VALPARAISO | Calling for "reduction and stability," Porter County Treasurer Jim Murphy unveiled a two-part tax relief plan Friday that uses $8.4 million of interest from the hospital proceeds fund.

The proposal implements 1 percent property tax caps this year instead of the state plan that phases them in until 2010. It also seeks to reimburse local taxing units for interest they spent on loans while waiting for last year's tax distribution.

The plan is fully funded by the interest being earned from the hospital proceeds fund -- which was established after the county sold Porter hospital last year. Murphy said the fund is currently receiving about $500,000 of interest monthly and by January 2009 will have earned $11 million.

Earlier this year, the state passed a tax plan that included permanent circuit breakers designed to limit tax bills. When fully implemented, homeowners would have a 1 percent cap, meaning bills for an owner-occupied home, or homestead, could not exceed $1,000 on a $100,000 home.

Murphy praised the Legislature for approving the caps, saying it would amount to tremendous saving for homeowners. Taking it one step further, he proposed to begin them immediately.

"This is a good way to ease the taxpayers into it," Murphy said. "It would give them stability of bills during an expected roller coaster of taxation for the next two to three years."

Based on calculations with the Legislative Services Agency and state representatives, Murphy estimated the cost to implement his proposed circuit breaker in Porter County to be about $1.8 million this year and $3.2 million in 2009.

The second part of Murphy's plan provides reimbursement for taxing units who did not receive distributions last year due to the county's much-delayed bills. Earlier this week, Porter County Council President Bob Poparad recommended reimbursing taxing units for interest paid due to expected delays from this year's tax bills.

"I think it's good government and I think we have a moral obligation to pay it back," Murphy said Friday.

Murphy noted that "through no fault of their own" the taxing units had to borrow funds from cash reserves or banks to stay operational in 2007. Because half of their money should have been received by July, Murphy's plan is based on half of each unit's property tax levy.

The plan calculates the interest paid, or for towns that borrowed funds internally, interest lost. Murphy uses 3.5 percent interest on six months of each unit's levy to get a total cost of $3,385,756.

When added together with the cost of the circuit breakers, the total is slightly more than $8.4 million.

In order to approve appropriations from the interest of the hospital fund, a majority of both the Board of Commissioners and the County Council must vote for it, said council attorney Dave Hollenbeck.

"Anything for property tax relief, I'm in favor of," Poparad said.