CHICAGO — Indiana Gov. Mitch Daniels made his first appearance before the state House Ways and Means Committee yesterday to tout the massive property tax reform proposal that was the topic of nearly his entire state of the state address this week.
The morning after delivering the annual address, Daniels met with House representatives, and later with local elected officials, to continue pushing his plan, which he urged lawmakers to pass by Feb. 26 — the 90th birthday of former Indiana Gov. Otis R. “Doc” Bowen. He warned lawmakers he would keep them in a special session past their regular session’s mid-March scheduled adjournment until they enact “fair, far-reaching, and final” property tax reform.
Under Daniels’ plan, homeowners’ property tax bills would be cut by one-third, rental property tax bills by around 25%, and business property taxes by about 20%. The lost revenue would be replaced in part with raising the sales tax to 7% from 6%.
All bond issues more than $10 million would require voter approval, and local spending would be restricted to the rate of growth of personal income for county residents. Counties would also have the ability to raise local income taxes by 1% to compensate for the loss in property taxes.
Daniels also wants to see a cap keeping homeowners’ property tax bills to 1% or less of their assessed value added to the state constitution.
“The plan I have proposed will deliver $1.19 in tax cuts for every dollar of new sales tax revenue,” Daniels said during his state of the state address. “And next year, when the caps take full effect, taxpayers will be enjoying almost $2 of tax cuts for every dollar of new sales tax, almost a billion dollars in all. That would amount to by far the biggest tax cut in state history.”
Legislators have generally reacted positively to the plan. The House introduced a massive bill encompassing Daniels’ proposals in December, a month before the General Assembly’s formal session began, and the Senate began debate on several smaller bills that would enact his reforms.
But the House bill has already attracted 48 amendments — including one that is 200 pages and largely technical — and in a series of public hearings on the reform, legislators seem most critical of the provisions restricting local spending.
In yesterday’s committee hearing, several representatives echoed the criticism of local officials who say the restrictions would mean steep revenue drops and sluggish economic development.
“We talk about cuts and my concern is that we assume there is a lot of fat in local government,” committee chair Rep. Bill Crawford told Daniels. “But we are already below projections for revenue forecasts, so how do we deal with that?”
The governor responded that local spending cuts are the “heart” of the plan, and that debt service costs are the biggest culprit behind rising property taxes.
“These borrowing costs are the fastest driver of property taxes anywhere in America,” he said. “We won’t have a real solution unless we somehow address these local borrowing costs and let the people have a say.”
Property taxes were also one of the top subjects for Nebraska Gov. David Heineman in his Tuesday night state of the state speech.
Heineman called for $75 million of additional property tax relief — money that would come from the state’s cash reserves — to add to last year’s $115 million of state aid provided for homeowner property tax credits.
While requesting the one-time dip into the cash reserve fund, the governor also called on lawmakers to maintain a “prudent” fund.
“The members of this Legislature have the experience and the wisdom to appreciate the value of a robust cash reserve,” he said. “There will be temptation to spend it, but your leadership can preserve it.”
Heineman’s fiscal recommendations are for the remainder of Nebraska’s 2007-2009 biennium.
