STATEHOUSE DISPATCH: Thorny tax issues remain as scheduled adjournment nears

The closer we get to March 14, the date the 2008 legislative session is scheduled to end, the less optimistic people seem to be about reaching agreement on a property tax relief and reform package that will attract sufficient bipartisan support and be structured in a way that meets the requirements of Gov. Mitch Daniels for his signature.

The biggest problems in private legislative negotiations appear to revolve around how to fund local government and school shortfalls, as well as addressing Democratic concerns about additional relief for lower-income taxpayers.

The answer to most legislative problems is “money,” but that doesn’t seem to be a solution here. The magnitude of money needed to make local governments and schools whole is beyond the ability of lawmakers to generate. This, plus finding a way to help less-fortunate Hoosiers, creates additional pressures elsewhere in the property-tax-reform bicycle tire.

Recent lobbying by local governments and school districts has been intense, and has reopened the debate over public referendums for building projects.

Referendums on certain projects were a major component of initial reform proposals. The original proposals have been vastly reshaped over the past two months, and continue to undergo changes. But with schools pushing to be totally exempt and local governments seeking to raise the threshold for projects subject to referendums, we are rapidly approaching the point where they might cost more to administer than they would save taxpayers.

Attention also has shifted to helping governments cope with caps by exempting certain income from the harsh effects of the property tax circuit breaker. That raises the same concern about exempting too much to make the proposal worthwhile. It also may favor communities that would be flush with cap-exempt casino cash or could more easily afford to impose or raise fees for residents for certain services.

All this is wrapped up in a burgeoning debate over equity.

The equity question arose in a significant manner this month, when Daniels reported that new assessments he ordered in more than 20 percent of the 92 counties supported his suspicion that the original assessments had inherent flaws. The administration calculates that the reassessments shift some $4 billion in taxes from homeowners back to business and commercial property owners, major tax relief for homeowners across the state.

A few days later, Sen. Luke Kenley, RNoblesville, chairman of the Tax & Fiscal Policy Committee, acknowledged the circuit breaker would disproportionately benefit taxpayers in three counties: Lake, Marion and St. Joseph. They would capture almost 70 percent of the bounty-some $412 million in homeowner cap relief, leaving $188 million for the other 89 counties.

Some lawmakers, including Rep. Milo Smith, R-Columbus, a property tax consultant, began to publicly hint that the problem is rooted in how properties are assessed across the state, blaming the assessors and assessment system.

As the session winds down, watch to see if the $4 billion in homeowner relief the governor has just administratively shifted in counties with flawed assessments-combined with Kenley’s revelation that the bulk of the circuit-breaker tax relief would be directed to homeowners in just three counties-might cause a mutiny in the 80 percent of counties where assessments went relatively unchallenged.

After all, homeowners in those 89 counties would be splitting only $188 million in relief, while at the same time their local governments and schools might be forced to make deep budget cuts or impose new or higher fees for services.

In addition to resolving these issues, Democrats continue to seek incomebased caps, and oppose permanent caps of any kind, despite the Republican governor’s insistence. While the former could be resolved with a tax credit for property taxes paid exceeding a certain taxable income “cap,” the governor holds out the threat of a special session absent permanent caps.

While it may be politically possible to exit this session without a reform package, that still isn’t likely.

We typically see light at the end of the tunnel in the final week of deliberations. This year, however, that light might be from a train coming from the other direction.