SOUTH BEND — Final numbers from Indiana's Office of Management and Budget show big property tax cuts for two local counties, and projections show similar cuts for other local counties.
But only some homeowners will see the drop, and the impact from lost revenue down the road could still mean major cuts for local government.

The property tax drops will only affect homeowners who've filed for a homestead credit. Under Indiana's new property tax cap bill, known as House Enrolled Act 1001, $620 million in new homestead credits will be applied across the state in 2008.

That money will be used to lower some homeowners' shares of local government and school expenses, thus, lowering their property tax bills, according to IOMB Director Ryan Kitchell.

According to final budget numbers released by the IOMB Wednesday, Marshall County homeowners who have applied for a homestead tax credit will see an average cut of 33% on their 2008 property tax bills.

Tax bills for homeowners without the homestead credit will remain unchanged.

Marshall County tax bills are expected to be mailed on Monday or Tuesday. The first installment will be due September 10. The second installment will be due on November 10.

In Pulaski County, final budget numbers show a drop of 55% for those with a homestead credit.

Indiana's non-partisan Legislative Services Agency projects average cuts of 39% in LaPorte County, 38% in St. Joseph County, and 28% in Elkhart County. Again, each of those reductions only applies to those with homestead credits.

Elkhart County hopes to get both spring and fall bills out within the next 30 days. But St. Joseph County is still waiting on the tax rate information from the state's Department of Local Government Finance.

St. Joseph County Treasurer Sean Coleman says the county has already collected about $35 million from voluntary tax payments through tax estimation bills.

LaPorte County is in the same boat.

Reassessments aren't done yet there, but the county will send out a two installment provisional bill at the end of August.

All of the property tax cuts are only for 2008, and will not impact the amount of money local governments receive from property taxes.

But some leaders in St. Joseph County say when the state's new property tax caps begin to take effect in 2009, they will feel the impact.

State lawmakers voted to increase Indiana's sales tax by 1 cent in an attempt to offset the lost revenue.

St. Joseph County is likely to feel the pinch more than almost anywhere else in the state, because of a higher debt load and larger reliance on property taxes for everyday operations.

But some are still hopeful that the projected losses can be made up without major cuts.

It was the rally cry heard throughout 2007.

"Taxpayers said, we want relief. We want these property taxes cut," said Representative Jackie Walorski (R-Jimtown).

But now, there's a new war cry: cuts to city and county services, from the closure of pools and parks facilities to deep cuts in public safety, including the layoffs of 40 police officers and 53 firefighters.

The projected cuts total nearly $7 million in St. Joseph County's budget and $18 million from South Bend's budget by 2010.

The only way to avoid the cuts, say city and county leaders, is to find a new source of revenue.

Walorski says there's already one available.

"There are provisions for revenue streams if cities need them. They can enact local option income taxes if they want them," she said.

Right now, St. Joseph County's local option income tax, or LOIT, is the 12th lowest in the state at 0.8%. Elkhart County's, by comparison, is nearly 1.5%.

Under HEA 1001, local governments can raise the LOIT by 1 percent. Add that to the additional 0.2% allowed under current state law, and another optional 0.25% public safety tax, and the county's LOIT could be "maxed out" at 2.25%.

City leaders have previously said that increase would virtually wipe out any losses in property tax revenue because of the new caps.

But enacting the new tax would require at least two of the three major local taxing bodies to sign off on the plan. They are: the St. Joseph County Council, the South Bend Common Council and the Mishawaka Common Council.

Enacting the new tax would also mean less "tax relief."

"It really doesn't make any difference whether it comes out of your left pocket, or your right pocket. It's still coming out of your pocket," said Rep. Craig Fry (D-Mishawaka). "But if they don't raise the local option tax, they're going to have to do the layoffs. And that's going to be a big deal."

That's left Rep. Fry, and other local leaders, pushing lawmakers to find another solution.

"We're going to have to re-examine the whole bill next year," said Rep. Fry. "Because all the promises we made to local government, all the tax rolls we took over in House Bill 1001 will have to be looked at again. We don't have the resources state-wide to handle everything we agreed to do."

Fry, the only Indiana legislator to vote against HEA 1001 twice, says it's forced local governments to search for other solutions. Unless the tax caps are repealed, he said, there will need to be some other sort of option available.

Members of Indiana's Association of Cities and Towns, including local mayors, commissioners, and county councilman, have proposed "replacement taxes" called "Hometown Matters" for more than two years, but the ideas have been rejected by state lawmakers so far.

"If we can raise taxes on the people that don't live here, that's a good thing," said Fry. "A hotel-motel tax, that's one thing that helps. Food and beverage helps."

But passing those new "options" through the statehouse could be tricky.

"I have to live within my budget, and you live within yours," said Walorski. "Do we need three deputy mayors in a city, when we can't have three commissioners in a county? The only option I'm going to consider in this upcoming session is cutting the income tax in the State of Indiana. I am not for raising anybody else's taxes."

It's one reason why some are now considering another new option. The state's recently established Distressed Unit Appeals Board is chaired by Kitchell.

"There are several options available," said Kitchell. "First, that local taxing body can search for ways to be more efficient, and consolidate. Then, there's the boost in option income taxes. But, if there's a unit of government that just can't make it and needs a little more time to transition, the [Distressed Unit Appeals] Board can choose to maybe let the caps be 2% [for homeowners], 3% [for renters] and 4% [for businesses] or do some other things to give the unit of government an additional year or two years to find some type of path to get there."

Under HEA 1001, homeowners' property taxes will be capped at 1.5% in 2009, and 1% in 2010. Renters will be capped at 2%, and businesses at 3%.

Because school corporations cannot levy their own taxes, they also have another option under HEA 1001, according to Kitchell. They can hold a public referendum during a general or primary election asking permission to raise the caps.

But lifting or delaying those caps would mean less property tax relief, and that has Walorski repeating yet another rally cry.

"I think what you're seeing is taxpayers pushing back and saying, it's my money. Live within your means, and figure out a way to do it," she said.

Local leaders say efficiency and consolidation is their goal, but many doubt that consolidating can eliminate the need for deep cuts.

St. Joseph County Auditor Peter Mullen says without some new form of revenue, the county will begin moving forward with plans to cut 8% of its staff and programs from every department.

Mullen says, for him, appealing to the Distressed Unit Appeals Board is a "last resort."

Only the City of Gary has filed an appeal with the Board so far, according to Kitchell.

County budget hearings are set to begin on Monday.