‘We needed to try something creative’; Here’s why lawmakers are allowing Indy to create a new downtown tax

Monument Circle. May 14, 2023. Photo by Mark Curry

Monument Circle (Credit: Mark Curry for State Affairs)

Key Points
  • An effort to create a taxing district failed in 2018 largely because of opposition from the Indiana Apartment Association
  • This year state lawmakers created a new rule permitting Indianapolis leaders to more easily create a district
  • It was slipped into the budget after legislative leaders and the governor's office expressed concerns tied to a major state investment into Indianapolis

In the final days of the legislative session, state lawmakers quietly provided the city of Indianapolis with a gift: Mayor Joe Hogsett and the City-County Council gained the power to create a special taxing district in the downtown area.

It is a victory for boosters of Mile Square who have been advocating for a similar district designation for at least five years to pay to improve public spaces, attract new businesses and hold special events. But their efforts failed in 2018, in large part, because of strong opposition from the Indiana Apartment Association that killed a petition drive to create a district. 

Now, however, Indianapolis leaders can create the district if they want. No petition signatures are required. That’s because lawmakers created a special carve-out within state law for Indianapolis. 

Many observers of the Indiana General Assembly were surprised by the move. The language, inserted into the final version of the state budget bill, was never publicly discussed. Not only that, the Republican supermajority agreed to help local Democrats in a year in which Hogsett is running for reelection against a well-funded Republican candidate. Most years, Indianapolis Democrats are playing defense against bills that would weaken their authority.

The eleventh-hour deal was made possible by the rare bipartisan acknowledgment that the downtown area needs help — not only from the city, but from the state, too. 

And while it is true that the creation of a new taxing district could support several quality-of-life improvements and economic initiatives, they are not the main reason the language appeared in the state budget bill. 

How the language ended up in the budget bill

The special taxing district language may have emerged in the final moments of this year’s legislative session, but it stems from years of conversations about homelessness.

In 2019, the Indy Chamber led a delegation of local business and government leaders to San Antonio, where they visited a low-barrier homeless shelter. People on the trip envisioned something similar for Indianapolis: a compassionate way to address homelessness by helping people who are unable or unwilling to use faith-based shelters. (One common barrier cited by policymakers, for example, is requiring a commitment to sobriety.) 

People who are homeless often frequent the downtown Indianapolis area, including near the American Legion Mall, because that's where public services are located, May 14, 2023. (Credit: Mark Curry for State Affairs)

Since the start of the pandemic, according to an Indiana University Public Policy Institute report, the homeless population has generally grown. They have concentrated in the city’s downtown, advocates say, because that’s where many public services are available. 

“The pandemic made it feel like an even more significant, maybe crisis level, situation that we’re still dealing with,” said Taylor Hughes, vice president of policy and strategy at the Indy Chamber. “Coupled with the reality that there aren't as many people downtown for work reasons … That makes the visibility of the challenge stand out that much more.”

In response this year, a bipartisan group of Marion County lawmakers, the Hogsett administration, the Indy Chamber and others asked state lawmakers to financially support the creation of a new shelter in Indianapolis. Those efforts followed several months of meetings on the topic in a task force co-chaired by appointees from the governor and mayor. 

Gov. Eric Holcomb’s office and legislative leaders were supportive of a significant capital investment, according to several people interviewed by State Affairs, but they were also concerned: Could Indianapolis find a way to sustain funding for operations in the future? 

Sen. Kyle Walker (Credit: Indiana Senate Republicans)

So a small group of people, led by Indianapolis Republican Sen. Kyle Walker, dusted off some legislative language that had been floating around since at least 2021. That language enables Indianapolis to create a new downtown tax district, which the budget bill identified as an economic enhancement district. 

That’s not to be confused with an economic improvement district, which is difficult to implement because it requires a large number of property owners to sign a petition. 

The new language, however, skirts some of the red tape — and opposition — that typically appears when new taxing districts are created.

In the final days of the legislative session, budget writers agreed to insert the language into the budget bill as an option for Indianapolis. And then they added a line item to support the capital expenses for a homeless shelter.

The line item in the budget does not specifically mention Indianapolis. It does, however, allocate $20 million — which just so happens to be the amount advocates were seeking. Combined with the $12 million in city dollars that Hogsett has already set aside, the two pools of cash would cover the $32 million in expected capital costs outlined in a feasibility study.

The line item in the state budget, though, comes with a twist: It is structured as a grant program. That way, if Indianapolis stakeholders fail to identify a funding stream for ongoing operations of the homeless shelter — such as the new downtown taxing district — then the state would not necessarily be required to write a check.

Following a bill-signing ceremony for mental health legislation earlier this week, Gov. Holcomb told reporters he supports a state investment into a low-barrier homeless shelter.

“If nothing else, I’m supportive of local communities who are very transparent about their motives. And how can we then be a good partner?” Holcomb said. "How can we both put skin in the game? How can we both turn the cards face up? ... On this front, it's overdue. So yes, I'm not just pleased but proud to take a crack at this with them but understanding that there is local responsibility here."

Which senators championed the language?

Budget negotiations every two years typically contain extensive back-and-forth between the two chambers of the Indiana General Assembly. This year, it was important to the Senate to see both the funding of the homeless shelter and the option for Indianapolis to create the new district.

Design: Brittney Phan for State Affairs

Walker, who represents parts of Marion and Hamilton counties, stepped forward as the main voice championing the deal. 

“The economic enhancement district, along with the low barrier shelter, certainly will go a long way to giving Indianapolis the tools to make downtown Indianapolis more attractive and also provide valuable services to the homeless community,” Walker told State Affairs. “I worked on it pretty extensively in the final days of the session.” 

Walker had several conversations with other lawmakers, budget writers, legislative leadership and the governor's office.  

The language garnered broad support in the Senate, but it still required a bipartisan battle in the frenzied final days of the session. Once the Indiana Apartment Association became aware, according to those interviewed by State Affairs, the group moved quickly to lobby lawmakers to strip the language from the bill.

“That person had one job, which was to get this language out of the budget,” Sen. Andrea Hunley, D-Indianapolis, told State Affairs. “And so this was not easy to get through. There were definitely forces that were working against it."

Sen. Andrea Hunley (Credit: Indiana Senate Democrats)

Hunley, who represents the downtown area, described a similar battle in 2018. She was not yet a state senator, but she and her family lived in the Mile Square and went door-to-door collecting signatures on a petition that sought to create the economic improvement district. 

“At that time, the apartment lobby stopped it, which was incredibly frustrating,” Hunley told State Affairs. “So we knew that we needed to try something creative.”

Lynne Petersen, president of the powerful Indiana Apartment Association, did not return a call this week from State Affairs. But in an op-ed published by the Indianapolis Business Journal, Petersen criticized the concept: “Imagine our surprise when we learned the Indiana General Assembly granted the Indianapolis City-County Council the authority to levy an additional tax assessment onto businesses and residences downtown to fund some services that presumably property tax dollars already fund.” 

Senator cites wide support for district concept

Walker acknowledged the concerns raised by the Indiana Apartment Association, but he emphasized that “the vast majority of businesses and property owners” within the Mile Square are supportive of the creation of a new district. And Walker said he wanted to ensure the legislation contained both guardrails and flexibility. 

The Indy 500-themed Kids' Day brought several people to Monument Circle in downtown Indianapolis on May 14, 2023. Supporters of a downtown economic enhancement district hope that the dedicated tax would fund more public events that bring the area to life. (Credit: Mark Curry for State Affairs)

The guardrails include the creation of an oversight board with representation from downtown property owners as well as appointees from the governor, legislative leadership, mayor and City-County Council leadership. 

As for the flexibility? The district can levy taxes in such a way that the costs are proportionate to the benefits, Walker said. The taxing amounts can be different based on the types of properties, too: Maybe residential properties pay one amount, for example, but large commercial properties pay another. 

Walker also noted: State lawmakers are not requiring any of it. The legislation, Walker said, simply gives Indianapolis one more option to help the downtown. The ultimate decision is up to local leadership. 

“It's a tool, and it could be a very beneficial tool, but not without a tremendous amount of input from stakeholders,” Walker said. 

Mayor Hogsett has not publicly endorsed the creation of a downtown taxing district. His administration could theoretically decide instead to set aside money in each year’s city budget to fund the new shelter, but those interviewed by State Affairs shared a fear that it would lead to a decline in public safety spending at a time when Indianapolis is already struggling with homicides, gun violence and a perception that the city is unsafe. 

Late last year, however, Hogsett directed $3.5 million in American Rescue Plan dollars to help the downtown area. The money is paying for police overtime, security cameras, cleaning crews and homelessness outreach. Dan Parker, who serves as Hogsett’s chief of staff, suggested the taxing district could provide funding when the federal money runs out. 


“If folks want to see it continue into the future, this is one mechanism now available to keep it going,” Parker told State Affairs. “But there needs to be support built for that, and that's the hard work that needs to be done over the coming months.”

Downtown Indy Inc CEO Taylor Schaffer, Hogsett’s former chief of staff, celebrated the proposed taxing district’s potential for Indianapolis, which is the largest city without a dedicated fund for its central business district. 

“Those types of sustainable funds really help to come alongside city services and private investment to ensure that a downtown can be responsive and nimble,” Schaffer said, “but also have the level of operations that make sense for that area.”

Contact Ryan Martin on Twitter, Facebook, Instagram, LinkedIn, or at [email protected].

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