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STATEHOUSE DISPATCH: Full impact of tax reform won't be known for years

March 24, 2008

The 2008 legislative session is history, and makes history with a property tax reform package that goes a long way toward Gov. Mitch Daniels' goal of enacting one that is fair, final and farreaching.

Give him the lion's share of the credit for establishing the philosophical and practical framework.

Majority House Democrats didn't propose their own property tax plan, but they largely embraced the governor's plan and successfully played a few new strategic riffs that Republicans found didn't disrupt the overall composition and made it sound better to the audience.

While a lot of action was packed into a compressed period, and the results offer some short-term gratification and political cover, the true impact likely will not be fully understood for years.

And, undoubtedly, lawmakers in future years will tinker with the reforms under the guise of "improvements."

While it appears homeowners gain some significant property tax relief, for many it will not be as much as they had expected. And they will begin paying a surprisingly noncontroversial 16.67-percent hike in the state sales tax by April 1. (That's on top of the 20-percent increase that came with restructuring some five years ago, plus the local sales taxes added to Marion County and the doughnut counties to pay for the new Lucas Oil Stadium and Indiana Convention Center expansion.) Relief will vary locally based on current levies, tax rates and other particularities.

Business and agricultural interests didn't fare so well under the forthcoming caps. When combined with the recent Marion County reassessment ordered by the governor, local business and commercial property will end up shouldering a much larger portion of the burden. You can expect a flood of local appeals, as IBJ's Peter Schnitzler explained in these pages last week. The specter of a lawsuit over the constitutionality of the differential caps also hangs over the package.

While state officials have been speaking out about the need for governments to live within the means of their constituents, few governmental units-outside of perennial outliers in Lake County and a few rich school districts-have the ability to adjust spending to the income they can now expect without making significant service cuts.

While Sen. Luke Kenley, R-Noblesville, worked tirelessly to accommodate local government concerns, including picking up old police and fire pension costs (megasavings to Indianapolis), most units of government will feel the squeeze. Local officials warn of impending cuts in public safety functions, and hint at new or increased fees for services.

While $100 or $120 per year in new trash collection fees may seem reasonable, if an average capped property tax bill is $1,200, that is the functional equivalent of a 10 percent "tax" increase-even as state officials legitimately tout the property tax reduction.

The most substantive changes you didn't hear about involve bonding, including caps on maturities, requirements that debt service include all principal and interest payments over the life of most bonds, and restrictions on debt refinancing.

But the work is not done. Lawmakers will be pushed by Daniels to return in 2009 to implement the second half of the overall deal. He wants the next Legislature to pass constitutional caps for permanent relief and immunize statutory caps to legal challenges.

He also will seek enactment of key Kernan-Shepard Commission recommendations for local government restructuring to promote efficiency and cut costs.

The bitter battle against contraction of the township assessor function, lack of a final vote on the single elected county executive (despite a signed conference committee report), and pushback on consolidation of offices and functions within Marion County suggest this will be a highly charged struggle.

Lawmakers ultimately didn't take action on the other hot-button issue of the session, immigration enforcement. Just like two years ago, when the emotions first erupted throughout Indiana, Hoosiers and their representatives found consensus difficult to achieve. And some other measures that passed, while they may be important to some people or constituencies, will not affect the daily lives or work of Hoosiers to the extent the highlighted issues would.

Property tax reform in 2008 will become the yardstick by which incumbent legislators seeking re-election (and the governor) will be judged at the polls.

So the 2008 session proves to us that Hoosiers have a voice and their officials can listen, Republicans and Democrats can work together, and much can be accomplished even in a short session.

No one can deny the package is farreaching. The fairness remains to be proven in a few years, and more must be accomplished to achieve finality. But getting this far in 2008 is quite an accomplishment.



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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