INDIANAPOLIS | The wave of tax changes approved by the Legislature leaves one thing for certain: Lake County eventually must give millions in new tax breaks to businesses.

Odds are the county will wait out the tide and take its chances in 2010, when the circuit breaker property-tax cap will begin protecting landlords and businesses from excessive bills. The latest state estimates for 2010 show the circuit breaker sapping $78.6 million from local coffers in Lake County, with tax breaks on business equipment and machinery accounting for $20 million of the hit.

State lawmakers gave the county two options for digging out of the hole created by the tax cap: slash local spending in dramatic fashion or pass a 1-percent income tax dedicated to property-tax relief. If the Lake County Council doesn't approve the income tax by August 2008, the state won't allow cities and towns, libraries, townships, sanitary districts and other local government units to increase property taxes.

The architects of the tax plan, which was signed into law last week, are Senate Tax Chairman Luke Kenley, R-Noblesville, and Rep. Bob Kuzman, D-Crown Point.

"The whole theory of what Sen. Kenley and I are trying to do is to drive the non-reliance on property taxes because the biggest complaints, from all our constituents, are property taxes, property taxes, property taxes," Kuzman said.

Kenley says it's no coincidence that a 1 percent income tax in Lake County raises nearly as much cash -- $76 million -- as the circuit breaker threatens to take away.

By using the income tax money for property-tax relief, the county could cut tax bills without slashing local budgets. In theory, every income tax dollar dedicated to property-tax relief is a dollar local governments won't lose to the circuit breaker.

Homeowners would see tax bills reduced by more than a third, Kuzman says, if all of the income tax money is assigned to homestead credits for Lake County's 140,000 owner-occupied homes. But if businesses and rental properties are cut out of the tax relief, local governments still would face budget shortfalls when the circuit breaker takes full effect in 2010.

It's up to the Lake County Council to decided how to allocate the $76 million that would be created by a 1-percent income tax. The council can give it all to homeowners, split it between homes and rental properties or share it with all taxpayers, including businesses.

Lake County Councilman Larry Blanchard, R-Crown Point, said it's too early to say how the council will address the state-mandated income tax or the looming shortfalls tied to the circuit breaker.

Lawmakers exempted school general funds from losses triggered by the cap, which holds tax bills to roughly 2 percent of a property's assessed value, or $2,000 on a $100,000 home. And they increased the circuit breaker to 3 percent for business and rental properties.

The changes reduced projected 2010 budget shortfalls in Lake County by nearly 60 percent, but northern cities and schools still could confront staggering losses.

Gary faces a $27.5 million hit -- down from $34.4 million, while city schools still stand to lose $9.4 million.