tax caps.

Cost Shifts

Daniels: Have state government assume $3 billion in child welfare and school operating costs.

Senate : Have state pick up about $2.5 billion in school and welfare expense. But instead of assuming $500 million in school transportation costs, state would take on $340 million in juvenile incarceration costs, teacher pension bonds and municipal police and fire pensions for employees hired before 1977.

SPENDING CONTROLS

Daniels: Limit local government spending increases to annual growth in personal income (2.9% in Lake, 4.6% in Porter).

Senate: No hard spending caps, but repeal 18 property tax levy appeals local government now use to boost spending, including the annexation appeal Valparaiso used last year.

SCHOOLS

Daniels: Statewide, schools would lose about $170 million a year to his tax caps.

Senate: State would spend $50 million a year to offset school cuts caused by phased-in caps.

BY PATRICK GUINANE, Times of Northwest Indiana
pguinane@nwitimes.com

INDIANAPOLIS | State Senate leaders put their stamp on property tax relief efforts Tuesday, adding to the mix local income tax options that most counties, including Lake and Porter, rejected last year.

The proposal retains the core aspects of Gov. Mitch Daniels' plan to reduce homeowner property taxes by roughly a third, in part by raising the state sales tax a penny, from 6 percent to 7 percent. But Republican Senate leaders want local officials to contribute to the cause, saying most homeowners could see their annual tax bills cut in half if counties impose a 0.5 percent income tax dedicated to property tax relief.

The Senate plan, now contained in House Bill 1001, also would phase in over two years the property tax caps proposed by Daniels. The move would give local government until 2010 to face the full brunt of $619 million in spending cuts that would be forced by the caps.

Lake County by far remains the hardest hit by the so-called circuit breaker, with local government and schools set to lose $205 million next year under the Senate plan and $262 million in 2010. The proposed phase-in would cost Porter County $510,000 next year and $8 million in 2010.

Counties that impose a property tax relief income tax of at least 0.25 percent could, under the Senate plan, hike the tax another 0.25 percent to offset police and fire budget cuts caused by the property tax caps.

Lake County would remain under last year's legislative mandate to impose a 1 percent income tax for property tax relief. But senators have included the three new income tax distribution formulas under review by the Lake County Council.

The Senate plan, which cleared committee Tuesday on a 9-0 vote, also would create a "distressed unit" appeal board to hear funding pleas from local governments ravaged by the tax caps. Senate Tax Chairman Luke Kenley, R-Noblesville, said the state panel, which he likened to a bankruptcy court, could help Whiting cope with an expected loss of roughly $2.5 million.

Another new wrinkle added Tuesday would set aside $50 million a year to restore some of the funding schools would lose to the phased-in tax caps. Statewide, those school losses are projected at $91 million next year and $189 million in 2010.

"Schools don't have a way to make up their losses under the circuit breaker," Kenley said. "In the Senate, for the first time, we are recognizing that's an issue."

The Senate plan drops plans to double the state income tax deduction for renters and boost by 50 percent the earned-income tax credit, a move designed to benefit lower-income families. Both were added by the Democratic-controlled House.

"I really think it's a much more realistic plan," said Sen. Sue Landske, R-Cedar Lake. "We really do have the money to fund this plan. The plan that came over from the House was a little over budget."
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