Property taxes again took center stage during tax reform discussions Tuesday — with farmers asking for a reprieve and local units of government seeking to head off significant cuts in revenue.
“That’s it: how do you make (the system) simple, yet take care of those folks that have different needs? … It’s complex to fix it.” Rep. Jeff Thompson, who chairs the State and Local Tax Review Task Force, told the Capital Chronicle upon adjournment.
Thompson in Aprilwarned of impending jumpsin agricultural land property taxes. And on Tuesday the Indiana Farm Bureau said its members “need an intervention.”
Indiana uses recent sales to assess most property types, but farmland is different.
The Indiana Farm Bureau’s Katrina Hall testifies at a tax task force meeting on Wednesday, Jan. 10, 2024. (Leslie Bonilla Muñiz/Indiana Capital Chronicle)
The Department of Local Government Finance (DLGF) instead determines a “base rate,” a rolling average with six years of capitalized net cash rent and net operating income. DLGF drops the highest value of the six and averages the remaining five years.
But Indiana Farm Bureau’s advocacy lead, Katrina Hall, said the years-long delay in the formula data means farm income per acre is dropping even as the base rate grows.
“It’s kind of a fiscal cliff,” she said.
That delay will keep hitting farmers.
As previous years’ values roll off in the calculation, Hall said, “We’re not going to have the low ones to moderate the increase. So it’s going to go high and stay there.”
While the formula does help farmers, Hall continued, it’s still volatile because the net operating income calculation relies heavily on corn and soybean prices.
“We have homeowners and other folks whose bills go up a few hundred dollars, and that is real burden to them. But for farmers, it’s several thousand at a time,” she said.
Rep. Ed DeLaney, D-Indianapolis, asks a question during a tax task force meeting on Tuesday, June 18, 2024. (Leslie Bonilla Muñiz/Indiana Capital Chronicle)
Rep. Ed DeLaney, D-Indianapolis, said he was troubled by the contrast between the base value — $2,280 per acre in 2025 — and what farmland actually sells for.
“I see why other other taxpayers would figure that you’re perhaps being treated a little too kindly,” he said.
Hall noted that farmers “don’t get much of any” benefit from the state’s tax caps and can’t access tax relief mechanisms that other property owners can.
“Farmers in many small rural school districts are the primary taxpayers,” she added. “And so to say that they’re … cheating the system — they certainly don’t think that because they’re paying for the majority of services out there.”
Rep. Jack Jordan, R-Bremen, defended agricultural landowners.
“Coming from a rural county, it’s become renting — it’s almost like you’re renting your own land as you pay these taxes, that I think are fairly high,” Jordan said. He also critiqued the state’s tax system complexity, saying it has “its tentacles in every direction.”
Local units weigh in
Groups representing Hoosier municipalities and counties, meanwhile, acknowledged rising tax bills but detailed their members’ challenges.
The Association of Indiana Counties’ Ryan Hoff expressed dissatisfaction with limits on how much money local units of government can raise in property taxes.
Indiana caps that amount — the maximum levy — and dictates how much that cap can rise each year via the maximum levy growth quotient. The quotient uses the statewide rate of average, non-farm personal income growth over the last six years.
Hoff said that, while the income-based growth quotient may reflect taxpayers’ ability to pay, it doesn’t account for service costs. That’s unless a unit appeals its cap based on annexation or extreme assessed value growth.
Lawmakers, including Thompson, sought to crack down on three-year assessed value growth, the most popular exception to the state’s limits, last session.
Hoff called the use of such exceptions “part of the manner in which we’re forced to fight over property tax dollars.”
“The current MLGQ calculations may really no longer function effectively to align costs to revenue distributions,” he said. Hoff told lawmakers that, if they planned to reform the growth quotient, the new system should still consider rising service costs in some way.
Jordan, however, critiqued local units.
“The thing that I keep hearing is that local units have $4 billion of untapped tax revenues through income tax … and yet I see local officials unwilling to use that to fund extra services,” Jordan said. “… We just keep looking at the state to change the formula behind the scenes, do these gymnastics. … I, for one, am unwilling to continue to do these gymnastics.”
Campbell Ricci of Accelerate Indiana Municipalities said local income tax is controlled at the county level, so interested cities and towns can’t make changes unilaterally. He pushed to give individual municipalities that power.
“That is something that I think we can work on coming out of this committee as a way to ease tensions among all the units,” Ricci said. “Because a lot of the time, when you talk about the property tax system, it’s people fighting over similar pots of money. Everyone has an incentive to grow their levy because they want their share of the capped property taxes and they want their share of the (local income tax).
He additionally defended municipalities as more likely to hit the caps and lose out on property tax revenue, and asked lawmakers not to make debt service controls too burdensome.
Schools lay out challenges
Organizations representing school boards, business officials and superintendents — alongside small and rural schools — said the state’s current property tax system has some struggles.
In ananalysisof property tax funding presented at the meeting, Policy Analytics found that growing districts and districts with high tax cap losses spend more on non-discretionary insurance, transportation and utility expenses than they receive in operation fund levies.
Statewide, schools spend about 75% of operation fund money on those expenses, leaving them with about 25% to use on HVAC systems, parking lots and any other operational expenses. Districts with fewer than 2,000 students fared better than average, with non-discretionary expenses consuming about 67% of the money.
Growing districts, however, spent 87% on those necessary expenses, and districts with high tax cap losses spent the equivalent of 114% of their operation funds on such expenses.
The report also found that growing districts and districts with high tax cap losses turn to debt to fund students similarly.
Statewide, schools got $3,324 per student on average out of their operations and debt levies.
“Small districts do a little better … in their operations funds, so you can see their bar for debt decreases. Growing districts receive quite a bit less than the statewide figures, so they make up the gap with debt,” said Scott Bowling, executive director for the Indiana Association of School Business Officials.
“High circuit breaker districts receive even less than the growing districts in their operations funds. And they try to make up for it with debt but they can’t quite get there,” Bowling continued, with such schools receiving less per student than average.
Bowling asked lawmakers for simplicity, but when asked for recommendations, said one-size-fits-all won’t work: “rules that might look really good for one community might seriously hamper a different community.”
