Tuesday at the Kokomo Event Center, there were landlords, upset because they’re subsidizing property tax cuts for Indiana homesteads. There were Kokomo firefighters, blaming property tax caps for downsizing their department.

And there were three legislators, facing the huge task of once again rethinking Indiana’s tax system.

The next session of the Indiana General Assembly will probably decide whether the 1 percent, 2 percent, or 3 percent tax caps will become a part of the Indiana Constitution.

There’s no doubt the caps have lowered property taxes for owners of homestead properties in Howard County.

According to the non-partisan Legislative Services Agency, 99 percent of the county’s homesteaders have seen their property taxes drop since the high-water mark of 2007. And those taxes have dropped, on average, by 66 percent.

But those cuts have come at the cost of a shift to sales and income taxes. And thanks to the recession, those taxes haven’t replaced the revenues local government units lost to the property tax caps.

And feelings are growing that the Legislature tilted things too much in favor of residential homeowners.

Even among those who espoused property tax caps at Tuesday’s forum, there was no consensus on what final shape those caps should take.

“The homeowners are really benefiting from this, but that pendulum went too far, at the expense of landlords, farmers and businesses,” local businessman Mike Imbler said at the meeting.

State Sen. Jim Buck, R-Kokomo, a longtime advocate of making Indiana the first state with no property taxes, disagreed.

“Government can either expand our liberties or take them away,” Buck said. “One of the dreams of the people who first came here was to own property free and clear. For too long, we’ve been tenants of the government through the property tax system.”

When the Indiana General Assembly reconvenes in January, however, Buck will have to contend with other legislators, many of whom already question the tax shifts approved in 2008.

State Rep. Jacque Clements, R-Frankfort, praised the caps in part, saying they’ve forced local government units to consider their individual impact on the overall property tax rate. The caps have forced locals to look at consolidation and duplication of services, she said.

But, Clements warned, “While [the caps] are an important beginning step, there are a lot of issues we have in funding local government. Our income tax revenues are really down.”

State Rep. Ron Herrell, D-Kokomo, went a step further, saying his calculations show that cuts in his personal property taxes were outweighed by increases in sales and income tax.

“The question is, why was ‘1 percent, 2 percent, 3 percent’ picked?” Herrell said. “I don’t know ... we need money to operate local government, and you see what happens; right here in Kokomo we’ve had firefighters laid off. We’re seeing what a loss of revenue can do.”

A contingent of Kokomo firefighters, led by Kokomo Firefighters Local 396 president Rick Daily, attended the meeting, which was organized by Watchdog Indiana, a taxpayer-advocacy group pushing for the tax caps to be placed in the constitution.

When Buck noted that local governments now have the freedom to increase local income taxes, sales taxes and fees to fund local government, Daily offered a rebuttal.

“It seems like everyone at the Statehouse took the easy road — you sent [the problem] back to the cities,” Daily said. “Now the mayors have two roads to choose from — raise taxes or raise fees. Or the road most of them took, laying people off. Pardon the expression, but you passed the buck.”

Buck, however, said that before the most recent round of tax shifts, local governments were increasing spending on average by 6.7 percent a year, far above inflation.

“The best way to run government is to cap spending to [a formula that calculates for] inflation plus population growth,” Buck said. “If you did that, you’d see growth. And the first bite of the apple is keeping property taxes under control.”

• Scott Smith is a Kokomo Tribune staff writer. He may be reached at (765) 454-8569 or via e-mail at scott.smith@kokomotribune.com