The Truth Behind the Circuit Breaker

The property tax circuit breaker passed last year, promises to strip $52-million worth of revenue from the likes of school corporations, libraries and cities in Saint Joseph County.

But time is on their side.

First, the full impact of any budget cuts wouldn't be felt until 20-10.

Second, those cuts would be so severe and dramatic that perhaps it’s unrealistic to think push will ever come to shove.

While there was a feeling in the Statehouse last year that something had to be done about property taxes.

There was also a realization that the circuit breaker was only half the answer.

This year, lawmakers are taking a close look at other taxes that might be raised, to make up for circuit breaker losses.

At last count, The City of South Bend had 2,183 vacant and abandoned homes. It’s believed that high property taxes are party to blame for the problem.

To some extent, the city can’t live “without” the same circuit breaker law it says it can’t live “with.”

“For me, it’s a Jekyll and Hyde situation,” says Mayor Stephen Luecke. “We recognize property taxes had become onerous for some people. From that perspective it’s very positive.”

But Luecke feels the city needs replacement revenues to fund things like public safety, parks, and economic development efforts.

The estimates on revenues lost to the circuit breaker are staggering.

The city of South Bend would see $14.3 million disappear when the tax break would be fully implemented in 2010.

For the South Bend Schools, the loss would be $12.1 million. St. Joseph County government would lose $10.6 million.

But the crisis created by state lawmakers, could also be averted by state lawmakers.

Some at the legislature may have been just as interested in sending a message to Counties with high tax rates.

“I think the message is you’ve got to be more efficient about government got to save money where you can, you’ve got to reform your structure of government,” says State Representative Jeff Espich, a Republican budget expert from Uniondale.

And there are signs that a circuit breaker bail out is on the way.

“If we had a local option sales tax of .25% in St. Joseph County, I believe the whole situation is solved,” says Indiana Senator Joseph Zakas of Granger.

“If we increase the income tax in St. Joseph County by about 1%, that also solves the problem pretty much.”

But the idea of replacing lost property tax revenue with increased local income taxes is already off to a rough start in the House of Representatives, where the concept failed to pass a floor vote last week.

Representative Ryan Dvorak voted against the bill, saying it would not have reduced property taxes: “It may have stopped the growth in property taxes, but they would still have the same property tax bills and be paying more in income taxes.”

There are also signs in Indianapolis, that any final bail out bill may come with strings attached.

“I think there has to be something in the bill to make sure all effort has been made to run government efficiently and cut spending where that's possible,” says Senator Zakas.

But the same lawmakers, who are complaining about counties with high property taxes, may be contributing to the problem.

According to Representative Dvorak, “St. Joseph County has a very high welfare burden. That's all mandated by the state, but local governments have to collect property taxes to pay for it.”

Dvorak feels it’s time for the state to assume some of the responsibility for those costs.

The areas with the highest tax rates will be hit the hardest by circuit breaker.

While revenues in St. Joseph County would be reduced by some $52 million dollars, Marshall County would lose less than six-thousand dollars.

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