Some local governments are slowing spending as lawmakers debate property tax cuts

Gov. Mike Braun delivered his 2025 State of the State Address Jan. 29 at the Statehouse. (IBJ Photo / Chad Williams)

Some local government leaders are already pumping the brakes on spending, instituting hiring freezes and holding off on raises in anticipation of collecting less property tax revenue in coming years.

Gov. Mike Braun and Republican legislative leaders have identified property tax relief as a priority for this year’s legislative session. But as they work to provide relief to homeowners, local government leaders have warned their budgets will take big hits.

The Indiana Senate on Monday approved Senate Bill 1, which among other changes to property taxes, freezes the property tax levy—the amount of property taxes schools and governments can collect—for 2026. Levies could then increase 1% in 2027 and 2% in 2028.

The bill would reduce property taxes—and therefore reduce local government revenue—by about $1.4 billion over three years, according to the bill’s fiscal plan.

That’s pared back from Braun’s ambitious property tax plan, which would have resulted in at least $1.2 billion in property tax cuts in 2026. (Braun has already said he won’t sign the bill unless meaningful tax cuts are restored).

That’s an improvement, local government leaders say, but they’re concerned their budgets won’t be able to keep up with inflation if the property tax levy is capped, making it difficult for them to continue to provide the services their residents expect.

“It has gone through a dramatic change,” Matt Greller, CEO of AIM (formerly the Indiana Association of Cities and Towns), said of the legislation, which now moves to the House for consideration. “That change, though, is still a significant hit to local government revenue streams and our ability to provide corresponding services.”

Both Greenwood and Carmel are already adjusting spending as their leaders prepare for the cities to potentially receive less property tax revenue in coming years.

Carmel is holding off on hiring, salary increases, travel and capital purchases, Mayor Sue Finkam told IBJ.

Meanwhile, Greenwood Controller Greg Wright told IBJ the city would likely need to put off hiring, infrastructure maintenance and fleet vehicle replacement. It could also complicate Greenwood’s ability to provide competitive wages and benefits, he said.

“It’s not just that we would be not getting dollars,” Wright, the Greenwood controller, said. “We would be falling behind because the dollars we are getting don’t go as far as they otherwise might if we were in a low inflation, pre-COVID environment.”

In the past few years, levy growth has increased at a rate of about 5% and, without changes, would have been expected to grow at the pace for the next two years.

The legislation doesn’t just impact the levy for 2026, 2027 and 2028. It also changes the formula that determines the annual growth in tax levies beyond 2028.

Greller said cities, towns and counties have seen significantly higher costs on everything from salt and asphalt to staff salaries compared with five years ago.

“If you’re not trying to at least keep pace with that a little bit through annual growth in your levy and your budget, in my opinion, you are losing money because you’re not able to maintain the same level of service back to your residents,” he told IBJ.

Instead of large-scale property tax cuts, both Greller and Wright said they prefer a bill that focuses on demographic relief.

SB 1 adjusts income and assessed value limits for the over-65 deduction and creates a new homeowners tax credit.

It’s important to provide property tax relief, Greller said, but it’s critical to be strategic in those cuts.

“We can certainly and always tweak the edges of the system, but anytime there is something as complex as property taxes, I think you have to be really careful with sweeping change and the impact that has,” he said.

Finkam was one of the local government leaders who testified against Senate Bill 1 during a committee hearing Feb. 4 before lawmakers amended it. The original version of the bill would have reverted the city’s property tax revenue collections to 2019 levels, amounting to an estimated $2.7 billion in total assessed value deductions and a $26.1 million loss to the general fund, she testified.

This week, she said the city’s finance team is currently working to understand how the amended bill would impact Carmel.

“As the bill continues to work through the legislative process, I remain committed to working with Gov. Braun and legislative leaders on tax reform that delivers meaningful relief for taxpayers while protecting the very services that make our city a national success story,” Finkam said in a written statement to IBJ.

Noblesville Mayor Chris Jensen said the original version of SB 1 would have had a $30-million impact to the city over three years, while the city would lose out on $8.2 million over three years under the amended version of the bill.

“In Noblesville, over 50% of our annual operating budget is devoted to public safety, and regardless of what happens with SB 1, we will continue to provide excellent services to our residents,” Jensen said. “We will have tough conversations with our community, but that is something we do on a daily basis.”

Westfield Mayor Scott Willis said he believes property relief is “appropriate and needed.” However, he added that the financial impact to the city is significant because the majority of Westfield’s tax revenue comes from residential property taxes.

The original version of the bill would impact about 30% of Westfield’s budget, while the current version would represent a hit of about 10%.

“It’s important to have a diverse commercial base, which Westfield currently lacks,” Willis said. “The administration has been focused on bringing in more commercial development to help balance the tax base and relieve the burden of our residents.”

For Greenwood, the current bill would likely result in Greenwood collecting about $900,000 less in the first year under the freeze, Wright said. To put that drop in perspective, he said that would pay for six or seven police officers or firefighters.

Aliya Wishner, a spokeswoman for the city of Indianapolis, said the city could not provide an estimated impact or comment in time for publication. The city of Fishers declined to comment about the impact of the bill.

Taylor Wooten contributed reporting.