INDIANAPOLIS | Democratic House Speaker Pat Bauer and Republican Senate President David Long joined Gov. Mitch Daniels Wednesday to sign into law the property tax restructuring package approved by General Assembly.

"I think you did Indiana proud throughout this process," Daniels told the legislative leaders. "(The plan) puts taxpayers first -- taxpayer affordability first."

The legislation, passed last week, is expected to cut homeowner tax bills by an average of 26 percent this year in Lake County and by 24 percent in Porter County. The bulk of that immediate relief will be funded by a penny increase in the state sales tax, which will rise from 6 percent to 7 percent on April 1.

"This bill does cut property tax bills dramatically," Bauer, D-South Bend, told the crowd of more than 200 that packed the Statehouse rotunda for the bill signing.

Next year, the sales tax hike will bankroll a $1 billion state takeover of programs now funded by property taxes, including some police and fire pensions, school operating costs and welfare levies. The legislation also will gradually impose new property tax caps designed to provide permanent protection from local government spending.

In 90 counties, including Porter, tax bills will be capped at 1 percent of assessed value for homeowners, 2 percent for landlords and 3 percent for businesses, beginning in 2010.

In Lake and St. Joseph counties, lawmakers exempted existing government debt from the calculation of the caps, a move intended to partially spare local government and schools from disproportionate revenue losses triggered by the caps in those counties.

"Without that (debt) exclusion, I'm afraid a lot of our taxing units would have been bankrupt, and not everyone realized that," said state Sen. Sue Landske, R-Cedar Lake. "I think (Lake County taxpayers) are going to be very pleased."

The average Lake County homeowner is expected to receive a 2010 tax cap of 1.2 percent, which means the owner of a $100,000 home would pay no more than $1,200 in annual property taxes. The cap will inch downward as local government retires existing debt, and homeowners there will be guaranteed a 1 percent cap by 2020, or a $1,000 tax bill on a $100,000 home.