INDIANAPOLIS -Restructuring property taxes is the highest priority for Indiana legislators as they returned to Indianapolis on Tuesday for the opening of the 2008 General Assembly session.
But a vocal contingent of taxpayers used the day to tell lawmakers they want property taxes repealed altogether.
A state Senate committee Tuesday heard four hours of testimony on a proposed state constitutional amendment that would eliminate property taxes on homesteads and require governments to collect their revenues elsewhere.
David Coker, chairman of the Vanderburgh County Taxpayer Alliance, was among a long list of witnesses, many from grass-roots, anti-tax groups, favoring the repeal amendment.
"I think they are skeptical. I think they're really in a box, to be honest with you," Coker said of senators after the hearing. "This is one of the biggest things they've ever had to deal with, and they realize they've made a mistake; but I'm not sure that anybody is clear on how they get out of the mess that they created for themselves when they abolished the inventory tax. I think that's part of the reason that they would sit there for four hours and listen to us."
The phase-out of the inventory tax, combined with a new court-ordered assessing system called trending and mistakes implementing it are being blamed for causing residential property taxes to increase, on average, 24 percent statewide in 2007.
Daniels' top priority is property taxes
Restructuring the property tax system has been the top priority of Republican Gov. Mitch Daniels and lawmakers of both parties in the Legislature for the 2008 session.
Senate authors of the state constitutional amendment, SJR 8, told the Senate Rules Committee that they wanted to change the proposal to exempt only homeowners. Sen. Mike Young, R-Indianapolis, said one scenario for replacing the revenue was to extend the state's sales taxes onto services, with a possible exemption on medical expenses.
With a large crowd expected, the hearing on SJR 8 was moved from a small committee room to the larger Senate chamber and broadcast live over the Internet.
Senate President David Long, R-Fort Wayne, did not take a vote on the proposal Tuesday. Long and other legislative leaders - along with Daniels - have said that proposals to eliminate property taxes are unrealistic, given the amount sales and income taxes would have to be raised to replace them.
Diane Powers, a fiscal analyst for the Legislative Services Agency, told the Senate Rules Committee that property taxes are projected to bring in about $6.9 billion in fiscal year 2009. She projected that:
If sales taxes were used to eliminate property taxes completely, the rate would need to be increased from 6 percent to 13.5 percent. To exempt homeowners only, the rate would need to be raised to 9.2 percent.
If the income tax alone was used to eliminate all property taxes, the rate would have to be raised from 3.4 percent to 9.4 percent. To exempt just homeowners, the new rate would need to be 5.8 percent.
Replacing property taxes with a 50-50 combination of income taxes and sales taxes would mean a new income tax rate of 6.2 percent and a sales tax rate of 9.7 percent. Exempting homeowners only would mean a sales rate of 7.6 percent and income rate of 4.55 percent, Powers told lawmakers.
Anti-tax groups trying to apply pressure
Trying to put pressure on lawmakers were the leaders of two of Indiana's most prominent anti-tax groups: Eric Miller of Advance America and John Price of the Indiana Property Tax Alliance. Both are conservative activists, and both have previously run for statewide office - unsuccessfully - as Republicans.
At a Statehouse rally Tuesday, Miller and Price unveiled a plan that they said could eliminate property taxes - by raising the sales tax by 2 percent and the income tax by 1 percent, and by limiting annual local and state spending to the inflation rate and population growth. The money saved by limiting state spending would accumulate over the years to be used in lieu of property taxes, they said.
Coker said he was impressed by the turnout. "I think this movement is gathering momentum. And I think it's grown to such an extent that they can no longer ignore it, and they're going to have to do something," he said.
Before the rally, however, a different Senate committee pushed through several bills dealing with property tax restructuring, not repeal. Among other things, they passed Senate Bill 18, which would require construction of new schools, libraries and most other public facilities to be decided first by voters in referendums.
Lobbyists representing school superintendents and school officials testified against the referendum bill, however, saying the current petition-remonstrance system works fine and should not be replaced.
The Senate committee voted 9-3 to pass Senate Bill 18, and it moves to the full Senate. More hearings by House and Senate committees are scheduled this week and next as state lawmakers try to plow through the complicated property-tax legislation before their March 14 adjournment date.
The Associated Press contributed to this story.