Scott Olson, The IBJ

Enacting a constitutional amendment that would trigger property tax caps could be the hot-button issue of the next Indiana General Assembly, judging from the remarks of  four legislative leaders.

Lawmakers meet Tuesday for Organizational Day and will begin debating measures Jan. 5 when the Legislature officially convenes for a short session. In preparation, the Indiana Chamber of Commerce hosted its 2010 Legislative Preview on Monday.

Property-tax caps clearly emerged as the most contentious topic likely to confront legislators who plan to keep spending in check at a time when state revenues continue to decline.

"This is not good public policy," Senate Minority Leader Vi Simpson, D-Bloomington, said of the tax caps. "But it's good politics."

The General Assembly approved property tax caps in 2008. The caps, which limit property taxes to 1 percent of a home's assessed value, 2 percent of a rental property's value and 3 percent of a business' assessment, will not become permanent until the Legislature approves a proposed constitutional amendment twice, in successive legislatures.

Lawmakers approved the amendment in 2008 but failed to do so again during the 2009 session, meaning they must pass it in 2010 or the process starts over. If the legislature passed the amendment, it must win approval from voters in the November election to become law.

"We will have a vote on this issue soon," Senate President David Long vowed, prompting Simpson to respond: "And I'll be voting 'no' again."

Long and Simpson were joined on the panel by House Speaker Patrick Bauer, D-South Bend, and House Minority Leader Brian Bosma, R-Indianapolis.

The state chamber favors uniform property assessments and argues that the new formula would place too much of the burden on the business community while stymieing job creation, said Cameron Carter, the chamber's vice president of small business and economic development.

"We agree that we need to protect property taxpayers, but we disagree with the '1-2-3 lock,'" he said. "We just don't think it's good for economic development or the prosperity of businesses."

Simpson argued that the impact the temporary property tax caps are having on commercial properties should be examined first before making them permanent.

Democrats favor tax caps but do not want them to become part of the Constitution because that would make it harder to change the property-tax formula later.

The panelists also sparred over delaying implementation of the increase companies will pay in payroll taxes. Lawmakers this year raised the tax on employers effective Jan. 1 and made other changes to help keep the Unemployment Insurance Trust Fund solvent.

The state has borrowed about $1.1 billion so far from the federal government to keep the fund afloat, a figure expected to climb to $1.7 billion by year's end. Back in 2000, the fund enjoyed a $1.6 billion surplus but has been depleted by rising unemployment rates.

But raising taxes on businesses at a time when the economy is struggling to gain traction might not make the best political sense. Republican legislative leaders already have acknowledged that they're likely to support a bill to delay the tax hike by a year.

"Delaying implementation is the right thing to do," Long said. "The circumstances have changed since we first took on this task."

In exchange for their support, Democrats likely will request something in return, such as tying any delay to a job-creation stimulus package.
"Jobs ought to be the No. 1 program for this session," Bauer said. "We need to reduce unemployment by putting more people to work."
Also, the state chamber hopes to build upon local government reform measures recommended early this year by Indiana Supreme Court Chief Justice Randall Shepard and former Gov. Joe Kernan in their non-partisan Kernan-Shepard report. Gov. Mitch Daniels championed the changes, some of which resulted in legislation intended to save money by consolidating government functions.

Voters in Marion County, for example, approved consolidating property assessment, doing away with township assessors. Now, one county executive has responsibility for the assessment of all property in the county.

Daniels is expected to propose further consolidation, moving township oversight of fire protection to a county-wide board.

But further consolidation will be done in small stages, the legislators agreed.

They also concurred that continued fiscal responsibility will be the theme of the session.

Indiana tax collections for October were $46 million below forecast, and are $309 million behind for the first four months of the fiscal year.

The state ended the 2009 fiscal year in June with $1.3 billion in reserves. If the trend continues without spending cuts, Indiana's reserves could be wiped out by next August.

"I hate it that we had to lay off 33 state employees," said Bosma, referring to the Department of Administration workers who were recently let go. "But we must live within our means. That means no new taxes and no additional spending."

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