Locals, lawmakers struggle to compromise on Indiana property tax relief

Frustrations escalated Tuesday over Indiana’s impending property tax relief plan that local Hoosier officials fear could bring deep cuts to municipal revenues.

Lawmakers, meanwhile, were hard-pressed to find alternative ideas that appease local budgets and still deliver on promises to lower taxes.

A first draft of Gov. Mike Braun’s property tax plan, outlined in Senate Bill 1, was a key point of discussion in the Senate tax committee, where public testimony was heard Tuesday. Chairman Sen. Travis Holdman, R-Markle, said “more work” and amendments are expected next week. It’s not clear what changes could be made or when a committee vote might come.

Currently, the Republican governor’s proposal would cap annual increases on property taxes for all property types at 3%.

Homeowners aged 65 and older, who have minor children or who are low-income would see increases capped at 2%. The legislation would also raise the homestead deduction for houses worth less than $125,000 and require a property tax transparency portal to go live by 2026.

Braun has repeatedly emphasized that in order to help “struggling” taxpayers, relief will “have an impact on local governments.”

Jason Johnson, the governor’s deputy chief of staff, maintained before the Senate committee that Braun’s administration wants to protect “vital” police and fire services, as well as schools. But just as “state government is having to tighten its belt,” Johnson said the governor’s team is asking local units “to follow lead” and keep taxpayers “front of mind.”

County, city and town officials appeared less willing, however.

“We want to make sure all the tools we have for economic development and public safety in our local units still actually function after we do some property tax reforms,” said Campbell Ricci, policy director for Accelerate Indiana Municipalities (AIM).

Ricci suggested the Legislature would have an easier time prioritizing relief for “the folks who need the most,” like seniors, veterans and Hoosiers on fixed incomes.

“I think that’s probably the best way to handle this — targeting those folks who have the most negative impacts from rising (assessed values) on their homesteads … so that those folks get relief without broadly affecting the ability for us to provide essential services,” he told lawmakers.

Locals largely opposed

The proposed tax cuts could cause local governments across the state to lose $1.2 billion in property revenue in 2026, according to a legislative fiscal analysis.

Even so, Hoosiers for Opportunity, Prosperity, and Enterprise (HOPE) President Ryan Black said, “Simply put, local governments need to adjust to 3% increases in revenue, as opposed to the 10%, 7% and 7% in recent years.”

“It is not a catastrophic scenario,” Black continued. “We’re simply asking that government does not grow faster than the economy or Hoosier wages.”

Carmel Mayor Sue Finkam said her city has added $4 billion in net assessed value while increasing property tax bills by just 7% since 2020, but estimates show Senate Bill 1 “will eliminate $2.7 billion in assessed value, erase $26.1 million from our general fund, and revert our property tax revenue back to 2019 levels.”

“While we could dramatically cut services, and or drastically raise tax rates for the non-homestead taxpayers, either of these actions would undermine decades of careful community building,” Finkam said.

Brandon Sakbun, mayor of Terre Haute, said property tax cuts are likely to impact police and fire salaries, which account for 82% of the city’s general fund.

“I stand before you all today, humbly asking that this group consider some replacement revenue streams to fully support our local law enforcement and to fully support some of the basic needs of our community,” he pleaded.

Sakbun said, too, that Terre Haute has already made cost-cutting city maintenance improvements, and employs a “dual-purpose” firefighter and EMS service. The city has also made it a priority to repay its debts — and has done so using casino revenue.

When asked by Sen. Chris Garten, R-Charlestown, what they consider to be “acceptable property tax reform,” the mayors did not provide specific answers, but said they hear more from constituents about public safety and other local services than they do about property tax concerns.

Kellie Streeter, past president of the Indiana County Commissioners Association, further emphasized that county commissioners “are not pro-tax.”

“But we also understand the Indiana Constitution and statutes that require counties to provide services at the local level that do continue to grow after each legislative session,” she said. In Knox County, where she serves as a county commissioner, local costs for implementing mandated judicial services “have exploded” since 2021, for example.

Huntington County Council President Kendall Mickley said replacing property taxes in that jurisdiction would require the local income tax rate to jump from its current 1.95% rate to nearly 6%: “And I don’t think anybody is in favor of that.”

Under Senate Bill 1, Mickley calculated a 22% income tax hike for Huntington County taxpayers — up to 2.38% — in order to recover local revenue.

“We can certainly do that, but that still doesn’t take care of the school corporation, which is not funded by income taxes,” he conceded. “There needs to be something for the schools, because even if we wanted to, there’s nothing from an income tax rate that we can do to help our local school system.”

Ricci cautioned, though, that city and town governments are dependent on county bodies to implement or raise local income taxes. He additionally pointed to proposed caps in the bill, which he said will have implications on “other parts of the property tax system,” as well.

“Lots of different things — tools the General Assembly has given us — rely on the tax bills to be able to grow over time in order for them to function,” he said. “I think that the fiscal impact in this bill is understated because of how these caps will cap growth over time, and it will compound over time as you artificially lower that growth rate on every property in the state.”

Braun gleans from property owners

Downstairs in his office, Braun held court on his tax proposal, flanked by two Hoosiers in puffy white armchairs and before a wall of cameras and reporters.

Indianapolis homeowner Jennie Reith said her property tax bill had jumped $1,200 in the last three to four years. She suggested homes should only be taxed when sold or purchased, noting that mortgages may end but property taxes don’t.

Braun said the idea “ought to be on the table too, for a legitimate discussion.”

Franklin homeowner Mark Gross told of a $1,000 increase.

“Me and my wife bought our house 10 years ago … knowing what we can afford to pay for and live comfortably,” Gross said. “But then, it feels like the (county) has a blank check.”

Braun blamed federal policies for inflation but turned scrutiny on local units of government, saying they’ve been “a little disingenuous about the process.”

“If you want above and beyond that (tax cap), do it through a referendum process that is very transparent,” he added. “… Don’t hide behind an opaque system.”

Asked about his plan’s hits to municipalities, counties and schools, Braun pushed them to find efficiencies — and disputed their complaints.

“Almost all of them are saying that they can’t do without what they’re having now. I would say: prove it,” he told reporters.

“I’m going to be reasonable … but they’re not going to outmaneuver me on just saying that that is the case. They’d have to show why that made sense,” he continued. “And is it because you weren’t running things efficiently? Was it because you weren’t being honest with your own taxpayers …?”