Indiana cities say new tax law will cut services. Local leaders urge legislative fixes

More than a dozen leaders of towns and cities met Wednesday in Speedway to raise concerns over the state’s new property tax relief law, warning it will sharply reduce local revenue and threaten essential services.

Senate Enrolled Act 1, which took effect this year, is projected to cost cities, towns, school districts and townships up to $1.8 billion over the next three years. The measure was designed to lower taxes for homeowners and businesses, but local officials say it also strips away key funding sources for police, fire and other municipal operations.

The meeting was one of 10 planned for this month across the state by Accelerate Indiana Municipalities, a nonpartisan association that represents Indiana’s cities and towns. The group, known as Aim, issued a report analyzing the fiscal effects of the law and is proposing legislative fixes.

Wood said cities and towns are being asked to do more with less but state policies are constraining their ability to succeed. 

“Today isn’t about complaining. It’s about conversation, coordination and solutions,” he said.

Aim’s analysis found that the new local income tax structure, coupled with annual readoption requirements, could lead to bond downgrades, making it harder for cities to borrow for public projects. 

The group urged the state legislature to address the issue in the upcoming legislative session. It issued three primary policy recommendations.

One proposed change would reallocate part of the local income tax cap from counties to municipalities, increasing the maximum rate for city and town services from 1.2% to 1.9%.

Another would eliminate a rule that forces local councils to reapprove income tax rates every year — a requirement Aim says risks “sending LIT rates to zero” if officials miss this procedural step.

Officials at the meeting represented Columbia City, Plainfield, Avon, Cumberland, Martinsville, Kokomo, Brownsburg and Beech Grove. They took turns sharing examples of how revisions to property taxes  could impact their budgets. 

Avon is estimated to receive about 4.5% less revenue in each of the next two years, compared to projections before the new law. 

Town manager Ryan Cannon said other municipalities that aren’t growing like Avon will have a larger loss in revenue.

“It makes it really difficult for them to be able to provide essential services like police and fire, parks, recreation, road maintenance,” he told WFYI. 

Other officials echoed Cannon’s remarks about public safety resources.

Matt Greller, the CEO of Aim, said that for over 100 years, property taxes have been the primary source of local government revenue.

While impacts may not be immediate, he said that there may be less of an increase in city and town staffing and reductions in maintenance schedules for equipment.

“You will see various services maybe go away, whether it’s parks, whether it’s sidewalk replacements, those kinds of things,” said Greller. “So the things that citizens use every single day, they will see a reduction in. It’s just a fact of the matter. Less money means less services, and that’s what will happen.”

The concerns come from the new state property-tax relief package championed by Gov. Mike Braun that will take effect next year. But most local officials said that deeper budget cuts would come in the coming years.

The property-tax relief law gives homeowners a credit on their property tax bill of 10% of the bill, up to $300. Those aged 65 and older would receive additional credits of $150.

A new local income tax option, created by the law, will allow counties and municipalities to raise new funds to cover the reductions in property tax revenue. 

Aim also held a roundtable discussion in Terre Haute Wednesday. Other locations include Terre Haute, Mishawaka, Schererville, West Lafayette,  Evansville, Jeffersonville, Fort Wayne, Richmond and McCordsville.

WFYI education editor Eric Weddle contributed to this story.

Contact WFYI reporter Zak Cassel at zcassel@wfyi.org.