STATEHOUSE DISPATCH: Politicos set framework for debate over property taxes

November 26, 2007

Lawmakers returned from their respective districts across the state for Organization Day activities Nov. 20, with many already weary of having their ears bent by constituents frustrated over property taxes.

Instead of finding some respite in Indianapolis, they were greeted at the Statehouse by protests from both citizen activists and organized interest groups-such as the Indiana Farm Bureau-seeking substantive property tax reform and not simply another round of short-term property tax relief.

The Libertarian Party of Indiana even bought Indianapolis radio time to preach their solution to lawmakers: Simply cut spending.

The desired result varies among the suitors, but those who seek the elimination of the property tax are destined to be disappointed, even as leaders of assorted factions of the abolition movement and several of the other coalitions involved in the fight battle for pre-eminence on that front.

Over the next few weeks, assorted House and Senate committees will take the unusual step of holding hearings-in Indianapolis and on the road across the state-on assorted pieces of various property tax reform packages, with the objective being expedited consideration of the legislation when they return to town Jan. 8 for the 2008 session.

The package proposed by Gov. Mitch Daniels essentially sets the floor for homeowner relief. He proposed an approximate one-third cut in property taxes. That bar was effectively raised, however, when Sen. Luke Kenley, RNoblesville, and his Commission on State Tax & Financing Policy unanimously recommended a package that centered on a 50-percent property tax reduction for homeowners. On the eve of Organization Day, Rep. David Orentlicher, D-Indianapolis, served up some flesh on the bones of a proposal he had floated earlier in the summer, with a 62-percent property tax cut and, unlike the other proposals, offering 2007 relief for homeowners.

The assorted serious legislative proposals upping the ante almost guarantee that Daniels will be forced on the defensive about his plan offering the least relief-or must go on the offensive about the way those seeking greater property tax relief seek to fund their initiatives. He's already made it clear that abolition proponents aren't being realistic about the math when it comes to recouping the funds lost when they allow the property tax to disappear.

While the bar keeps being raised in a game of policy "chicken," total elimination of the property tax continues to be off the legislative table. Even sympathetic lawmakers are unwilling to raise (or extend) sales taxes and income taxes to the politically unpalatable levels needed to replace property taxes, and to change the burden that would result from such a radical shift.

There is a growing comfort level with the governor's proposed 16.66-percent sales tax increase (even the other options seem to focus on this or a sales tax expansion) and local tax options kicked around. There is, however, considerable room for tinkering around the margins.

But the fine-tuning of the proposals on the table will not be enough for abolition proponents, business and agricultural interests that see the property tax unfairly (and perhaps unconstitutionally) shifting from residential homeowners to their assorted constituencies, and for school leaders and local government officials.

School districts and governmental units foresee their hands being tied as they seek the financing needed for worthy initiatives; anticipate lengthy delays resulting from proposed voter referenda; dread micromanagement from the county tax review boards already slated to form in another year; and turn their noses up at local income tax hikes.

So between now and March 14, everyone with a stake in the process will be scrambling to find public support, backing from the governor, money to pay for their proposals, and votes to pass the plans in the House and Senate.

While the initial committee deliberations are likely to be fairly noncontroversial, some political sensitivities may be offended by reopening the rebate check program. Also, when the bills move to the floors of the two chambers for second reading, the principal amendment stage, you may see property tax elimination proponents seek to put their colleagues on the record with targeted abolition votes.

That's when things will start to get a bit dicey.

But the policy fight for the next few months will focus largely on how much relief is appropriate, who will bear the burden of that relief, who will raise taxes for the locals, the tax hike mix to compensate for the property tax cuts, the use of referenda for major construction projects, and whether property tax caps should be imposed by law or added to the constitution.

That should be plenty to keep us gainfully occupied through the holidays.

Feigenbaum publishes Indiana Legislative Insight. His column will appear weekly during the upcoming legislative session. He can be reached by e-mail at edf@ingrouponline.com.
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