The less-heralded provisions of property tax reform

There are some big opinions on the overall impact of the property tax bill that lawmakers passed and Gov. Mike Braun celebrated. I don’t think it’s either as good or as bad as some believe — but today, I want to focus on some smaller provisions that deserve notice.

They aren’t sexy, like a $300 homeowner credit or a business personal property tax cut. But they do make a difference.

The first is a bond debt cooling-off period.

Under current law, when a local unit of government is planning to bond for a new project, it’ll often do it when another bond is set to expire. That means local officials can tell taxpayers they won’t see an increase in their tax bill. That is technically true, but they also won’t see a decrease.

Senate Enrolled Act 1 requires a one-year freeze after a bond expires so that taxpayers see the reduction.

Indiana Senate sends finalized local property, income tax plan to governor

Another change is moving all referenda votes to the general election. Schools use referenda largely for construction projects but can also hold them for school security and operational needs if they feel the state hasn’t provided what they need.

Of course, they still have to convince taxpayers to fund those needs.

For years, these votes were allowed in primary elections, when fewer Hoosiers go to the polls. Lawmakers believe moving them to general elections gives more transparency to the costs that lie above the percent caps for bills.

According to data collected by the Indiana School Boards Association, the school referendum pass rate in Indiana is 16 percentage points higher at the primary election than at the general election. The organization believes this is because primary voters are better informed and highly motivated to vote for or against the referendum. But voters in the general election are often surprised by the referendum and reflexively vote no.

Several provisions in the new law require affirmative voting on taxes, which can only be a good thing.

One section says if a unit’s assessed value remains the same, its levy cannot exceed the year before unless its fiscal body votes to do so by ordinance following a separate public hearing. Also, if assessed value does grow, it requires a decrease in the tax rate to bring in the same amount of money unless it’s affirmatively raised.

This language is meant to draw attention to the automatic nature of property taxes, which are essentially a calculation involving tax rate and assessed value.

Similarly, local income taxes — which got a lot of attention in discussion over the property tax package — will revert to zero each year. This forces an annual vote by fiscal leaders of local government to continue collecting that money.

I’m not actually sure this is necessary, and I can’t imagine state lawmakers would want to vote on the state income or sales tax every single year. But it is consistent with other moves to make the overall taxation system more open and understandable.

In the weeds

The last bits of language I want to highlight are deep in the weeds of property taxes.

The maximum levy growth quotient currently limits how much local property tax levies can rise in a year based on a six-year rolling average of non-farm personal income growth. Because of inflation, it rose to 5% in 2023 compared to 3.4% in 2019. Lawmakers last year put in an artificial cap of 4% and Senate Enrolled Act 1 extends that another year.

The bill also limits excess levy appeals by units. In that past, cities, counties and other units were allowed to ask for more revenue based on certain circumstances, such as assessed value growth and school transportation costs. Those won’t be allowed any longer, though an appeal would still be an option in case of natural disaster or other emergency.

None of these items individually — or even collectively — will likely drop your tax obligation in any massive way. But they do create a more responsive and open system so that Hoosiers can more easily understand the decisions that are being made. It also puts local officials on the hot seat instead of state lawmakers.

“They’re waving a flag, saying we’re the ones cutting your taxes … when what they’re doing is shifting everything on to the local government and saying, ‘You be the bad guys,’” Sen. Ron Alting told Based in Lafayette.

He was one of 12 Republicans to vote against the bill. Some believe it didn’t go far enough to cut property taxes.

In the end, those who simply disagree with the mechanism of property taxes will never be pleased with what occurred. But from a pragmatic standpoint, this package was more than I thought Gov. Mike Braun could get.