STATEHOUSE DISPATCH: Nitty-gritty details yet to be resolved in tax-reform plan

February 25, 2008

We've come a long way since the beginning of this legislative session, and lawmakers are edging closer to assembling a property tax reform acceptable to both chambers, both major parties and the governor.

Lawmakers faced competing pressures from constituents, the governor, business interests, schools and local governments, and citizen groups as they tackled the issue, but they resolved to labor with a minimum of partisanship.

Of course, they frequently make the same pledge when dealing with major issues, but an issue or action often arises to derail the process, and the fear was that the wrong off-the-cuff remark, the wrong amendment, the wrong procedural vote, or even the wrong result from the IU-Purdue basketball game once again would spell doom for a complicated legislative imperative the likes of which had not been seen for decades.

And there always was the specter of controversial issues threatening to distract legislators, with the immigrationenforcement bill and the Defense of Marriage Amendment foremost among them.

To date, legislators have lived up to their word, and work has progressed surprisingly smoothly toward a responsible package acceptable to all sides. The basic outlines of the package first advanced by Republican Gov. Mitch Daniels were effectively adopted by both parties with no concerns about ownership in authorship, and that remains as the framework.

Considerable changes were made last week in the Senate Tax & Fiscal Policy Committee at the behest of its chairman, Sen. Luke Kenley, R-Noblesville, but to address the reality of reform, and not merely the rhetoric.

Committee deliberations are behind us, and now we look to action on the floor of the House and Senate that will shape the bills sent to conference committee. There still is lots to do before the scheduled March 14 adjournment.

The legislative mind-set now seems to be focused on a package that will offer substantial homestead property tax relief, but is far less concerned with the needs of business and agricultural interests than those constituencies might like.

Most counties could trim homestead property tax bills by half if they impose a 0.5-percent income tax and dedicate it to that purpose. Several counties are close to being able to eliminate the homestead property tax by implementing other taxes, and they will be encouraged to make such a shift.

Relief will be phased in, with other funding sources likely tapped to provide some not-insubstantial short-term homeowner aid.

In recent days, the legislative posture turned from homeowner relief, regardless of the problems that might create elsewhere in the system, to an understanding that local governments and schools should not bear the full brunt of the changes.

Local governments will not be forced to take all their bitter medicine immediately, and lawmakers still are looking for ways to ease their pain. Expenses that local governments didn't think even were on the table are now in play, such as the burdensome pre-1977 police and fire pension fund costs.

The Senate plan also recognizes that the sacrifices sought from local governments may require some exceptions. Thus, it calls for a new state appeals panel to address extreme cases of budget distress. Also part of the plan is a special fund that would help hard-hit school districts recoup some of the losses they would incur under the circuit-breaker.

Of course, all the assorted pieces of the state puzzle are subject to-excuse the term-reassessment in conference committee after the key players and Daniels review the state revenue collection numbers through February.

Closed-door talks will work out key details in what has been trimmed to an 826-page bill. Those details include the role of county councils in reviewing smaller-unit spending; whether referendums will be a big part of the final deal, and to which projects they will apply; the ability of the state to pick up school transportation funding; whether local spending limitations should apply to spending from non-tax sources; and whether the caps should be adopted as part of the Constitution, as the governor wishes, or should simply exist as statutory creatures.

Meanwhile, Democrats will fight to afford additional relief to some lower and middle-income families they believe will be most hurt by the boost in the sales tax.

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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