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STATEHOUSE DISPATCH: Agendas vary widely as tax-reform efforts heat up

January 7, 2008

How did it all seem so simple back in September?

The reality of reform is sinking in for lawmakers and interest groups. Hoosiers who demanded serious property tax reform in November-and expected their wishes to be fulfilled-now see indications that the road to reform may be bumpier than foreseen.

The property tax reform plan detailed in late October by Gov. Mitch Daniels was initially largely well-received by voters and lawmakers, but after it rattled around for a while and the public and assorted interest groups took some shots at it, success prospects seemed to take a dip by early December.

Then came the report of the Indiana Commission on Local Government Reform, which made the governor's "fair, final and far-reaching" property tax relief package, first perceived as radical, look more like tinkering at the margins.

But while Hoosiers may have their pitchforks and computer keyboards ready for an assault on the Statehouse, lawmakers aren't quite so ready as the blue-ribbon commission to blow up a system that has guided the state through its first two centuries. And asking them to tackle the huge property tax reform issue along with the mega-government restructuring concept in the same (short!) session is unthinkable to most.

Maneuvering during December-including subtle messages from reform panel members that they would not be the ones doing the heavy lifting of advocating governmental restructuring-made it clear there was room, and time, for work on only one historic reform initiative between now and mid-March.

The November and December committee work in both chambers on property tax reform will help jump-start the process. Further committee hearings are slated, both in Indianapolis and in other cities, before lawmakers will be called upon to cast their first votes on property tax issues.

In the period since the principal tax reform initiatives have been laid out, faults have been found with each component, the terms of the debate have shifted a bit, and the task of assembling a package acceptable to everyone has become more difficult.

Business and agricultural interests are frustrated that how the proposed caps on assessed value favor the homeowner and would shift more of the overall tax burden to their constituencies.

Business interests and economic development officials also are concerned that restrictions on tax-increment financing districts and abatements would eliminate the flexibility needed to offer incentives attractive enough to bring new business to Indiana and encourage existing Hoosier businesses to expand locally.

School officials believe they would be particularly affected by the need to seek voter approval for building projects, and that their flow of tax revenue would be adversely affected by a shift from the stable property tax to other forms of financing.

This month, new mayors took office in three of Indiana's five most-populous cities. Out of the gate, they will be called upon to defend their rights and budgets against state incursions as they try to get the snow plowed and trash collected the first few times.

Meanwhile, as the governor has faced increased attacks against discrete components of his reform plan, he's tried to frame the debate not as property tax relief for a homeowner that would merely extract the taxes from the homeowner's other pocket, but as the largest tax cut in state history (which attracted skepticism of its own, particularly from those who don't share in the cut).

There also remains a large and loud public coalition, backed by a staunch cadre of lawmakers, continuing to insist upon the outright elimination of property taxes.

With the governor backing a 40-percent tax cut; Sen. Luke Kenley, RNoblesville, and the Commission on State Tax & Financing Policy advocating a 50-percent cut; and Rep. David Orentlicher, D-Indianapolis, pushing a 62-percent cut, abolitionists wonder why we can't go so far as to raise or extend sales and income taxes to cover the remaining 38 percent needed to eviscerate the reviled property tax.

Clearly, no package will be roundly applauded or accepted by all taxpayers or by all who rely upon the revenue to provide-or receive-services.

As with most major packages of legislation, lawmakers will have to accept some provisions they dislike (philosophically, or because of the impact on their respective districts) for the greater gain (what it means for local taxpayers or for the state as a whole).

This process will require either considerable statesmanship or sheer electoral fear.



Feigenbaum publishes Indiana Legislative Insight. His column appears weekly while the Indiana General Assembly is in session. He can be reached by e-mail at edf@ingrouponline.com.
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