Lake income tax vaguely promises property tax relief

2013-05-04T20:45:00Z 2013-05-05T23:54:04Z Lake income tax vaguely promises property tax reliefBill Dolan bill.dolan@nwi.com, (219) 662-5328 nwitimes.com

CROWN POINT | Lake County officials insist a local income tax scheduled for a vote Monday would bring property tax relief — but not to all and not a dollar-for-dollar reduction.

The Lake County Council, scheduled to meet at 4:30 p.m. Monday in the Syd Garner Auditorium of the Lake County Government Complex, is revising its income tax ordinances to spread reductions in property tax rates to homeowners, farmers, landlords and businesses.

The pledge of at least $90 million in property tax relief is the sugar to entice county residents and out-of-state residents working in Lake County to swallow the bitter 1.5 percent tax on their personal incomes.

That promise is under attack by Eric Krieg, a Republican activist who argues the newest version tax relief is a shell game.

"This is a huge bailout for the cities and to a lesser extent to the towns," Krieg argues.

Mike Wieser, director of finance for the Lake County auditor's office, and Dante Rondelli, finance director for the County Council, said the updated tax ordinance contains property tax relief.

But there are important caveats.

Few if any property owners in East Chicago, Gary, Hammond and Lake Station will see reductions in their bills, but their municipal officials will get a small windfall in income tax revenue to replace property tax revenue they've lost over recent years, county officials said.

The rest of the county's property owners are more likely to see some relief, but the lack of local experience in assessing and distributing local income tax revenues and the variegated tax geography of the county prevent them from making a definitive prediction of who will get how much.

"Those communities at or below the tax caps, their taxpayers will see some degree of relief," Rondelli said. "But there is no way they are going to get dollar-for-dollar relief."

County officials concede the ultimate mission of the income tax is to raise more money for local government, not just swap one tax for another.

"It depends on the individual property's assessed value, the tax rate and the deductions they already receive like circuit breaker, disability or old age," Wieser said. "Each will get the same rate reduction, but they may or may not see a bottom-line change. It's very convoluted."

Lake County has been in tax turmoil for more than a decade following state legislation that shifted the property tax burden of supporting county, municipal and other forms of local government from business to homeowners.

Homeowners demanding relief got the circuit breaker, a system of tax caps that limit how many tax dollars can be extracted from any single piece of real estate.

Last year alone, caps denied local government almost $120 million in potential taxes that stayed in the pockets of property owners, according to the Legislative Service Agency that researches tax issues for the General Assembly.

The caps combined with the lingering economic downturn and a six-year, stated-mandated freeze in property tax growth, prompting the Lake County Council into the April 9 approval — on first reading — of a 1.5 percent income tax.

If the tax passes on second reading Monday, it moves before the Lake County Board of Commissioners, where a veto is promised. If vetoed, the tax would die, unless the council can muster a super majority of five votes to override it.

Councilwoman Christine Cid, D-East Chicago, who voted no to the tax last month, is a potential swing vote to override a veto.

"I don't know how I'm going to vote on Monday until I hear from my constituents," she said. "When we attempted to pass this tax (in 2007), everybody understood the distributions. All the numbers were out there.  But this time, there are too many question marks."

Rondelli said state law demands at least a 1 percent income tax be devoted to property relief in order for local government to tack on an additional 0.5 percent income tax to raise an additional $45 million to replace lost property tax revenues. This 0.5 percent is earmarked for public safety and road infrastructure projects.

So the amended tax ordinance would spread property relief over all residential and commercial taxpayers, county officials said. But business income is exempt from the proposed tax.

Krieg complains, "That change is huge. Then there is not going to be any property tax relief. It's a straight-up income tax. Big businesses have had enough tax relief."

Not in East Chicago, Cid said.

"Most of the businesses on the north end are above the tax cap," Cid said. "They are not going to see that off their tax bill, just like my residents in East Chicago aren't."

Because East Chicago, Gary, Hammond and Lake Station have among the highest property tax rates in the state, they already get all the tax relief allowed under the law.

However, if the income tax fails to pass the council, county officials privately warn county government will face three unpleasant options:

— close satellite courthouses, county park facilities, including the county fairgrounds and slash all other discretionary spending not required by state law

— expand and extend the current policy of borrowing millions of dollars in the hope of a future financial miracle

— declare county government fiscally distressed. State government would impose a manager, who likely would order the spending cuts and passage of an income tax.

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