INDIANAPOLIS (AP) -- The Indiana General Assembly has passed legislation that begins the process of amending the state constitution to include limits on property tax bills.

Supporters say amending the constitution to include the caps will provide homeowners and other property tax payers with more permanent relief.
The GOP-controlled Senate voted 40-7 for the legislation, while the Democrat-led House approved it 79-20.

The General Assembly is also considering separate legislation that would provide additional tax cuts for homeowners this year and cap future bills for most property owners.
In most parts of the state, homeowners¹ bills would be capped at 1 percent of a home¹s assessed value, with 2 percent limits for rental property and 3 percent for businesses.
 

By MIKE SMITH

AP Political Writer

INDIANAPOLIS (AP) — The Indiana Senate on Friday voted to start the process of amending the state constitution to include caps on homeowners’ tax bills.

As a midnight deadline for the session to adjourn loomed, the House had yet to vote on the caps measure that cleared the Senate 40-7. Both chambers were expected to vote Friday on separate legislation designed to provide immediate, significant and lasting property tax relief.

The tax bill caps would be phased in over the next two years. When fully implemented in 2010, most homeowners’ tax bills would be limited to 1 percent of their homes’ assessed value, with 2 percent caps on rental property and 3 percent limits on business property. The caps could be exceeded if voters approved major bonding projects through referendums.

On Thursday night, lawmakers from both parties in the Democrat-controlled House and Republican-ruled Senate seemed prepared to vote on a compromise property tax plan, but Senate Democrats said they wanted more time to review the legislation.

Sen. Vi Simpson, D-Bloomington, said Senate Democrats, who are in the minority, wanted to examine in detail how it would affect their communities and local schools. But, she said, “I think everybody wants a bill.”

Senate President Pro Tem David Long, R-Fort Wayne, said Democrats had a legitimate concern that he thought all four caucuses shared, but that he still was optimistic lawmakers would pass a property tax reform plan on Friday.

House Speaker Patrick Bauer, D-South Bend, also said he was confident a package would move on time.

“I think they want time to ponder,” Bauer said of Senate Democrats.

Democrats control the House 51-49, while Republicans rule the Senate 32-17.

The reform plan crafted mostly by majorities parties in both chambers would provide additional tax cuts for homeowners this year and cap future bills for most homeowners.

Republican Gov. Mitch Daniels had warned lawmakers that he would call them into a special session if they did not pass a plan acceptable to him on time.

The deal struck by House and Senate negotiators would require that major school and local government building projects be subjected to referendums.

The state sales tax would be raised from 6 percent to 7 percent to help pay for the property tax relief, which also would include the state absorbing some major local levies. Those include remaining school operating costs and some child welfare expenses.

Under the plan, homeowners’ tax bills this year would be cut by about 30 percent on average statewide from last year. If fully implemented in 2010, the plan would reduce homeowners’ bills by an average of about 28 percent statewide that year from 2007 levels.

“I think the homeowners and the taxpayers are the winners in this exercise,” said Senate Tax Chairman Luke Kenley, R-Noblesville.

Bauer said it was “a compromise all the way through.” It contained some provisions sought by Democrats, including an increase in the earned income tax credit for lower-income working Hoosiers, an increase in the renters deduction, and added tax breaks for lower-income seniors.

Daniels did not have a comment on the compromise Thursday, but he was heavily involved in negotiations that led to the agreement. He said any plan had to have immediate, significant and permanent property tax relief and reform, and considered constitutional caps on tax bills key to providing that relief.

The compromise legislation included some key components of a plan he presented last October.

The homeowner relief this year would come from adding $620 million from the increased sales tax revenue to $250 million already allocated for additional homestead credits in 2008.

The tax caps are projected to save property taxpayers about $524 million when fully implemented. But that is money schools and local municipalities would not get.

House Democrat leaders in recent weeks have said they shared concerns cited by many educators and local government officials that the caps would result in severe budget cuts and reduced services such as police and fire protection. The plan would set aside $120 million for schools over the next two years to soften the caps’ impact.

Lake and St. Joseph were among a handful of counties that would be especially hit hard, so as part of the compromise, their existing debt would not count against the caps. The resolution that would amend the caps into the constitution would continue to exempt their existing debt from the caps through Dec. 31, 2019.

Beginning next year, the state would absorb all school operating costs, four child welfare levies, local juvenile detention costs, money local governments owe for pre-1977 pension plans for police and firefighters, and property taxes used to subsidize costs hospitals incur treating the indigent.

Taking over the levies could cost the state $2.5 billion or more. They would be funded through revenue from the sales tax increase, wagering tax revenue from casinos at two horse racing tracks, and using about $2.1 billion the state now pays local governments to keep property tax bills lower.

Tax plan details

By The Associated Press

The Indiana General Assembly was prepared to vote Thursday or Friday on a property tax relief and restructuring plan. Here is a look at some highlights of the legislation. AV means assessed value.

— Increases sales tax from 6 percent to 7 percent on April 1 to help pay for tax relief.

— Provides $620 million in additional homestead credits this year, $140 million in new homestead credits in 2009 and $80 million in 2010. Homeowner bills would be reduced by about 30 percent on average statewide this year over last year’s bills, and 29 percent lower in 2010 over last year’s bills.

— Phases in caps in property tax bills. When fully implemented in 2010, most homeowners’ tax bills would be limited to 1 percent of their homes’ assessed value (AV), with 2 percent limits on rental property and 3 percent on residential property.

— Separate legislation would begin process of amending the caps into the state constitution.

— Caps would save taxpayers about $656 million that year, but it’s money schools and local governments would not get.

— But $120 million would be provided over the next two years to help offset the impact on schools. And schools would be allowed to have referendums to offset lost revenue.

— Places future debt approved by referendums outside the caps, and exempts existing debt in Lake and St. Joseph counties from counting against the caps.

— Increases standard deduction for homeowners from the lesser of $45,000 or 50 percent of assessed value to the lesser of $45,000 or 60 percent of assessed value.

— Property tax bills could not increase by more than 2 percent annually from 2007 levels for seniors with individual incomes of less than $30,000 or joint incomes of less than $40,000 if the value of their homes doesn’t exceed $160,000.

— Creates a new supplemental homestead deduction of 35 percent of the next $600,000 of assessed value after applying the standard deduction, and 25 percent of remaining assessed value over $600,000.

— State assumes remaining local school operating costs, expenses for child welfare services, incarcerating juveniles in state facilities, subsidies to hospitals for treating the indigent, and money local governments owe for pre-1977 pension plans for police and firefighters.

— State would pay for those costs through increased sales tax revenue, wagering tax revenue from casinos at horse tracks, and eliminating about $2.1 billion in subsidies to local governments to keep property taxes lower.

— Increases renters deduction from $2,500 to $3,000.

— Increases earned income tax credit for lower-income working Hoosiers from 6 percent to 9 percent.

— Allows counties to adopt new local option income taxes.

— Duties of township assessors in townships with less than 15,000 parcels would be transferred to county auditor. That would eliminate 966 township assessors, leaving 92 county assessors and 44 township assessors. Requires November referendums to be held in townships with more than 15,000 parcels on whether to transfer assessing duties to county assessor.

— Referendums required for building projects for elementary and middle schools that cost more than $10 million. Same requirement for high school construction projects costing more than $20 million.

— Referendums would be required for local government projects that cost more than $12 million or 1 percent of the taxing unit’s assessed value, if at least 5 percent of the unit’s registered voters or 100 voters or property owners petition for the referendums.

— Repeals several excess levy appeals and exemptions.

— Creates a “Distressed Unit Appeals Board” that could assist taxing units facing at least a 5-percent reduction in tax collections. Help could include temporarily lifting property tax bill caps.

Posted 3/14/2008