INDIANAPOLIS | How does a 4.5 percent Lake County income tax sound?

That's what it would take to offset the $367 million in combined annual revenue losses local government in Lake County would suffer under the constitutional tax caps proposed by Gov. Mitch Daniels. The other option, which drew dire predictions from local officials, would be to cut spending a whopping 26 percent.

'We can close the jails down and take the law enforcement off the streets no problem," Lake County Councilman Larry Blanchard, R-Crown Point, said in stunned sarcasm. "If (the cuts) do come, the state should have a plan in place to take over."

The cost-control estimates, provided Friday by the governor's Office of Management and Budget, are much less severe for the rest of Indiana. Statewide, counties would be required to trim spending by an average of 5 percent if the General Assembly goes along with Daniels' plan to cap property tax bills at 1 percent of assessed value for homeowners, 2 percent for landlords and 3 percent for businesses.

The governor's fiscal gurus have forecast how much every local unit combined within each county -- cities, libraries, schools, townships, etc. -- would collect in 2010 from all revenue sources, including income and property taxes and various local fees. The analysis then shows what each county would have cut, or make up in new income taxes.

Porter County, for instance, would need to trim spending by only 2 percent, or it could increase the county income tax by 0.2 percent to restore the $7.6 million a year local government would lose to the governor's proposed circuit breakers.

Meanwhile, Lake County would need a 4.43 percent income tax -- the state income tax is 3.4 percent -- to recoup the millions local government would forfeit to the tax caps. More likely, there will be renewed calls for consolidating and streamlining layers of local government.

"Lake County is clearly an outlier (statistical abnormality) on this," said Ryan Kitchell, director of the state Office of Management and Budget. "They need to work with the (legislative) delegation up there."

While potentially crippling to at least some local governments, Daniels' plan, which contains several elements beyond the circuit breakers, promises to cut property tax bills 39 percent for homeowners, 27 percent for landlords and at least 15 percent for businesses.

But the plan would produce another aberration in Lake County, with commercial and industrial properties, including the steel mills and the BP refinery in Whiting, in line to see their tax bills drop 40 percent.

"That's ridiculous," said Lake County Commissioner Roosevelt Allen Jr., D-Gary, "Those companies are making billions and billions of dollars. What's the benefit of those companies being up on our lakeshore if the governor and legislature is going to give them a pass?"

Allen already had been lobbying lawmakers to repeal a 2003 law that gave big industry ongoing multi-million dollar tax breaks at time when steel was on the skids. He said the business tax cuts proposed by Daniel's "add insult to injury."

Lake County is in heap of tax trouble even if lawmakers cast aside the governor's tax caps. Circuit breakers already written into state law -- at 2 percent for homeowners and 3 percent for landlords and businesses -- are expected to sap a combined $279 million from local government in Lake County when they take full effect in 2010.

Back in May the Legislative Services Agency predicted those existing caps would drain only $78 million from Lake County coffers. Diane Powers, a top analyst for the nonpartisan forecasting agency, said the new, more ominous, $279 million figure reflect more accurate tax data the county has turned over in recent months.

The Legislative Services Agency will present an analysis showing how the projected losses break down among cities, schools and other local units on Monday, at the first legislative hearing on Daniels' plan.