Repeal of state property tax system very unlikely

INDIANAPOLIS (AP) - When Gov. Mitch Daniels signed a property tax restructuring bill into law last March, he and some lawmakers who supported it said they were delivering significant and lasting reform and relief.

But several citizen groups say it didn't go far enough. They want property taxes repealed completely through a state constitutional amendment, or at least repealed for homeowners.

An interim study committee will explore the latter possibility during a Statehouse hearing on Sept. 10, and the room is sure to be packed. But will the hearing lead to repeal legislation that could pass during the next session in 2009?

It seems unlikely, at least now.

First, many lawmakers believe what they achieved last session was quite substantial. And it took an exhaustive effort on a very complex issue that some legislators are wary of taking on again so soon.

They increased the sales tax from 6 percent to 7 percent, effective last April, and steered the projected extra revenue through 2008 with money from horse track casinos to provide additional homestead credits this year.

The law will phase in limits that will cap homeowners' bills at 1 percent of their homes' assessed values by 2010, with 2 percent caps for rental property and 3 percent for business property. Lawmakers passed a resolution that begins a process of amending the caps into the state constitution.

And beginning next year, the state will assume about $3 billion worth of local property tax levies, including the rest of school operating expenses and all child welfare costs. The plan is to pay for them with the extra sales tax revenue and about $2 billion the state has paid local governments to keep property taxes lower.

Senate Tax Chairman Luke Kenley, a Noblesville Republican and a primary architect of the revised Daniels property tax package that passed, said property taxes on homeowners are down an average of 39 percent statewide this year from 2007 in the 55 counties that have sent out bills so far.

They're down an average of 93 percent in Wabash County, in part because it raised its county adjusted income tax from 1.5 percent to 2.9 percent and used most of the new money for property tax relief.

Average bills for homeowners statewide are expected to be about a third less in 2010, when the caps are fully kicked in, than they were last year.

Not good enough, some say. They want repeal.

"We still favor complete repeal so people can finally own their homes, farms and businesses," said Eric Miller, founder of the conservative group Advance America.

John Price, chairman of the Indiana Property Tax Repeal Alliance, Inc. - a coalition of about a dozen citizen tax groups - predicted that the law passed last year would have only a temporary effect and called it a "cosmetic and Band-Aid approach."

But Kenley said lawmakers have done homeowners a great service so far. He noted that legislators have to pass a new, two-year budget in 2009 that assumes the extra levies, and said they should get through that "and see where we are going" before taking on further property tax reduction.

The Senate Rules Committee took hours of testimony last session on a proposal to repeal property taxes on homeowners, and heard from those who want complete repeal, but the issue went nowhere and was punted to a study committee. That is often done to simply take something off the table.

Is the Sept. 10 hearing an effort to seriously consider repeal? It could be, but if it  were, it seems the Commission on State Tax and Financing Policy would schedule more than one hearing on the issue.

It's a virtual certainty that a successful effort for repealing property taxes on homeowners or everyone would take strong support from the governor.

If Democrat Jill Long Thompson is elected, she has said she would explore a complete overhaul of the entire tax structure in Indiana. Perhaps that would bode well for repeal supporters.

Daniels is seeking re-election in November. The Republican governor said last session that he shared the ultimate goal of eliminating property taxes on homeowners, but that he could find no viable way of doing it - at least not now - because it would require big increases in other taxes.

If he's found a viable way of doing so since then, he hasn't announced what it is.

Maybe property tax repeal will gain serious traction next session. But so far, some key signs aren't pointing that way.
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Mike Smith of The Associated Press has covered Indiana's Statehouse and political scene since 1993.