Daniels also said a city that runs out of money because of Indiana's new property tax caps could be placed into receivership, but they should first consider local mergers.

"That's the sort of thing that taxing units under pressure ought to be looking at, and I suppose at some point a receiver could do it for them," Daniels said in a teleconference Wednesday with reporters.

Under a law passed in 2008, property tax bills on homeowners this year were capped at 1.5 percent of their homes' assessed values, with 2.5 percent limits on rental property and 3.5 percent caps on business property. The caps are to be lowered to 1 percent, 2 percent and 3 percent, respectively, in 2010.

Daniels wants the property-tax caps placed in Indiana's constitution. Legislation to put the matter before Indiana voters is moving through both houses of the General Assembly.

"Every time in the past the state has tried to step in and help with local property taxes, they've grown back," Daniels said. "This time we've not only reduced them sharply, the relief would be lasting."

However not every one is on board with the amendment.

State Rep. Vernon Smith, D-Gary, said colleagues have told him they are concerned about the property tax caps because revenue is drying up for several cities.

"I don't think that it needs to be placed in the constitution," Smith said. "I think we do need to go back to the drawing board to look at that."

Gary Mayor Rudy Clay did not immediately return a phone message Thursday seeking comment to Daniels.

Gary is the only city that received relief from the state's Distressed Unit Appeals Board in 2009. The board raised the cap for local property owners to generate an additional $23.5 million for Gary taxing units. Gary also is seeking relief from the board in 2010.

Representatives of Public Financial Management Inc., Gary's fiscal monitor, have said the city would be left with $30 million if the property tax caps were fully in place. The Post-Tribune reported that amount would pay for only the salaries of police, firefighters and EMS workers and leave no money for benefits or any other city employees.

Placing the caps in the constitution would leave the appeals board powerless to give Gary relief, though, meaning Gary would need to find a way to live within those caps by 2012.