STATEHOUSE DISPATCH: Lawmakers left lots of touchy issues for waning days

March 17, 2008

As we prepared this column at midweek, there still was no certainty about a property tax relief and reform package resulting from the regular session, set to adjourn sine die March 14.

While some lawmakers were proclaiming no hope of enacting a package before time expired in the regular session, others were seeing movement toward a plan that was structured largely along the lines of the original package offered by Gov. Mitch Daniels.

Democrats altered strategy as the scheduled adjournment date neared. First, they dropped their call for income-related property tax caps for homeowners, then backed off a new suggestion to permanently cap only homestead property taxes.

For their part, Republicans moved toward granting some of the items Democrats had sought, including an expanded earned income tax credit for lower-income Hoosiers, and more relief for renters.

As negotiations continued, however, legislators continued to be stymied by how to avoid crippling schools and local government services. Every "bust the cap" option to accommodate local fiscal exigencies carried with it the prospect of eviscerating the overarching tax relief premise.

But there were a few things decided-and some things lawmakers chose not to decide.

Despite the fact that all the attention was focused on property tax reform this session, a few other things did get done-from further gambling expansion to overriding the governor on film industry incentives.

And some other issues that had not seemed all that controversial just a few weeks back distracted lawmakers in the final week, including a bill aimed at preventing childhood lead poisoning that grew in scope and contentiousness, and another that would have made it easier for Hoosiers to cast ballots in elections.

Some matters lawmakers did not want to deal with-from immigration enforcement to the defense-of-marriage amendment-were not headed to resolution, despite a final-week push.

One of the items avoided by lawmakers this session was overhauling the funding for the state Unemployment Insurance Trust Fund.

Unfortunately, at present, Indiana's fund would sustain only about six months of benefit payments, assuming economic conditions remain about the same. If conditions worsen, as we are almost certainly assured of happening now, the fund would be depleted even more rapidly.

If the economy takes a huge hit, the state may have to turn to the federal government for a bailout, or lawmakers may be called back to Indianapolis to address the problem.

And the economy's performance has been part of the reason-or at least a convenient excuse-for why the property tax package took so long to come together.

As lawmakers exited Indianapolis for the final weekend before adjournment, the state revenue collection report revealed that February numbers lagged the most recent fiscal forecast by $43 million. Since the pessimistic December revenue forecast was released, state revenue collections have fallen almost $86 million short of even those disappointing projections.

All the state's "big three" taxes (sales, individual income and corporate) and gambling taxes trailed the December estimates through February, and revenue collections now have fallen short of projections for five consecutive months.

Prospects for a significant turnaround are bleak, with continuing layoffs (strikerelated and otherwise), soft retail sales nationally and high energy prices, and declining gambling tax revenue.

That train of thought led Democrats to back off from state assumption of certain local tax levies, particularly school-related ones that had been part of both Democratic and Republican reform proposals, and sent everyone back to the drawing board.

Assuming a deal gets done (and Republican House leaders already have scheduled a fly-around for early in the week, presumably to tout their role in the successful conclusion of the session), you need to keep your eye on a few things.

The non-deliberative nature of the process in the final days necessarily means there will be items appearing in any final measure that even some involved in the process will be surprised by, with their full implications debated over the coming months.

Meanwhile, what the governor refers to as "special interests" have not backed off their threats to challenge the constitutionality of key portions of the framework that has been part of the package since last fall.

Interim study committees will examine the potential long-term changes in governmental structure this summer, as recommended by the Kernan-Shepard Commission. And, after all this, lawmakers likely will return in January 2009 to revisit much of what we had thought was done.

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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