Lots of multi-level sub rosa drama over property tax cut issues

Even as lawmakers work to (conditionally) extend individual income tax cuts through additional years, the big tax issue on the agenda is property tax relief.

The state has gone through cycles in the past 60-odd years in which different taxes have assumed the role of villain.

In 1963, then-Lt. Gov. Richard Ristine (R) broke a tie on a conference committee concurrence vote that allowed the state to impose a sales tax (breaking a 101-day impasse on fiscal policy that brought the state to the brink of insolvency, as legislative historian Justin Walsh chronicled). Ristine then lost his 1964 gubernatorial race (albeit in the national Democratic landslide).

In more recent years, the auto excise tax was a target, exacerbated by the Bureau of Motor Vehicles inefficiencies of the 1970s and 1980s. Then-Gov. Evan Bayh (D) appropriated an idea from then-Sen Steve Johnson (R) to subsidize an auto excise tax cut with gaming revenue. He ultimately jocularly credited Johnson for the concept which was so popular that vehicle registration renewals were mailed in envelopes on which legislative leaders proclaimed their role in cutting taxes.

The inventory tax became the bogeyman, particularly among business leaders, for a while in the early 1990s, and after changes (few now remember all those April car dealer commercials touting inventory tax sales, or the annual parade of vehicles across the Ohio River bridges to avoid assessments) to that form of taxation, the property tax became public enemy number one after the Supreme Court determined that the Indiana Constitution required a system of real property taxation based solely on fair market value. The inability to satisfy all constituencies led to the Daniels-era 1-2-3 constitutional caps that cooled off a taxpayer rebellion for almost two decades (during which the inheritance tax seemed to arise as a new target of public wrath, at least among the agricultural community and high-wealth taxpayers).

In more recent years, the property tax has again emerged as the target of public opprobrium, with rising assessed values leaving homeowners house-rich, but cash-poor as taxes owed rose even as tax rates stayed stable. At the same time, agricultural landowners complained about their separately calculated rates which have continued to soar attendant to their own problems and complications.

The big problem with property tax relief, however, has been that proposals have typically offered only a shifting of the tax burden, with businesses or ag landowners, for example, being faced with tax hikes if residential cuts were proffered.

So there has traditionally been a major dilemma for lawmakers in determining whose ox gets gored in the process. Then came Governor Mike Braun (R), whose property tax relief proposal, embodied in SB 1, largely would offer real residential tax relief, but not at the expense of business or ag taxpayers. That’s because he doesn’t propose to shift the burden, but rather force local government units of government (and schools) to tighten their respective belts . He views his responsibility as offering a hand to taxpayers, and not a handout to other levels of government.

The Governor is also seeking to sell his program through a series of taxpayer “fireside chats” and roundtables with the first three coming in Indianapolis, Terre Haute, and Evansville.

We told you all through 2024 about how local government leaders – particularly mayors – were being informed by key lawmakers that they should not come hat in hand to the General Assembly seeking fiscal help until they had exhausted all the tax tools in their respective local toolkits, principally the wheel tax and local income taxes. Some, as we related to you, heeded the advice and hiked local taxes and fees.

Some of these local government leaders were on hand this week for testimony to the Senate Committee on Appropriations, with mayors from both parties glumly detailing their fiscal concerns about SB 1, and emphasizing what some solon have been told privately by mayors and county officials in their own districts: public safety would take an unacceptable hit, and other services (road maintenance, snow removal, and trash collection in particular) would also face serious cuts. Local leaders have made it clear that the loss of income that they face would force untenable cuts . . . estimated at a cumulative $1.2 billion.

And that brings us to some of the interesting conspiracy theories underlying SB 1. Some suggest that lawmakers are offering the bill on the Governor’s behalf simply to provide enough rope with which to hang him. They understand that he can be popular by cutting taxes, and won’t be directly blamed for service cuts that seem now to be real and that would run deep. However, lawmakers realize that they will shoulder any blame for not allowing their locals the opportunity to make up cash lost by a gubernatorial tax cut . . . and, understanding the political impact on them – particularly in the form of potential primary challenges – they simply won’t go for it.

Meanwhile, Democrats are quietly concerned – some would even characterize it as being paranoid – over what they see as a two-pronged Republican strategy to pick off some of their big-city mayors in potentially competitive cities (such as Evansville and First Wayne).

They see the first element coming from the Governor’s property tax relief proposal, which would provide residential property tax relief – credited to Republicans – without any state help for cities whose budgets would be further trimmed by relief (as opposed to mere burden-shifting).

As Democratic mayors struggle to raise taxes – which will be blamed on them – to help fill potholes, plow the streets, and pick up trash, other laws may also change related to when city elections would occur. Instead of municipal elections falling in off-years, the Republican legislative supermajority was maneuvering to move those municipal elections to presidential years, beginning in 2028, potentially allowing big-city Democratic incumbents to serve an additional year in office, bypassing the 2027 election cycle, but then having to run every four years in the GOP-favorable presidential cycle (and recall that Indiana is one of the few states left with a straight-party lever or circle).

On Tuesday, however, the hard change was set aside – for now – in favor of a provision authorizing the Office of the Secretary of State holding hearings on the concept by this fall. And the other fallacy in this hypothesis is that Democratic cities are being edged out of the list of larger cities by Indianapolis metro suburbs led by Republican mayors, who would also face significant revenue cuts (Carmel Mayor Sue Finkam (R) notably joined Terre Haute Mayor Brandon Sakbun (D) in testifying this week against SB 1 as drafted).

So what should you expect? As the process evolves, look for SB 1 to effectively fade away, and for four other Senate Majority Caucus priority bills to largely merge with some of the SB 1 concepts and perhaps even emerge as a tax omnibus measure.

The bills which could be consolidated (or cherry-picked) include:

SB 6: Property tax deferral program

SB 7: Agricultural land assessment

SB 8: School levy referenda

SB 9: Maximum levy growth quotient

Much of this will be negotiated out by Senate Committee on Appropriations Chair Ryan Mishler (R) and House Committee on Ways and Means Chair Jeff Thompson (R) with their respective chamber leadership, but with city and county officials at the table along with ag interests (the Indiana Farm Bureau and Rep. Kendell Culp (R) will be key players). The interesting dynamic to watch is the extent to which K-12 education leaders have a seat at the table . . . and if they are a key part of discussions, which interests will be represented.

There is also some sub rosa chatter about newfound gaming revenues being directed to property tax relief (recall that the

$500 million in license fees for slots at the tracks in 2007 was directed to property tax relief). While a license move to new Haven for the Ohio County casino (with a $150 million proposed transfer fee and the expectation of an incremental $50 million or so in state taxes) was placed on hold in the Senate, an iGaming bill that could bring in hundreds of millions of new tax dollars annually is awaiting a hearing in the House Committee on Ways and Means after clearing the House Committee on Public Policy, so there is a potential pot ’o gold to tap for tax relief . . . if lawmakers want to “chase revenue,” a philosophy that, absent sufficient policy justification, is anathema to legislative leadership.

So, as the process unfolds, keep an eye in particular on the interplay between 206 and the Third Floor. What happens on the property tax issue could go a long way towards determining which branch of government holds the upper hand over the next four years . . . and don’t believe anyone who tells you that there is no underlying tension between the branches.