CHICAGO - Indianapolis' long-planned $460 million pension obligation bond issue may no longer be needed under a measure passed by a key Senate committee, which would have the state assume pre-1977 public safety pension liabilities now carried by municipalities across Indiana.

The measure was one of several amendments the powerful Senate Tax and Fiscal Policy committee earlier this week made to Gov. Mitch Daniels' massive property tax reform bill as it winds its way through the General Assembly. The Democrat-led House passed the bill Jan. 24.

The committee retained many of the bill's main features, including capping homeowners' property tax bills at 1% of assessed value and enacting a series of local spending restrictions, such as requiring voter approval on bond issues larger than $7 million. The bill would replace some of the estimated $700 million to $1 billion in reduced property tax revenue with a 1% increase in the state sales tax, as well as allowing counties to raise local income taxes.

Under the Senate amendments, the state would take over both local pre-1977 police and fire pensions as well as debt service payments now made by schools that bonded their pension liabilities. Local counties' pension liabilities total $90 million a year, while school pension payments come to around $130 million, according to the Legislative Services Agency. The state currently pays 50% of pre-1977 police and fire pensions.

"It's the first time this has been mentioned [as legislation]," said James Merten of City Securities Corp., who has testified before lawmakers on the plan. "But it's still early - everyone is digesting it."

The pension amendment comes two weeks after new Indianapolis Mayor Greg Ballard, a Republican who campaigned against adding more debt to the city's balance sheet, asked state legislators to take over Marion County's pension liability - which he estimated at roughly $27 million a year - to help blunt property tax revenue losses.

Ballard said the city-county government would lose $40 million to $50 million annually under the property tax reforms, though other state lawmakers suggested the losses would be closer to $100 million for the capitol city.

Former Indianapolis Mayor Bart Peterson had pushed the proposed $460 million pension obligation bond issue, and a few months before his surprise defeat had passed an income tax increase that set aside money for debt service on the bonds.

In other changes to the bill, the Senate committee eliminated Daniels' proposal to create new local boards to oversee all local budgets. It also would phase in the 1% tax cap by 2010 other proposals would enact the cap more quickly and counties would have the ability to hike their income tax another 0.25% to offset police and fire budget cuts.

The amendments are expected to clear the full Senate, but a final bill will likely only be hammered out in conference committee in the final two weeks before the end of the winter session. "Until the session ends on March 14, who knows what the bill will look like," Merten said.

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