ST. JOSEPH COUNTY — The final revenue numbers are in and the debate is on: cut county services and employees or raise income taxes?

The county's revenue projections were finalized by an outside consulting firm Thursday. Under the projections, St. Joseph County stands to lose more than $5.1 million next year because of lost property tax revenue under Indiana's new property tax caps.

That's about $1 million less than county leaders originally forecast, but it still puts county government in a bind. Now, the race is on to find a way to make up the shortfall, and county leaders are starting by talking about cuts.

"Budget letters will go out Friday morning to the heads of every county department. We're asking all departments to cut their budgets by 8 percent," said St. Joseph County Auditor Peter Mullen.

That's double what county leaders asked departments to cut last year, and most were unable to achieve cuts that deep.

"In some cases, we know that 8 percent will be next to impossible," said Mullen. "But it's a target goal to start with."

The other solution is an increase in revenue, provided by a boost in the county's local option income tax.

Walking down that road won't be so simple.

Right now, the county's income tax rate is 0.8 percent. St. Joe County has the 10th lowest local income tax in the state. Elkhart County, by comparison, currently uses a 1.5 percent local income tax rate.

State law allows the county to boost that rate to a full 1 percent. But under Indiana's new property tax caps, local governments can also enact an addition 1 percent "option income tax" and a 0.25 percent "public safety tax." The safety tax can only be added if the additional 1 percent tax is added, too.

If the new taxes were "maxed out," they would add between $500 and $725 in income taxes for a St. Joseph County worker who earns $50,000 per year, said Mullen.

Mullen is quick to point out that the county has several options for the "option" tax, including a homestead tax credit that would funnel part of the income tax collected back into property tax relief.

But all of the taxes must have the approval of at least two of the county's three largest taxing bodies: The St. Joseph County Council, The South Bend Common Council and Mishawaka Common Council.

That could be a difficult sell.

South Bend Mayor Steve Luecke says the city is willing to sit down and discuss the idea.

"Certainly, we are open to discussion about some additional local income tax," he said.

Mayor Luecke says the city has issued directives to its departments to cut a combined total of about $6 million in 2009, and $8 million in 2010. And while he's not ready to comment yet on what those cuts might look like, he's certain the cuts will be painful.

"That means significant cuts in services, personnel, and programming for our community," he said.

South Bend will begin shaping its 2009 budget on July 21.

Budget deadlines mean any potential agreement would need to be reached in the next two months. Under state law, budgets must be approved by September 23.

Even so, Mullen remains confident some sort of income tax hike will be at least one part of the solution.

"I think we can do it. We can get it through," he said.

Taxpayers WSBT spoke with aren't sold on the plan.

"I'm a single mom with two children," said South Bend resident Summer Crandell. "I make minimum wage as a server, as a waitress. So for me, that would be a lot of money taken away from my household. With utilities, rent and gas, it runs you down. I don't have a spare two dollars to give away, much less a few hundred."

"There's other ways of saving money," agreed South Bend resident Tina Robinson. "You're helping in one hand with [property taxes], and taking out of another hand."

As county and city leaders crunch the numbers, many are quickly coming to a stark realization.

"It has to be done," said Mullen.

If it isn't?

"Then we have to cut expenses. Period. There's only two ways to get a balanced budget: increase revenues or cut expenses, or a combination of both, which is my preference."

Making up a $5 million shortfall could mean closing some county properties, like parks, and as many as 200 layoffs.

"If you lay off 200 people, you're sacrificing service," said Mullen. "Because 85 percent of our budget is in public safety. And to sacrifice public service, shame on us. That's why we're here. We've cut so much fat out over the last five years, that now we're cutting meat."

Even if the county's revenue was boosted by a "maxed out" income tax hike, Mullen says the county could still be forced to lay off as many as 50 employees.

He says that type of "combination solution" is the only option left.

"Nobody wants new taxes. Who wants new taxes? But people do demand service," he said.

Mullen had planned to introduce a resolution to the St. Joseph County Council by the end of this week, seeking a new local option income tax boost. But he says he was advised by the state that legally, only a member of the County Council, or Common Councils can sponsor a tax increase plan.

"I'm still willing to take the heat on this [tax increase plan] myself, I just can't put my name on it," Mullen said. "But I expect the county should be filing something, and sitting down with South Bend and Mishawaka by the end of next week."