Jasper Council hears concerns on property tax debate

At Wednesday’s meeting, the Jasper Common Council held off on passing a resolution opposing several bills being considered by the state legislature that would modify city and town funding models.

“This resolution formally opposes Indiana Senate Bills 1, 8, 9 and 443 due to their potential to undermine local government funding, restrict fiscal flexibility, and negatively impact essential public services.”

The resolution was being considered at the request of Accelerate Indiana Municipalities (AIM), an organization dedicated to supporting the growth and management of Indiana municipalities. Jasper Mayor Dean Vonderheide is a board member of the organization.

Matt Greller, the CEO of AIM, and Clint Lamb, Field Service Manager for AIM, provided an overview of the key components of Senate Bill 1 and other tax changes being considered.

One proposal is to cap the annual growth of municipal property tax levies. Cities are allowed to increase levies at a limited rate annually. This is determined by a growth quotient which is currently set at up to 4 percent. Under the current version of the budget bill, that would be changed to zero percent for 2026; one percent for 2027; and two percent for 2028.

“That has a compounding effect. As you go forward over the next three years, that money you otherwise would have received in your normal distributions is gone,” Greller said. “That would never be able to be recouped.”

There are also target deductions for disabled veterans and senior citizens, but Greller said AIM did not have any issue with those deductions.

However, the legislation would eliminate the excess levy appeal process, allowing cities to capture revenue from new growth and development. Instead, municipalities would need to pursue voter referendums for one-year levy increases.

“It would be very difficult for you to capture growth in your community,” Greller explains. “It’s a very difficult management process if you’re looking to bump your levy amount for new police, fire, anything along those lines.”

A major overhaul to the property tax assessment system was presented in House Bill 1402, but that bill did not pass out of committee. However, one aspect that would impact business personal property taxes is still under consideration. Greller said they are considering doing away with the 30 percent depreciation stopper on business personal property, which would mean a piece of equipment could be fully depreciated rather than only depreciated to 30 percent of its value for the sake of business personal property tax assessments.

“We’re not here to argue whether that is bad or good,” Greller said. “We know it provides a significant source of revenue back to cities and towns. So that would have to be replaced.”

To offset lost property tax revenue, discussions include allowing cities with a population over 3,500 to implement their own local income taxes, separate from county income taxes. However, this shift raises new concerns.

“Income tax in general is complicated,” Greller said. “You do not get your income tax distributions until about 18 months after they’re collected. That requires a lot different financial planning, modeling. You probably have to bring in additional experts to help in the process.”

He noted income tax revenue also fluctuates more with economic conditions compared to property taxes: “It’s not this smooth line like you see with property taxes. You see a lot of ups and downs with income tax.”

Some cities are already taking precautionary measures. “I was with a city a couple nights ago and they on the spot passed a spending freeze,” Greller reports.

The legislation comes as Indiana already ranks fifth nationally for the best property tax environment, according to the Tax Foundation.

“There are only four states ahead of us,” Greller said. “When I talk to my colleagues around the country and explain the cap system we already have in place, it’s the most aggressive cap system on resident property probably in the country already.”

Recent property tax increases stem largely from rapid home value appreciation rather than rate increases.

“What has happened the last few years is I think most fiscal people would tell you it’s an anomaly,” he says. “You saw this accelerated inflation, accelerated increase in home values.”

Mayor Vonderheide said he understood the philosophy of reducing property taxes and moving the taxing decisions to a local level.

“But that means local income tax. It means the public safety tax. It means the motor vehicle excise tax,” he said. “Those become real tools for us that we don’t utilize today.”

Greller said the resolution they are asking councils to adopt is designed to generate conversations and awareness about property taxes and their uses.

“Many times, we look at the cost of taxes,” Mayor Vonderheide said. “We don’t look at the value we are getting in return. The value of the services is what we are trying to highlight here and what the impact could be on services.”

“Yes, we all want to pay lower taxes on our homes, but we also want to make sure that our streets are plowed, police, fire folks show up when they need to show up,” Greller added.

Councilman Chad Lueken said he disliked all taxes but considered some worse than others, calling them necessary evils.

“The worst of all taxes is, in my personal opinion, income tax,” he said. “In our nation–our economic system–the way that wealth is created for the vast majority of people is through earned income. That’s how we create wealth..if you’re taxing that you’re going to get less of wealth creation. Tax on property is a tax on wealth that’s already been created.”

The legislative session continues through late April, with property tax reform likely to remain a key focus alongside the state budget bill.

“We’ll probably come back with a different update of whatever the new version looks like,” Greller said, adding that he wouldn’t be surprised if the bill was debated until the last day of the session before being passed.

He emphasized that municipalities face the same economic pressures driving calls for tax relief: “You all haven’t been immune from inflationary increases, whether it’s salary or the cost of asphalt or cost of road salt or whatever it might be – everything’s more expensive than it was three years ago.”

The council will likely pass the resolution in March with a few changes to the wording as it was presented Wednesday.