The new law, signed by Governor Mike Braun on April 15, aims to cut $1.3 billion from property tax bills over three years through property tax credits and higher homestead exemptions.
Limiting Local Government Bonds
The law limits referendums or local public questions to general election dates and requires political subdivisions to wait one year after the expiration of previous general obligation bonds to issue more GO bonds. There is an exception for natural disasters. Schools are banned from adopting a resolution to issue bonds, enter into a lease or extend a referendum tax levy for one year after the last year in which the school’s previously-approved project referendum tax levy applies.
- SB 1’s debt restrictions may limit local governments’ ability to borrow, potentially increasing borrowing costs and reducing credit ratings.
- Restrictions on issuing GO bonds may lead to reduced public infrastructure projects.
Impact on Schools and Local Governments
The law is expected to have significant effects on schools and local governments, particularly on their ability to issue bonds and fund capital projects.
- Indiana school districts will lose out on $740 million in property tax levy reductions over the next three years, according to the Indiana School Boards Association.
- Schools are already struggling financially, with many operating on 76% of their operations funds, which are funded by property tax levies.
- The law may deepen the financial woes of schools, which rely heavily on debt service funds to manage facility issues.
Benefits for Taxpayers
The law aims to provide property tax relief to taxpayers through property tax credits and higher homestead exemptions.
- Taxpayers will save directly through property tax credits and higher homestead exemptions, as Governor Braun noted that the law will cut $1.3 billion from property tax bills over three years.
- Businesses will see an increase in the business personal property tax exemption.
Concerns About the Law
While the law aims to provide relief to taxpayers, it has raised concerns about its impact on schools and local governments.
- Andrey Yushkov, senior policy analyst at the Tax Foundation, warned that the law’s debt restrictions may limit local governments’ ability to borrow, potentially increasing borrowing costs and reducing credit ratings.
- David Bottorff, executive director of the Association of Indiana Counties, expressed concerns that the law may impact infrastructure financing and business attraction.
- Gregory Porter, state Rep. and Democrat, argued that the law amounts to a tax hike because homeowners will save little while local income taxes will go up by $1.1 billion.
Expert Opinion
Supporting the Law
Jessica Ward, senior director of government affairs for the National Taxpayers Union, said that the law will provide long-term structural tax relief to families in Indiana, targeting the root of the problem of rising property taxes.
Opposing the Law
Terry Spradlin, ISBA Executive Director, warned that the law will deepen the financial woes of schools and local governments, which will ultimately hurt property values in many Indiana communities.
Neutral Perspective
Andrey Yushkov, senior policy analyst at the Tax Foundation, noted that property taxes are more economically efficient and less distortive than local income or sales taxes, and that the law should not eliminate property taxes entirely.
Repeal and Reforms
House Democrats proposed a state-funded credit that would have preserved local government funding flexibility while still offering savings to homeowners. The National Taxpayers Union’s Ward insisted that the law will not gut essential services and that it targets the root of the problem by attacking rising property taxes.
Example of a Problem
Indiana school districts lost out on about $350 million in the last year alone due to the tax caps that were already in place. This highlights the need for a more effective approach to addressing rising property taxes.
Example of a Solution
The National Taxpayers Union’s Ward suggested that states like Indiana can learn from their experiences and implement policies that provide long-term structural tax relief to families, targeting the root of the problem of rising property taxes.
| Provisions | Description |
|---|---|
| Limiting local government bonds | Requires political subdivisions to wait one year after the expiration of previous general obligation bonds to issue more GO bonds. There is an exception for natural disasters. |
| Impact on schools and local governments | Indiana school districts will lose out on $740 million in property tax levy reductions over the next three years, and schools are already struggling financially. |
| Benefits for taxpayers | Property tax credits and higher homestead exemptions will cut $1.3 billion from property tax bills over three years. |
| Concerns about the law | Restrictions on issuing GO bonds may lead to reduced public infrastructure projects, and the law may impact infrastructure financing and business attraction. |
Conclusion
The new law aims to provide property tax relief to taxpayers, but its impact on schools and local governments has raised concerns about its effectiveness and fairness. While the law provides long-term structural tax relief to families in Indiana, it may deepen the financial woes of schools and local governments, ultimately hurting property values in many Indiana communities. As the law takes effect, it will be essential to monitor its impact and consider reforms or repeals if necessary.