INDIANAPOLIS – A key Senate fiscal panel voted 10-2 Thursday for a bill doubling alcohol taxes statewide and funneling some of that money – as well as existing local food-and-beverage tax revenue – to future capital-improvement projects in the area.

But the likelihood of passage is far from certain.

Democratic House Speaker Pat Bauer said an increase in the alcohol tax will be "very difficult to pass," and Gov. Mitch Daniels said that provision would be "one good candidate for changing."

"If it gets to the point that I don’t think it’s good in the public’s interest, I’ll say so, but for the moment, I think they have made a good start, and maybe with some further modifications, there may be a satisfactory outcome here," he said.

House Bill 1604 started out as a simple measure to create an Allen County-Fort Wayne Capital Improvement Board.

But on Thursday, senators amended the legislation to include an alcohol tax hike as one way to stem a $47 million shortfall Indianapolis has in operating its sports arenas.

All cities and towns would share in a portion of the new revenue from the increased alcohol taxes, about $42 million statewide. Fort Wayne’s expected cut would be about $2.6 million.

Fort Wayne Mayor Tom Henry said he would need more time to examine the proposed alcohol tax increase. Although it would generate needed revenue for cities across the state struggling with loss of revenue from property tax caps, he was concerned about burdening residents with taxes and whether it could hamper small businesses that serve alcohol.

"We need to make sure we don’t hit the consumer too hard," he said.

His wife, Cindy Henry, owns the Green Frog Inn, and Henry said he expects to hear from her and others about the proposal.

The Senate Appropriations Committee heard 4 1/2 hours of testimony in a small room while hundreds of people filled the halls outside the hearing.

Much of the testimony – including from executives for the Indianapolis Colts and Indiana Pacers – was about how a vibrant downtown Indianapolis with a strong convention presence would aid the entire state.

But winemakers, brewers and others associated with the restaurant and bar industry also expressed anxiety about the statewide alcohol tax increase.

"This is going to have a severe impact," said Dan Adams, owner of Winzerwald Winery in Perry County.

Adams said the tax, which is paid at the wholesale or distribution level instead of at the point of purchase, will cost him about $2,400 a year because he won’t be able to raise prices without losing business.

Alcohol taxes are figured per gallon, and the proposed increase would mean an additional 26 cents per case of beer; 9 cents per bottle of wine and 54 cents per fifth of liquor. Indiana alcohol taxes haven’t been increased since 1981.

"What we find is many, many cities are finding themselves in dire straits," said Bluffton Mayor Ted Ellis during his testimony in support. "We really need some relief."

But Sen. Lindel Hume, D-Princeton, voted against the bill because he questioned how Indianapolis got into such a big hole and whether legislators had all the information needed to make a decision.

"I quite frankly don’t believe this is the time to go through some knee-jerk policy-making," he said.

In addition to the alcohol tax amendment, the House bill’s provision on the local capital improvement board was changed at the request of Senate President Pro Tem David Long, R-Fort Wayne.

Originally, the bill would have diverted all food-and-beverage tax money not used for debt payments at Memorial Coliseum to the new board to spend on joint capital projects.

But Coliseum Manager Randy Brown said some of that money is needed for capital repairs and maintenance at the Coliseum.

The amended bill lets the board keep half the excess, currently is about $400,000 annually. But that amount will grow to more than $2 million annually in 2011 after a smaller bond is retired.

Brown said the amendment satisfies his concern.

The bill also prohibits the food-and-beverage tax money from being used on existing projects such as Harrison Square or for operational costs.

Long included this restriction because the goal of the new board is to focus on future capital projects that further economic development in the county.

The amended bill would direct half of the city’s take from the proposed alcohol tax increase – about $1.3 million – to the capital improvement board. The other half would go to the city.

Henry said he is unsure whether the city’s portion of extra alcohol tax money would be used as a safety net for the Harrison Square development.

The public stadium and garage, near completion, were expected to rely on taxes from a hotel at the site, which has been delayed.

nkelly@jg.net

Benjamin Lanka of The Journal Gazette and The Associated Press contributed to this story.