Assessed values of homes across the state have skyrocketed, which will result in higher property tax bills on average when they’re mailed to Hoosier homeowners this spring.
The total residential tax liability in Indiana is expected to jump 15%, according to a new analysis by Policy Analytics LLC for the Association of Indiana Counties. David Bottorff, executive director of the Association of Indiana Counties, said each household will pay on average an extra $228 towards property taxes this year compared to last.
Lawmakers have filed at least nine bills this legislative session in an effort to provide some sort of relief or adjust the property tax process.
One proposal, which would cap increases in property taxes dedicated to schools from some already passed ballot measures, was discussed in committee. But beyond that, Republican leaders have indicated a desire to wait to address rising property taxes until they know the extent of the problem in order to avoid unintended consequences or impact previous initiatives like the implementation of property tax caps.
To their point, there are some unknowns. Just because your home’s 2022 assessed value went up a certain percentage that year, doesn’t necessarily mean your income taxes will increase by that same percentage, experts say.
“We’re making sure … we’re going to get at the root causes of the increases that are occurring,” Holcomb told members of the media last Thursday. “We’re in close conversation with the House and Senate leadership and members on having the ability to do something that doesn’t change fundamentally the advances we’ve made.”
The issue with waiting: Hoosiers likely won’t receive their tax bills until March or April, and lawmakers statutorily have to wrap up by April 29. Oftentimes they do so before that date.
That means there could be a last-minute push to add property tax-relief initiatives into the two-year budget. Even then, it would likely have no impact on this year’s property tax bills.
The other dilemma is that whatever lawmakers do to provide relief to homeowners could impact other entities, either by shifting the tax burden to others or reducing the money cities and schools have to provide resources by millions of dollars as inflation increases spending. Property taxes only go toward local governments, not to the state.
Bottom line: Prepare to pay this year regardless of what lawmakers do.
“When this bill hits, elected officials are going to hear about it,” said Larry DeBoer, a Purdue University economics professor. “I wouldn’t want to be a mayor running for reelection with this thing going on.”
Why are residential property taxes going to increase?
- Assessed values of homes are up.
What you owe on your property tax, all of which goes to local governments — including schools — is based on your share of the total value of property in your community. To determine that, local governments use property assessments from the prior year, which are based on home sale prices the year before.
That means the booming housing market in 2021 drove up home assessments in 2022, which in turn will influence property taxes in 2023. The average home in Indiana was assessed for $181,500 in 2020 and jumped to $211,000 in 2021, Bottorff said.
“It was like it was three years of growth,” Bottorff said.
The total assessed value for residential areas in Indiana went up 16.5% year over year, according to the Policy Analytics analysis. While that does include increased assessments due to new construction, nearly all of that increase simply comes from the red-hot housing market driving up appraisals, said DeBoer.
Meanwhile, the total assessed value of other types of property in the state didn’t increase as quickly. For example, take the value of business equipment. It jumped only 1.3%. That means when tax bills come due, homeowners will be picking up a larger share of the overall tab.
Lawmakers are considering a proposal to reduce which business property has to be taxed, which could exacerbate problems in future years.
Assessments, though, are just one piece of the picture.
- Hoosiers’ income also increased.
Typically when the assessed value rises, the tax rate drops. Normally that means property tax rates wouldn’t jump so much. But a big increase in the average Hoosier’s pocketbook is leading to the change in taxes. Here’s how it works:
How much local governments are allowed to increase their yearly budgets, and thus how much total taxes they can collect, is based on the six year average nonagricultural income across the state. Income taxes in 2021 especially went up a sizable amount as the economy rebounded from the pandemic and stimulus checks were distributed.
Because of that, local budgets are allowed to increase by up to 5%, the highest rate in 20 years, said DeBoer, the Purdue economic professor.
Some lawmakers also blamed the projected property tax growth on the increasing popularity of tax increment financing, a redevelopment tool that can shift primarily commercial property taxes away from the general funds of local governments and toward redevelopment costs. That leaves homeowners with a bigger share of the tax burden.
Who will be impacted the most?
How much your tax bill will increase largely depends on where you live.
The total assessed value of residential properties in Morgan, Hancock, Warren and Warrick counties all increased by more than 20% year over year, according to information provided by the Association of Indiana Counties. An additional 17 counties were in the 15-20% range.
However, in terms of total tax liability, 16 counties are expected to have totals that increase by more than 8% year over year, including Marion, Vanderburgh, Hamiton, Delaware and St. Joseph counties. That increase includes new construction and all property types as well, but if you own property in those counties, still expect to pay a lot more on your property regardless if you’ve made changes to it. Renters would likely also be impacted as landlords hike rents to offset the added property tax costs.
Sen. Brian Buchanan, a Lebanon Republican who has studied the issue, said that when he looked back at 15 years of data, property taxes have typically increased a little over 3% each year. The highest annual increase in residential property taxes was 7.1%.
That makes this year, with an estimated increase in residential property of 15%, an anomaly.
DeBoer, whose own property’s assessed value went up 30%, said the other issue that will come into play is the state’s property tax cap system, which limits property taxes to 1% of a homestead’s assessed value. With assessed values going up, it’ll be more challenging to hit that tax cap. That also means local governments will in actuality likely collect over 7% more taxes from Hoosiers this year, because fewer people will hit the caps, DeBoer said.
While people all across the state could struggle with high bills, seniors on fixed incomes especially could feel its impact.
“The predominant message I keep hearing is, ‘Can we do something for our seniors?’” said Sen. J.D. Ford, an Indianapolis Democrat who has proposed legislation to try to alleviate the concerns of seniors.
For example, take Suzanne deVaucenne, a 77-year-old who lives in Zionsville in a house she bought and moved into in 1999. She has an income of roughly $30,000 per year from social security and the animal shelter she runs, and she struggles to afford the basics. Right now, she can’t afford to fix her broken water heater or make other improvements to her aging house, but she doesn’t want to move into an apartment and give up both her space and ability to take care of homeless cats.
The assessed value of her property went up 13% last year, according to online property records, and she’s bracing for this year’s tax bill. She guesses her property taxes have already tripled since she moved in decades ago, and she now pays more than $1,000 each year. She doesn’t have additional money to spare.
“What happens in this situation now is you’re strapped for cash for every item,” she said. “Bit by bit, you’re kind of going backwards.”
Lawmakers on both sides of the aisle have filed at least nine bills to attempt to provide relief, even as legislative leaders have issued warnings to pump the brakes on backtracking until more data is available. Senate Republican leadership want to study the property tax system as part of a broader study of all of Indiana’s taxes.
“The challenge with doing anything right now would be that anything that we do would not be able to impact the property tax bills that people are going to get in March,” said Senate President Pro Tempore Rodric Bray, R-Martinsville.
One proposal from Buchanan, the Lebanon Republican, would require local entities to provide a credit to any homeowner whose property taxes increased by more than 10% year over year, excluding school referendum dollars.
“We’re just trying to do something that doesn’t totally disrupt the system, but really provides a little bit of certainty,” Buchanan said.
Another from Ford, the Indianapolis Democrat, would freeze the property tax liability for seniors who have owned their home for 10 years. The state would backfill that money to local governments.
Two proposals appear more likely to move forward because they’re being carried by the House’s lead budget writer, Rep. Jeff Thompson, R-Lizton. House Bill 1498 would cap increases in total existing school operating referendum dollars to 5%, while Thompson’s House Bill 1499 would temporarily lower the 1% cap on residential property taxes and give homeowners an additional tax credit.
Meanwhile, Huston has floated a proposal to temporarily prohibit schools from putting new operating referendums on the ballot to increase property taxes. “Asking people for substantial increases on what is already going to be high property tax bills in this era of uncertainty just frankly doesn’t make a whole lot of sense to me,” Huston said. “I hope some of these people reconsider that.
“If not, we might help them reconsider,” he added.
Days after Huston announced his support for such a hold, Indianapolis Public Schools nixed a controversial plan for a ballot measure in order to raise $400 million.
Who could lose out if changes are made?
All of the proposals would create winners and losers. Under Buchanan’s bill, local governments would eat the costs. A fiscal analysis of the bill shows schools, counties, cities, libraries and other local entities would lose a combined $23.5 million in 2024.
“It would be a decrease in revenue to local governments, and I don't think that's a tenable solution to the problem,” said Matthew Greller, chief executive officer of Accelerate Indiana Municipalities (AIM). “Any reduction to our bottom line I think is going to be tough to support.”
Meanwhile, Ford’s proposal requires the state to backfill money lost by local governments, a price tag of $15.4 million for the state in fiscal year 2026. That’s an unlikely option as Republicans grapple with numerous budget requests for big-ticket items like an increase in public health spending.
Under Thompson’s proposal, the schools would lose out. Without this bill’s passage, operating referendum fund levies across the state would increase by $55 million between 2023 and 2024. If the bill passes, the total fund would increase by only $22 million, a loss of $33 million for schools.
“They’re going to collect more either way,” Thompson pointed out during a hearing on House Bill 1498 on Thursday.
Dennis Costerison, executive director of the Indiana Association of School Business Officials, warned that schools counting on referendum dollars to fulfill promises to their communities made during referendum campaigns could feel that loss. Inflation has hit schools when it comes to the cost of utilities. One Marion County district, he said, has seen its electric and natural gas bill go up $1 million.
Costerison added that this bill boils down to a local control issue.
“We’re concerned that House Bill 1498 overrules the local decision of the majority of the voters in that school corporation,” he said. “The voters have made that decision on that tax rate, not the General Assembly.”
Want to tell lawmakers what you think? You can find your lawmaker here.
Contact Kaitlin Lange on Twitter @kaitlin_lange or email her at [email protected].
Header image: Property tax bills are expected to increase this spring. (Credit: Brittney Phan)
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