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INDIANAPOLIS - Gov. Mitch Daniels used a live address Tuesday evening to pitch a three-tier property tax plan to Hoosiers that includes a sales tax increase, future limits on homeowner property tax bills and mandated restraints on local spending.
Daniels said the plan would result in an overall property tax cut starting next year of about one-third for the average homeowner, although his staff cautioned that the cut would vary dramatically around the state depending on local circumstances.
“It is not acceptable that any citizen cannot afford to keep the home they may have worked all their lives to buy,” Daniels said during the five-minute address from his office. “The status quo is not tolerable, and we must act to fix it.”
Democrats gave the governor a rather positive reception, noting the plan is a good starting point for significant property tax change.
“After 3 1/2 years I want to welcome the governor to the debate and the concern over property tax,” Democratic House Speaker Pat Bauer said. “I think we're going to get property tax relief. It's just how much we can do.”
The centerpiece of Daniels' plan is implementing a 1 percent circuit breaker for owner-occupied homes in Indiana, which means a homeowner's property taxes could never be more than 1 percent of the home's assessed value.
According to the Daniels administration, 55 percent of Indiana homeowners pay property taxes in excess of 1 percent of their home's values.
State lawmakers have already approved a 2 percent circuit breaker for homeowners starting in 2008. Daniels' 1 percent cap would not go into effect until 2009.
Also under Daniels' plan, residential and rental properties that do not have a homestead exemption would fall under a 2 percent cap and business property would be capped at 3 percent starting in 2009.
Daniels also wants lawmakers to write this change into the Indiana Constitution to ensure its permanence.
While circuit breakers help taxpayers, they mean less money for local government. For instance, if a $100,000 home has a $1,500 tax bill, under Daniels' plan the owner would pay $1,000. That means local units of government either have to cut $500 worth of spending or look to other sources for the money, such as local option income taxes.
The estimated hit on local revenue in 2009 is $160 million statewide.
Other highlights of the plan include:
•Plowing $950 million in property tax relief into an expanded homestead credit to help with 2008 bills before the caps and other changes could be implemented. The majority of that money would come from increasing the sales tax from 6 percent to 7 percent.
•Shifting $928 million from the sales tax increase in 2009 to help the state take over the balance of school operating, school transportation and child welfare costs currently financed by local property taxes.
The state also would use about $2 billion in property tax replacement credits currently being used to give homeowners relief to assume those costs, as well as $100 million a year in gambling taxes and $80 million from the state surplus.
•Limiting total local spending in a county every year to the county's average personal income growth during the previous six years - usually between 2 percent and 5 percent - unless approved by taxpayers in a referendum.
•Requiring voters to approve all significant local construction projects, such as new school buildings and jails, in a referendum rather than the current dueling-signature process.
•Eliminating all elected assessors in the state. Instead, each county council would appoint a single professional assessor in each county.
“Immediate relief for every homeowner; a 1 percent permanent cap on every homeowner's taxes; an end to unfair and inaccurate assessments; real limits on local spending,” Daniels said. “As bold as these changes would be, I am very optimistic of achieving them.”
Daniels said his administration reviewed numerous property tax plans from around Indiana and other states looking at similar issues. Daniels also considered other tax increases for the revenue-neutral state swap of levies, from income taxes to sales tax on services to real estate transfer fees.
“Before settling on the cap-and-cut approach, I looked hard at the idea of totally eliminating property taxes in our state,” the governor said. “Much as I would like to have taken that route, the risks to our schools, to small business and to our economy generally, dissuaded me.”
Daniels also spent much of his speech focusing on better discipline and local control on spending.
“Today, no one is responsible; each local taxing district sets its budget and sends you its part of the bill, which is only added up when it hits your mailbox,” he said. “We should strengthen taxpayers' direct say in local decisions, especially the borrowing for new schools and other construction, which has been the biggest driver of property tax increases.”
Bauer said passing a sales tax increase in an election year might be a chore, noting the sales tax hurts the middle class and poor more than the wealthy.
“The big question is … who wins and who loses?” he said.
Bauer said Democrats supported the circuit breaker idea in the past as well as the state taking over child welfare costs. And he said it is clear the assessment process needs to be streamlined.
Rep. Win Moses, D-Fort Wayne, called the governor's proposal ambitious.
“This is so complex that it is going to take some deep analysis. I'm glad he is focused on it and is giving it his full attention,” he said. “I'm not sure this is the solution, but we've got a couple months to work on it.”
Senate President Pro Tem David Long, R-Fort Wayne, and other House and Senate Republicans declined to comment pending an event today.
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