INDIANAPOLIS -- Months of political wrangling over property taxes ended Friday as lawmakers approved a major relief and restructuring plan that will give more tax cuts to homeowners this year and cap future bills for most property owners.

The Democrat-controlled House approved the plan 82-17, while the Republican-ruled Senate passed it 41-6. A separate measure that would begin the process of amending the tax bill caps into the state constitution passed the House 79-20 and the Senate 40-7.

---

Capitol WatchBlog: Updates -- Property Tax Deadline Day

---

The package included several modified parts of a plan that Republican Gov. Mitch Daniels presented in October, including raising the sales tax from 6 percent to 7 percent beginning April 1 to help pay for part of the property relief.

Daniels called it a historic win for taxpayers that would end an era of "business as usual" for Indiana's property tax system. He had warned lawmakers that he would call them back into special session if they failed to pass a plan that provided immediate, significant and lasting property tax relief and reform by Friday's deadline for adjournment.

"No more will taxpayers be asked to adjust their tax bills to government's appetite," Daniels said. "Government will now ... need to adjust its spending to what taxpayers can reasonably afford."

Some lawmakers agreed with Daniels in calling the plan's passage a major victory for property taxpayers. Opponents said among other things that it would deal a severe financial blow to many school district and local governments, and would likely result in an overall tax increase for many Hoosiers.

Some said it was simply a mixed bag.

"I want everyone to recognize that it's the good, the bad and the ugly, it's gain and it's pain," said Rep. Russ Stilwell, D-Boonville. He was among 16 Democrats and one Republican in the narrowly divided House who voted against the 662-page bill that included the statutory provisions of the plan.

It would provide additional homeowner relief this year by adding $620 million from the increased sales tax revenue to $250 million already allocated for additional homestead credits in 2008.

Homeowners' tax bills this year would be cut by about 30 percent on average statewide from last year. When fully implemented in 2010, the plan would reduce homeowners' bills by an average of nearly 28 percent statewide that year from 2007 levels.

The caps would be phased in over the next two years. Homeowners' tax bills will be capped at 1 percent of their homes' values in 2010, with 2 percent limits for farm and rental properties and 3 percent caps on business properties. The caps could be exceeded if voters approve major bonding projects through referendums.

The tax caps are projected to save property taxpayers about $524 million when fully implemented, but that is money schools and local municipalities would not get that year. The compromise plan would set aside $120 million for schools over the next two years to soften the caps' impact.

Proponents said the caps would give taxpayers an assurance that their bills could be only so much, but opponents said it would force many schools and local governments to cut services or raise local income taxes to offset future budget shortfalls caused by the caps.

Rep. Craig Fry, D-Mishawaka, predicted that a combination of the sales tax increase and future local income tax hikes would be "by far the largest tax increase in the history of this state."

While counties can exceed the caps to pay for future debts approved by referenda, lawmakers gave a break to Lake and St. Joseph counties, saying they can exceed the caps to pay their existing debt because the debt exceeds 20 percent of their budgets. The resolution that would amend the caps into the constitution would continue to exempt their existing debt from the caps through Dec. 31, 2019.

Under another major component of the plan, the state would absorb all school operating costs, four child welfare levies, local juvenile detention costs, money local governments owe for pre-1977 pension plans for police and firefighters, and property taxes used to subsidize costs hospitals incur treating the indigent.

Also under the plan, the position of assessor would be eliminated in townships with less than 15,000 parcels. In townships with more than 15,000 parcels -- including all townships in Marion County -- referenda would determine whether the assessor would be eliminated.

Daniels said he would sign the bill when it is sent to his office.