Governor defends tax plan amid shrinking state revenues

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

INDIANAPOLIS | The state's shrinking tax collections should not derail efforts to shift school and welfare costs off property taxes, Gov. Mitch Daniels said Friday morning.

State revenues have come in short of projections in five of the past six months, prompting House Speaker Pat Bauer, D-South Bend, to sound an alarm Thursday. Tax collections fell off pace by $42 million the past two months -- even after state analysts lowered revenue projections for the two-year budget cycle by $230 million in December.

"Caution is a good idea," Daniels told reporters. "But the right way to address that concern is not to back away from lifting this levy off the property taxpayers of Indiana. I still think that's fundamental."

The Republican governor wants to move $3.1 billion in child welfare and school operating levies to the state by eliminating $2 billion in state subsidies to local government and schools and by raising the state sales tax 1 percentage point, from 6 percent to 7 percent.

The plan represents a statewide property tax reduction of $1.1 billion. But the sales tax hike would raise only $930 million, so Daniels wants to tap state reserves to the tune of $80 million annually.

Bauer suggested the education levy swaps may need to be phased in over future years to prevent state government from taking on more financial responsibility than it can afford. Daniels said lawmakers instead should abandon efforts to steer state cash to pet initiatives, such as $15 million in annual film industry tax breaks approved Thursday.

"It would help if the Legislature would resist the temptation to throw money at a lot of other problems," Daniels said. "There are a lot of bills floating around right now that would spend a lot of money we probably ought not spend until we see more clearly what the national economy is going to do."

The governor also addressed the parade of local government officials who came to the Statehouse this week to protest budget cuts that would be forced by his proposed property tax caps. Hammond Fire Chief Dave Hamm warned that his department's "response time will worsen, and there will be deaths" if the city is forced to endure a projected $21 million in spending cuts next year.

Daniels said he's not surprised local officials chose to "to rattle the biggest saber you can and to hold up the specter of the worst sort of cuts." He said public safety cuts should be a "last resort."

But the Republican governor recognized some apprehension about his tax caps making it through the Legislature, a point raised by a series of online videos put together by his re-election campaign.