By MIKE SMITH

AP Political Writer

INDIANAPOLIS (AP) — A good starting point.

That’s how two leading lawmakers — Democratic House Speaker Patrick Bauer and Republican Senate Tax Chairman Luke Kenley — tagged Republican Gov. Mitch Daniels’ major property tax restructuring and reduction proposal.

Both praised Daniels for presenting a comprehensive plan well before the 2008 legislative session gets under way in earnest in early January. The response from Bauer seemed especially significant given past political sparring with Daniels.

“I’m happy he’s on record for property tax relief and I’m happy he’s at the table negotiating,” said Bauer, D-South Bend.

Daniels proposed a plan Tuesday that his administration says would lower homeowner bills by about one-third on average statewide. Some replacement revenue would come from raising the sales tax from 6 percent to 7 percent.

The plan would cap homeowner property taxes at 1 percent of a home’s assessed value beginning in 2009, with limits of 2 percent for rental property and 3 percent for business property. Daniels wants lawmakers to set the limits by law at first and then amend them into the state constitution so they are harder to undo.

The proposal includes expanded exemptions for homeowners, new spending limits on local governments; more centralized county oversight on spending; elimination of elected assessors to be replaced by a single appointed one in each county; and a requirement that all significant local construction projects be voted on in a public referendum. The administration said it would work with lawmakers on defining “significant.”

The state would assume the remaining 15 percent of school operating costs it doesn’t pay for, school transportation costs, and care for neglected, abused and delinquent children — all things largely funded by local property taxes.

Overall, the plan would provide about $3.1 billion in property tax relief. However, some of that relief already is being provided in subsidies to local governments so a portion of local taxes are not passed on to property owners.

Daniels, who presented his plan in a speech from his office broadcast live by some television and radio stations, said old approaches to reducing reliance on property taxes have not worked. Lawmakers have at times raised state taxes to reduce or limit the growth in property taxes, but the relief has not lasted.

“When Indiana acts this time, and we must, our steps must be fair, far-reaching and final,” he said.

Property taxes are expected to be the dominant issue in the 2008 legislative session. That’s because taxes on homeowners were projected to increase by 24 percent on average statewide this year, although many taxpayers face bills that are higher.

Numerous plans have been presented by special interest groups and individual lawmakers, and an interim panel of legislators and tax experts has been studying the issue for weeks and hopes to agree on at least some concepts and goals by mid November.

Daniels’ plan would be funded by using $928 million the sales tax increase is projected to raise; using about $2 billion in money the state currently uses to subsidize property tax breaks; tapping about $100 million in wagering taxes from planned casinos at two pari-mutuel horse racing tracks; and using some money from the state’s surplus.

Eliminating some levies would ensure they could not grow again, and the caps on assessments would ensure that taxes on homeowners and other property tax owners would be limited each year. About 55 percent of homeowners currently pay taxes more than 1 percent of their home’s value, administration officials said.

Under the plan, someone with a home worth $100,000 would pay no more than $1,000 starting in 2009. But even homeowners who do not pay more than 1 percent of their assessed value would get property tax breaks.

That’s because next year, homestead credits would be expanded using $250 million from casino license fees at the horse tracks, plus another $700 million from the sales tax increase. That increase would not be in effect for a whole year because the Legislature would have to pass it first.

The assessment caps would take effect in 2009, and homeowners’ net assessed values would be lowered by 35 percent. That is on top of an existing maximum assessment reduction of $45,000 or half of a home’s value, whichever is less.

Bauer had some concerns about the plan, including the state assuming all school operating costs. “The old golden rule is that he who has the gold rules,” Bauer said. “If the money comes from the state completely, the locals do lose control.”

Kenley commended Daniels for having the courage to recommend a way of replacing some of the lost local revenue, in this case through a sales tax increase.

“This shows he means business,” Kenley said.

Highlights of Daniels property tax plan:

By The Associated Press

Highlights of Gov. Mitch Daniels property tax restructuring and reduction plan:

PROPERTY TAX LIMITS:

— Caps homeowner property taxes at 1 percent of their home’s assessed value beginning in 2009.

— Caps rental property taxes at 2 percent of assessed value in the same year.

— Caps business property at 3 percent of assessed value, also in 2009.

— Seeks amendment to state constitution to make such caps harder to undo.

TAX INCREASES:

— Seeks to raise state sales tax from 6 percent to 7 percent. Would bring in about $700 million if in place for part of 2008 after legislative session ends, and $928 million the following year.

2008 RELIEF:

— Homestead credits would be expanded for a year by using $250 million from casino license fees at two pari-mutuel horse tracks, plus $700 million in sales tax increase revenue.

2009 RELIEF:

— State assumes costs that are largely paid for by property taxes, including remaining 15 percent of school operating costs, K-12 transportation and care for abused, neglected or delinquent youth.

— Expanded homestead deduction of 35 percent of a home’s value.

— Average homeowner would get an overall property tax cut of about one-third, although reductions would vary considerably across the state depending on local circumstances.

PROPERTY TAX RELIEF FUNDED BY:

— Increase in state sales tax ($928 million if in full effect for one year)

— Wagering taxes on planned casinos at two horse racing tracks ($100 million a year)

— Using about $2 billion in local property tax subsidies to have the state assume remaining school operating costs, child welfare costs, school transportation, and other less costly items.

LIMIT FUTURE INCREASES IN LOCAL SPENDING

— Tax Board in each county must review and approve all spending plans for all taxing units.

— Total local spending cannot grow faster than a county’s personal income growth over a six-year period unless approved by taxpayers in a referendum.

— All significant local construction projects must be approved by voters in a referendum. What is considered “significant” has not been determined.

ASSESSMENTS

— Elected assessors would be replaced by a single professional assessor in each county appointed by the county council.

Posted 10/24/2007