The Indiana General Assembly is debating property tax reform. Senate Bill 1 is a focus of the debate. The original bill introduced in January included the new governor’s campaign promises for property tax relief. It had a rollback of homeowner taxes to 2022 levels, an increase in homeowner deductions and a limit on annual tax increases of 2 percent for homeowners in certain categories, and 3 percent for all other property owners.
In February the Senate Tax and Fiscal Policy Committee amended the introduced bill. The version of Senate Bill 1 that passed the committee includes a county-option tax deferral program, which would allow some homeowners to postpone their tax payments. It changes the farmland assessment formula to reduce future farm tax bills. And it puts stricter limits on the amount that local governments can increase their property tax levies each year.
You can follow the legislative process on the General Assembly’s website, iga.in.gov. Click on Legislation, then Bills, then the bill number, like “SB 1: Property tax relief.” The texts of the bills are there, but I like to start with a bill’s fiscal note. That’s a summary of the bill, written by staff of the Legislative Services Agency, which includes a prediction of how the bill will affect government revenues and expenditures. For property tax bills the agency also estimates the effects on tax payments by property owners.
The fiscal note for the introduced bill predicted a property tax cut for homeowners of $1.3 billion in 2026. The tax cut would rise to $1.7 billion by 2028. In 2024 homeowners paid $3.9 billion in property taxes. Taxes will rise under the current system, to perhaps $4.5 billion in 2026. SB1 as introduced would have cut taxes about 29 percent. The fiscal note predicted that taxes on farmland and business property would be higher than under current rules, by $140 million in 2026 and $88 million in 2028. In total, property tax revenues would fall by $1.2 billion in 2026 and $1.6 billion in 2028. Reductions for school districts would climb from $536 million to over $700 million.
The fiscal note for the amended bill predicts that homeowners will see tax bills reduced by $91 million in 2026 and $254 million in 2028. Other property owners also see tax cuts in each year, totaling $148 million in 2026 and $434 million in 2028. The total revenue reduction for local governments is $239 million in 2026, rising to $688 million in 2028. School district cuts rise from $61 million to $183 million.
Why was Senate Bill 1 amended before it passed? We can’t know for sure what is being debated behind closed doors. None of us are in “the room where it happens.” But we can make some guesses by comparing the fiscal notes for each version of the bill.
The amended bill provides less tax relief, but all property owners see cuts. The introduced bill increased deductions for homeowners, which shift tax burdens to other taxpayers. The amended
bill eliminated the higher deductions. Perhaps committee members wanted to spread tax relief to all property owners, not just homeowners.
The revenue losses for local governments are less in the amended bill, by more than a billion dollars in each year. The big cuts in the introduced bill probably came from the rollback to 2022 homeowner taxes. Homeowners paid $3.1 billion in 2022, more than a billion less than the estimate for 2026. The rollback was dropped from the amended bill. Perhaps legislators were concerned about possible cuts to local services if revenues were decreased so much.
The amended bill also dropped the 2 and 3 percent limits on annual tax bill increases. This would have added another step in the calculation of tax payments. Instead, the bill reduces the maximum levy growth quotient, which restricts how much local governments can increase property taxes each year. The MLGQ is already in place. Maybe committee members wanted to avoid adding to the complexity of our property tax system.
The amended bill passed the Senate on Feb. 17. It will move to the House of Representatives, likely to be amended some more. There is still a long way to go.
