INDIANAPOLIS | Gov. Mitch Daniels is asking Hoosiers to embrace a penny sales tax hike and tighter controls on local government spending in exchange for a complex property tax relief plan designed to trim the average homeowners bill by roughly a third.
The proposal presented Tuesday night, which will go before the General Assembly in January, would have the state assume $3.2 billion in school and child welfare costs now shouldered by local property owners. And homeowners would receive future protection, beginning in 2009, from a circuit breaker that would cap tax bills at 1 percent of a home's assessed value.
"As bold as these changes would be, I am very optimistic of achieving them, especially if you will help," Daniels said in a rare televised address. The governor said his vision is to usher in "a new era of opportunity in which Indiana is the nation's leader in defending and promoting the American dream of home ownership."
About two-thirds the cost of shifting school and welfare costs to the state would be covered by existing state sales tax revenues that now flow to local government in the form of property tax replacement credits. The proposed 1-cent sales tax hike, to 7 percent, would provide the final $928 million needed to pull off the switch.
Democratic House Speaker Pat Bauer, whose support will be needed to steer any tax relief package through the Legislature, praised some aspects of Daniels' plan, including the welfare portion. But Bauer, D-South Bend, worried too much local control might shift to the state with the school funding swap, and he criticized the Republican governor for not delivering a relief plan earlier in his first term.
"After three and a half years," Bauer quipped, "I want to welcome the governor to the debate and concern over property taxes."
A number of factors, including the elimination of the business inventory tax and new annual assessment system, came to a head this summer, driving residential property tax bills an average of 24 percent higher.
Daniels stressed that the solution to soaring taxes must go to the "root cause, and that is excessive spending." Toward that end, the governor proposed cementing his circuit breakers -- set at 1 percent for owner-occupied homes, 2 percent for rental properties and 3 percent for businesses -- in the Indiana Constitution.
He also proposed an inflationary cap on local government spending and a tighter review of construction projects, which would include a voter referendum process and oversight by county-level review boards.
His plan also would eliminate elected assessors. With 92 counties and 1,008 townships, Indiana has 1,110 elected assessors. Under Daniels plan, each county council would appoint one assessor, who would have to meet training standards set by state regulators.
State Rep. Chet Dobis, a Merrillville Democrat who has served in the Legislature since 1970, called Daniels' plan a "starting point" for debate on an issue sure to consume legislative business next session.
"I applaud the governor for being bold," he said. "Not everyone, including Democrats and some Republicans, is going to agree with every portion, but that's what the legislative process is about. It's a compromise."
Proposal highlights
-- Constitutional tax caps of 1 percent for owner-occupied homes; 2 percent for rental properties; 3 percent for businesses.
-- State sales tax would increase from 6 percent to 7 percent.
-- State would impose tighter controls on local government spending.
-- State would shoulder $3.2 billion in school and child welfare costs now shouldered by local government.
Read more
Read the governor's speech and background info about his property tax plan at http://www.in.gov/gov/3105.htm.
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