BY PATRICK GUINANE, Times of Northwest Indiana
pguinane@nwitimes.com
INDIANAPOLIS | A proposed income tax could force Lake County taxpayers to pay tens of millions more for property tax relief promised by Gov. Mitch Daniels.
State lawmakers last year decided to freeze most local government budgets until Lake County imposes a 1 percent local income tax and uses all of the proceeds to reduce property taxes. But now legislators are weighing property tax caps that would undercut the intent behind the income tax mandate.
A Times analysis found that nearly two-thirds of the $86.6 million generated by a 1 percent Lake County income tax would go to pad local government budgets -- not provide new relief -- if lawmakers approve Daniels' property tax caps.
The Republican governor want to limit homeowner bills to 1 percent of assessed value, or $1,000 on a $100,000 home. Landlords would get a 2 percent cap and businesses a 3 percent limit.
The so-called circuit breaker would provide taxpayer relief by restricting the property tax revenue that flows to local government, with Lake County expected to lose a staggering $262 million by 2010. But the spenders would get $56 million of that back if Lake County adopts a 1 percent income tax and steers all of the proceeds to homeowner relief.
"It's a disaster. Really the only winners are the government units that are able to pick up a few extra bucks," said Lake County Councilman Larry Blanchard, R-Crown Point. "I've been trying to explain it now for months. It is difficult to understand."
The income tax money would cut property taxes, but in doing so it would push many homeowner bills below the governor's 1 percent cap. That means cities, townships and county government would lose less of their budgets to the cap.
Simply put, the income tax would short circuit the circuit breaker, giving local government more money to spend.
Blanchard was the most vocal opponent of the income tax when it was defeated by the council last year. But he and others expect the unpopular tax to resurface later this year, especially if legislators approve the governor's property tax caps.
"It's really a conundrum," said state Rep. Charlie Brown, D-Gary. "To help one area you've got to add a tax, but without a doubt we can't survive in certain areas of Lake County without that."
Gary is expected to lose nearly $47 million, or roughly half the city budget, if the governor's tax caps become law. A county income tax dedicated solely to homeowner relief would restore about $4.4 million of those cuts, according to a Times analysis of estimates provided by the Legislature's nonpartisan forecasting arm.
But the figures generated by the Legislative Services Agency don't account for three new income tax distribution options advancing through the General Assembly. Those formulas would give Lake County landlords and businesses a share of the property tax breaks generated by an income tax, a move that would steer more budget relief to northern cities racked by the tax caps.
"Gary, Hammond and East Chicago have insurmountable numbers," state Rep. Chet Dobis, D-Merrillville, said of estimates showing the three cities losing a combined $98 million to the proposed tax caps. "(But) there is no question in my mind that every unit of local government in Lake County will have to cut."
A county income tax could lessen the severity of those cuts, perhaps sparing municipal jobs and warding off fee hikes to cover trash collection and other city services. A new tax to offset an old one is hardly a taxpayer's dream, but one legislative fiscal leader argues an income tax would bring a measure of equity to property tax-heavy Lake County.
"If you have to pay it on a income tax at least you had income and you had some ability to pay," said state Sen. Luke Kenley, a Republican from Noblesville.