Mike Smith | Associated Press
INDIANAPOLIS - Gov. Mitch Daniels touted a sweeping highway plan during his State of the State speech Wednesday night, urged lawmakers to give local governments power to consolidate and use new ways of raising money, and proposed a cigarette tax increase of at least 25 cents per pack in hopes of reducing smoking.
Daniels also said he would direct $156 million collected during a recent tax amnesty period to cut in half $312 million in back payments owed to schools. He said schools needed new tools to cut overhead and steer more money toward instruction.
Daniels said the state was still far from sound, and behind in changes "needed to restore income to Hoosier paychecks." A lean budget enacted last year and administrative moves to cut costs had Indiana poised to eliminate a $600 million deficit he inherited by June, he said.
His administration has adopted progressive approaches to government and become more activist in tackling problems, he said.
"Indiana is no longer on its heels, waiting while our problems bounce past us or through our legs," he said. "Even though the inning is still an early one, we are moving forward against our challenges. We are playing the ball."
Administration officials said a 25-cent cigarette tax increase would raise about $120 million a year and was a proposal solely intended to reduce smoking, especially among youth. Lawmakers last raised the tax in 2002, from 15.5 cents per pack to 55.5 cents.
Daniels said the state was one of the most unhealthy in the nation, and that Hoosiers "weigh, drink and smoke too much, and exercise too little."
He placed a special emphasis on getting young people not to smoke.
"All the evidence shows that the most effective way to deter young smokers is at the cash register," he said. If the increase is approved, a tax of 80.5 cents per pack would still be lower than all neighboring states except Kentucky's 30-cent tax.
Several Democrats said they were surprised that it was the second year in a row the governor had proposed a tax increase. He surprised many last year by pitching a one-year income tax increase on residents making $100,000 or more. He said it was needed to help eliminate the state's budget deficit, but the proposal failed.
House Minority Leader Patrick Bauer, D-South Bend, said Daniels glossed over some major issues and did not mention anything about the higher natural gas prices Indiana residents are facing. And he and other Democrats criticized Daniels for not saying how new revenue from a tax increase would be used.
Rep. Jeff Espich of Uniondale, the fiscal leader for House Republicans, said Daniels saw the proposed tax increase as a health initiative. It would be hard to get through the General Assembly, even though it is controlled by fellow Republicans, he said.
"Republicans in particular are, I can say, certainly not anxious to increase any taxes," Espich said.
But Daniels, who became the first Indiana Republican governor in 16 years in 2005, got much of what he wanted from legislators last year. That included overhauled oversight of Indiana's economic development policy, tax incentives for businesses and a law that will mandate statewide observance of daylight-saving time starting April 2.
But he said lawmakers could accomplish more, even in a short session to end by March 14.
"To this Assembly, I say, 'Lap one, well done,'" he said. "But the second phase is all-important. We don't have a single day, let alone a legislative session, to rest or cruise or hesitate."
Daniels said his highway plan would trigger "tremendous job growth."
It would allow the state to sell or lease the Indiana Toll Road in northern Indiana to a private venture, something Daniels said could bring in $2 billion or more in upfront money to fund numerous road projects. The proposal also would allow the state to make the planned extension of Interstate 69 through southern Indiana a toll road and sell or lease it.
Many lawmakers from both parties have raised questions about the sale or lease options, and many Democrats have rejected the idea outright, saying it could lead to higher and higher tolls.
Daniels said local government needed a "complete makeover," which included consolidation and transferring the state's township assessment system to counties. He planned to detail the proposal during a news conference Thursday.
A recent study by the Indiana Fiscal Policy Institute found wide disparities in property tax assessments under the state's new market-value system, and recommended that Indiana's 1,008 elected township assessors be eliminated and replaced with appointed professionals who would work for counties.
Daniels also asked lawmakers to "liberate localities to raise funds from sources other than the overused and unfair property tax."
A leading senator failed to win passage of a plan last year to give local governments a new local option income tax, and even though another attempt will be made for alternative funding, it could fall flat in the House.
House Speaker Brian Bosma, R-Indianapolis, said this week that his caucus was focused on providing at least temporary property tax relief to homeowners this year, and it would be difficult to do that and consider long-term financing alternatives for local governments in a short session.
Daniels also stressed the need for telecommunications reform. His administration backs a bill that supporters say would increase broadband Internet service and eventually free telephone companies from pricing regulations by 2009. Several consumer groups believe it will drive up basic phone service rates.
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