A report from Ball State University shows the Republican-backed law to cap Indiana property taxes forced most local governments to face tough financial choices.
The policy brief reveals how property tax caps affected cities and towns across Indiana showing how local revenue declines led to decreased public services.
Property tax caps took full effect in 2010. They were put in place in response to local governments raising rates to fill in funding gaps from the state during the Great Recession.
The study uses data from the United States Census Bureau to see how the property tax caps affected municipalities’ budgets and staffing. Of the 28 municipalities included in the study, all but two experienced declines in revenue that helped fund public services and local government employees.
Center for Business and Economic Research director and report co-author Dagney Faulk says reduced budgets led many communities to cut services from road repairs to public schools.
“Property taxes are the largest revenue source for local governments in Indiana and most local governments all over the U.S.," says Dagney. “So rate caps have definitely decreased local government's ability to raise revenue through that source.”
Faulk says data collected showed some municipalities were hit harder by the 2008 law than others.
“You know it’s not distributed evenly,” she says. “Some municipalities experience a much greater impact from rate caps than others. So former industrial centers, municipalities with large manufacturing bases, they like Muncie and Anderson and Gary, they tend to be most affected.”
Most of the municipalities in the study used alternative sources of revenue including increasing local income taxes to limit financial losses from the property tax caps.
Faulk says while this study focused on larger municipalities, there are plans to further study the effects of property tax caps on other cities and towns in Indiana.