SOUTH BEND — Property tax bills are about to take a dive, but not everyone is on board with the plan. Some local leaders say it takes away equal relief for homeowners in St. Joseph County, and leaves local governments scrambling to make up for lost funding.

Lawmakers voted overwhelmingly in favor of the plan Friday. If Gov. Daniels signs the bill into law, it would cut taxes by an average of 28 percent statewide.

But St. Joseph and Lake counties would see slightly less relief than other counties in the state because existing tax debt for capital spending was exempted from the caps here, leaving homeowners to expect caps between 1.03 percent and 1.3 percent instead of the flat 1 percent cap in 90 other counties across the state.

Some also called the plan was a tax shift rather than a tax cut. Lost revenue will be made up through a 1 percent increase in the state's sales tax.

Some taxpayers like Daniel McKenzie of South Bend say it's a bad deal.

"It is ridiculous," he said. "We want the same relief. It's not fair. By no means is it fair."

And some local leaders agree.

"I understand that frustration," South Bend Mayor Steve Luecke (D) said at a news conference following the legislature's vote. "There were some successes in the bill. But from my perspective, it came up short."

He says local leaders didn't ask for the debt exemption. State lawmakers told them they needed it because debt in St. Joseph and Lake counties is so high, taxing it would bankrupt local governments there.

But some say that's not the case.

They point to a 2007 audit of the county's finances that shows St. Joseph County's debt services fund at $5.03 million.
Click here to view that audit.

But the numbers also show a heavy impact from local school districts. Some have large capital construction projects on the tax rolls, and that's pushed the county's total debt to $58.6 million.

Still, while exempting that money from being capped will cut the county's initial projected losses nearly in half, Mayor Luecke says it won't fully solve the problem.

"The total of all taxing units will lose $34.6 million a year in revenue," he said. "Those are significant portions of each unit of governments' budgets. It is not cutting fat. It is perhaps amputating certain services that may be required."

But state lawmakers say there is another solution embedded in HB 1001. Local taxing bodies can enact a 1 percent local option income tax and a 0.25 percent local option public safety income tax.

But there's a catch.

"If we were to raise the option income taxes, those monies would go back for property tax relief," said St. Joseph County Council President Rafael Morton. "The way the bill was originally written, if we raised the income taxes, those taxes would go back into the county and cities general funds to help pay for services. With the changes in the bill, that's no longer the case."

Morton says that means not all of the money that would be collected under the new income taxes would go to help replace lost property tax revenue.

Even if it would, Mayor Luecke says he doubts it would solve the problem.

"If we enact both a full 1 percent income tax for property tax relief and 0.25 percent for public safety, the City of South Bend will still be $4 million short."

Under those projections, South Bend Schools would also be nearly $3 million short. St. Joseph County's Library District would be nearly $1 million short, and Transpo bus service would stand to lose about $500,000.

Click here to see the full LSA projection of the Circuit Breaker impact.

Luecke also says the reliance on local income taxes makes local governments "the bad guys."

"[Legislators] get to come home and say 'we cut your property taxes' and then force us who lost the revenue we had -- this is not new revenue we're asking for -- to raise the taxes to be able to provide these key services in our communities."

Both Luecke and Morton say either way, both the city and county will likely be left with few options.

"On the surface it does seem to soften the blow," said Morton. "But you're still looking at an effect where we're going to have to deal with in 2009 and 2010 that could still mean layoffs and cutting back of services."

The question from Daniel and his neighbors now?

Is this really "relief" at all?

"It's a little frustrating, yeah," he said. "But, we'll remember that on the day we go voting."

Exactly where cuts to cities, the county, or schools might come is still unclear. But both Luecke and Morton acknowledged some might have to come from public safety.

All local taxing bodies plan to discuss the potential impact of the new caps. Some, like South Bend, have hired outside firms to assess what their next moves should be. Mayor Luecke says the city is also in talks with a firm to perform an efficiency review, to determine where further cuts could be made.

In order to implement the new local option income taxes, at least 2 of the 3 major taxing bodies would have to sign off on the plan. They are: the St. Joseph County Council, South Bend Common Council, and Mishawaka Common Council.