Governor’s property tax relief plan gutted by Senate GOP
Last week we told you that the legislative perception of the Governor’s property tax relief proposal was that it “needs fixed,” in the Hoosier vernacular.
After having their ears bent (and chewed out) by local government officials, the relief package approved by members of the Senate Committee on Tax and Fiscal Policy pivoted more toward reform and reality than relief. We were prescient with our suggestion that key targeted relief concepts (coupled with local government afforded opportunities to recoup lost revenue) from SBs 6 – 9 in the Senate Majority Caucus priority bill package would find their way into SB 1 as the new starting point.
As amended in the tax and fiscal policy panel Tuesday morning, SB 1, the Senate Majority Caucus’ top priority bill this session, would freeze local operating fund levies for property taxes paid in calendar year 2026 (then impose a 1.0% growth cap in 2027 and a 2.0% growth cap in 2028) – vs. a 3.0% cap sought by the Governor; limit property tax growth for all Hoosiers; reform the referendum process; and provide specific property tax relief for homeowners and farmers – a projected property tax savings for Hoosier taxpayers of $1.4 billion over the next three years. The Governor’s relief plan would have saved taxpayers $1.1 billion in year one, growing to $1.6 billion in relief during the third year.
Starting in 2029, SB 1 would implement a new levy growth formula intended to limit large year-to-year swings in levy growth. SB 1 would limit the ability of local government units to exceed the annual maximum operating levy growth cap, forcing them to pursue a referendum to approve extra levy growth. SB 1 would also end automatic levy growth by forcing local governments to hold a separate public meeting and have a stand-alone vote on annual levy increases.
Under SB 1, homeowners would see a new five-year $2,500 property tax credit for first-time homebuyers (with a home value cap of $250,000 and an annual income cap of $75,000); expanded eligibility for the existing disabled veteran property tax deduction; a senior citizen property tax deduction and senior citizen property tax circuit breaker credit (and an increase in the value of these deductions to $20,000); and counties would have the option to allow homeowners to annually defer up to $500 of their property tax bill (to a maximum of $10,000) until their home is sold or the owner dies. SB 1 would also reform the agricultural land assessment formula, cutting property taxes for farmers.
The referendum process would obviously become extremely important, and it too would see reforms.
SB 1 would institute a one-year “cooling-off” period for capital project referendums (but not teacher salary and school safety plebiscites), so taxpayers would be able to benefit from one year of savings on their property tax bills before deciding whether to approve a new project referendum. SB 1 would also require all referendums to occur during November general elections, when turnout is typically highest (note that some school districts are already scheduling May 2025 referenda, when no other races are on the ballot to attract voters to the polls).
Senate Committee on Tax and Fiscal Policy Chair Travis Holdman (R) told attendees at a Jay County legislative update Saturday, February 8, “Some units of government would not even be able to make their debt obligations” under the Governor’s proposed $1.4 billion in cuts, and that he planned “to trim that back significantly,” which he did Tuesday. Local government units are still not happy, and what you see this week will be subject to considerable massaging (and messaging!).
Democrats are positioning themselves as the champions of schools and local government, and point out that the combined impact of SB 1 and SB 518 will result in more than $200 million in revenue losses to traditional schools over the next three years, and a hit of almost $300 million to local governments in year one (and reportedly as much as $800 million by year three). They also contend that shifting school funding from the state to local taxpayers undermines SB 1’s promise of tax relief, and could force higher local taxes to cover the shortfall – complicated by SB 518’s requirement for public schools to share local referendum dollars with charter schools, particularly impacting urban school districts.
Democrats also seek relief for renters, who they say indirectly pay property taxes through their rent.
The Governor’s Office says that the Guv “remains committed to delivering meaningful property tax reform that puts taxpayers first by providing immediate relief, capping future growth, and simplifying the process through reform and transparency,” and calls the package as passed by the Senate panel “a step in the right direction.” The statement singled out “strong caps on future bill growth, reforms to the referendum process, and targeted relief for veterans, retirees, and first-time homebuyers,” but the Governor still wants a solution for residential property taxpayers that includes “broad and immediate reductions in their tax bills.”
The Governor’s original plan would have provided an immediate reduction of more than 20% in the property tax bill for the average Hoosier homeowner.
While we’ve not seen or heard a groundswell of support for a reversion back to the original gubernatorial relief plan, WIBC 93.1-FM talk show host Rob Kendall tweets Wednesday that “Taxpayers were outraged as a Senate Committee gutted @GovBraun plan for property tax reform,” and “Taxpayers across the state sent angry emails and phone calls to lawmakers” as a result.
Perhaps some of that “outrage” may have been generated by Kendall and his co-host, Casey Daniels, on the Kendall & Casey show Tuesday afternoon. The duo hosted Lieutenant Governor Micah Beckwith (R) for a seven-minute interview in which the LG was far less diplomatic than the Governor about the Senate surgery on the bill.
Lieutenant Governor Beckwith suggests that “the Senate has not had a lot of courage” in standing up to local government officials and urged Hoosiers to weigh in directly with “some squish senators.” “They give the sob stories of ‘Everything’s going away if we do this.’ They’re hearing from the wrong people right now, I believe,” the LG posits. “Don’t listen to the lobbyists; don’t listen to the mayors,” he says of the chamber over which he presides. “Listen to the average Hoosier – the ones that are carrying the burden, the tax burden.”
Asked about those comments by Tom Davies of State Affairs, LG Beckwith says “I think, in general, for the last few years, I think people that I’ve talked with around the state have made it very clear that their senators, probably, could be a little more bold.” “You might think I go on offense, because I think that’s how weak Indiana Republican leadership has been for many years,” he adds. “I don’t think it’s offensive at all. I think it’s just strong conversation.”
Nevertheless, Lt. Gov. Beckwith tells a Shelby County town hall event this week, “We are not going to let local communities be without,” drawing parallels to events in the nation’s capital by explaining that “What Governor Braun has done is shooting for the stars so that we get the moon. We are not going to not have money for schools or not have money for fire or police. That is not true at all. We are absolutely going to make sure there is money for everything that needs to happen.”
SB 1 cleared committee on a 10-3 vote, with Sen. Lonnie Randolph (D) splitting from Democrats and joining all the panel’s Republicans in backing the amended measure. The bill cleared the Second Reading calendar Thursday with five floor amendments defeated one from Sen. Fady Qaddoura (D), the top fiscal Democrat, and the remainder from Sen. Mike Young (R)).
There seems to be a meeting of the minds among legislative leaders that the Governor’s original package, though well-
intentioned, overshot and was unrealistic because of the fiscal constraints it would effectively impose upon local governments . . . and leadership knows that the legitimate local government pushback would fall upon them and not the Governor.
Now that the bill will be headed to the House for vetting, don’t expect too much to be resolved in the next few weeks. This is a black box for most lawmakers, an extremely complicated package that will require lots of balancing, tradeoffs, and specific information about finances that can only come from the April revenue collection forecast, which may also be able to shed a bit more light on just how the overall economy may be faring, and how Indiana may specifically be impacted, particularly the agricultural and manufacturing industries, from tariffs and other trade policies, foreign and domestic.
Then, of course, there are cost issues with the Medicaid budget (can you say, “Cigarette tax increase”?) and other social services programs that need to be ironed out as top-level decisions even before school finance and property tax relief can be subject to rigorous fiscal analysis . . . and this comes as U.S. House Budget Committee Republicans are marking up a bill with $880 billion in potential cuts to the Medicaid program nationally.
House Speaker Todd Huston (R), like his predecessor, has a unique Spidey-sense of sorts that allows him to guide a caucus (that is more diverse in political, geographic, demographic, experience, and philosophical terms than you might think until you try herding the cats) through a fraught process, knowing what buttons he can push, how many votes he can lose to principle and district politics, and when he can exercise his prerogative to unite members for the better good of the state (or at least to earn a concurrence from the Senate).
Even those members of the supermajority who may be most identified with governmental austerity recognize that local government units (if not school corporations) – particularly rural communities and counties and some extremely fast-growing larger cities and counties (read: Republican) – are already cash-strapped and can’t sustain another hit such as they would endure under some of the property tax relief proposals being considered.
While the Governor is far from irrelevant in the rest of this process, if you look back at similar fiscal and education finance issues in the past decade or so, you will realize that it is the Third Floor that will be driving this tax train through the remainder of the session, and the legislative leaders understand that they have to be the proverbial adults in the room once again. One thing we’ll be watching: How Governor Braun will choose to use the chits that he earned from handily winning the election as well as the gubernatorial bully pulpit to reach over the heads of lawmakers to the voters – and if he does, how it will be received in both the Hoosier hinterlands and on the Third Floor.