House committee moves Indiana property tax relief bill — with major changes
The latest version of the bill would enact temporary property tax caps and limit local levy increases
The House Ways and Means Committee discusses property tax relief on Thursday, Feb. 9, 2023 at the Indiana Statehouse. (Casey Smith/Indiana Capital Chronicle)
Indiana lawmakers on Thursday approved major changes to a proposal that seeks to provide Hoosiers with temporary property tax bill relief.
But top GOP legislators cautioned the complex bill is still in its working stages, and other significant amendments are expected as early as next week.
The latest draft of the bill was amended in committee Thursday and advanced 18-6 to the full House chamber.
The measure would provide multiple remedies to temporarily drop tax bills, including through a short-term property tax cap and an increase in state income tax deductions. It would also curb how much local units can raise their tax levies.
The proposal was filed by Rep. Jeff Thompson, R-Lizton, who chairs the House Ways and Means Committee.
He emphasized that numerous provisions in the bill won’t be definitive for several more weeks.
“This is probably an end-of-April type of discussion, going right at the end, and we kind of know that going into it,” he said. State lawmakers have until April 29 to finalize the state budget and close out the 2023 legislative session.
It’s not clear where lawmakers stand on Thompson’s bill. The GOP-dominated legislature has so far expressed hesitation about addressing property tax spikes in the current session.
Leadership in the House and Senate have suggested they will wait until bills are mailed out before deciding whether to take any action at all on property taxes in the current legislative session.
What does seem certain, however, is that any property tax relief legislation is unlikely to affect taxpayer bills due May 10. Those taxes are expected to go up an average of at least $228.
The latest crack at lowering property taxes
Thompon’s original bill temporarily reduced the homestead tax cap for taxes payable in 2024 and gradually increased the cap back to 1% over four years. It also provided a supplemental homestead credit to be applied to tax bills after all other credits are applied.
That reduction in the property tax cap was cut in half in an extensive amendment adopted unanimously by the House Ways and Means Committee.
Now, Thompson’s bill sets caps at 0.95% for property taxes payable in 2024, and 0.975% in 2025.
The homestead tax credit was also deleted.
Instead, the new version of Thompson’s bill increases the homeowners and renters deductions on Hoosiers’ income taxes by $1,000 each — up to $3,500 for residential property owners and $4,000 for renters.
“This thing has lots of moving parts,” Thompson said. “I consider none of them real, real drastic — some may.”
Local governments additionally have a new option to create their own property tax relief. Changes at the local level could take effect as early as this fall. But the bill, as written, does not offer locals any state support.
“But it’s not the total responsibility of the state,” said Rep. Bob Cherry, R-Greenfield. “We have local officials, too … it’s a combination — we’re just trying to do our part.”
Limits on levies
Another provision in the bill would establish a two-year process to decrease the rate of levy growth in 2024 and 2025.
The extent to which local governments can increase their annual budgets — and how much they can collect in taxes — is based on the six-year average of nonagricultural income across the state.
The State Budget Agency calculated a 5% maximum levy growth quotient for 2023 property tax levies. It was the highest rate in 20 years, largely due to income growth and inflation in 2021.
Thompson’s bill proposes either a 50% decrease to the maximum levy growth quotient in 2024 and a 25% in 2025, or a drop to 3% each year — whichever is lower.
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The measure further limits, too, the total amount of operating referendum tax that can be levied by a school corporation for taxes due in 2024. Under the bill, schools could not increase the maximum operating referendum by more than 3% than could be levied in the previous year.
In the next year, local levies are expected to increase by about $779 million, according to a new joint study conducted by the Association of Indiana Counties (AIC) and Indianapolis-based economic research firm Policy Analytics.
Roughly $219 million of that demand is due to school debt.
AIC Executive Director David Bottorff told the Indiana Capital Chronicle that the group’s study showed “a lot of units of government” have increased their borrowing to keep their debt levies constant. In turn, they benefited from higher assessed values.
“I think the language in this bill now that limits those rate based funds on how much levy they can increase year over a year is part of the reason (Thompson) put in the language about why they can only increase 3%,” Bottorff said.
“I think this still just raises questions — what is this debt? Is it one-year borrowing? Is this long term-debt? That’s part of what we still need to understand,” he continued.
Who benefits, and who doesn’t?
It’s still unclear how much the average homeowner in Indiana would save under the relief proposal.
The latest AIC data anticipates homeowners’ bills payable this year could increase as much as 18% — 3% higher than a recent calculation and more than double what previous reports estimated for the upcoming bills.
Questions also remain about how much Thompson’s plan would cost local governments and schools.
A previous fiscal analysis showed that while property owners would pay reduced taxes under Thompson’s bill, school corporations are estimated to lose more than $364 million in revenue. Cities, towns, counties and other units are also expected to see decreased revenues into the millions.
Thompson doubled down his bill is not a reduction in revenue for local governments — rather, it’s a reduction in the increase they will get.
He also said a new fiscal study that could shed more light on how the legislation affects local units — and how it might shift tax burden — is expected sometime next week.
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