The late Rex Early, one of Indiana's most colorful and quotable political figures, used to say it's a mighty thin pancake that don't have two sides.

With my old friends permission.

I'm going to apply that trademark Rex ism to Senate Bill one.

The property tax overhaul recently signed by governor Mike Braun, the Republican governor and the leaders of Indiana's GOP dominated House and Senate, touted the legislation as, quote, historic tax relief that will benefit most homeowners as well as Hoosier farmers and small businesses.

Democrats, however, denounced the measure as a lose lose proposition.

That's all but certain to result in higher local taxes and or cuts in vital government services, including those offered by schools, libraries and police and fire departments.

Hi, I'm John Schwantz, and on this week's show, we'll examine both sides of that pancake.

I mean, debate that probably won't be settled for years, if not decades.

Indiana lawmakers from the statehouse to your House.

Indiana Lawmakers is produced by WFYI in association with Indiana Public Broadcasting Stations.

Additional support is provided by the Indy Chamber, working to unite business and community to maintain a strong economy and quality of life.

I am pleased to welcome Republican Senator Scott Baldwin of Noblesville, ranking member of the Senate Tax and Fiscal Policy Committee.

Democratic Representative Ed DeLaney of Indianapolis, a member of the House Ways and Means Committee, and Republican Representative Danny Lopez of Carmel, also a member of that House panel.

Thank you all for being here to talk about property taxes.

I have a sense there's going to be a lot of disagreement during this discussion.

So let's start.

Let's build a foundation here where there is agreement.

And that is under the bill that was signed on April 15th, I guess, appropriately enough, appropriately enough, by the governor.

there will be two thirds or so of Hoosier homeowners will see some relief if relief is defined as a 2026 bill being less than a 2025 bill.

Most around 100 bucks or so, in relief, capped at 300.

And that doesn't count for seniors who get an extra hundred and 50 or for disabled veterans.

They're stackable benefits.

Another credit of 250.

But again, 300 cap for most.

And, that much we agree on.

Right.

That's right.

All right.

So Danny Lopez historic.

That's what people are calling it.

Wonderful.

Historic.

Big win.

I think this.

Is $300 max.

You know, look, we haven't done, I don't think a reform like this for, you know, upwards of a couple of decades, right?

Since tax caps of this nature.

And so I think it's natural that you're going to have some confusion and some folks thinking, well, how is this going to impact locals or schools or others and having to work through those?

And I think that's true, but it is significant when you think about 1,000,000,005, save for taxpayers, across the state, 10%, as you mentioned.

And the one thing that for whatever reason doesn't get talked about, I think enough, is that two thirds deduction once were fully implemented in 2031 is a big, big deal.

So I mean, I think there's a.

Lot some change in the credits in the two credits.

Now that would be combined.

That's right.

And to essentially two third.

That's right.

And new homestead.

Credit.

Yeah.

And I think that's a big deal.

And and you know again we know we know that we were in a place where we needed to evolve to a system of local taxation where units, local units were incentivized to either lower or raise rates depending on the vision of the community.

And then locals could hold them accountable, you know, be held accountable to that.

I think we've moved to that kind of a system where we are moving to that kind of a system.

The chairman has been really upfront and clear, and we've been in those committee discussions that with a bill this size and this complicated, there are going to be some unintended consequences.

And that's why implementation, although relief was immediate, implementation was delayed for a couple of years.

So we've got some time to work through the kinks.

we're hearing from locals, and we'll address those as we move forward.

But I do think it's pretty it's a pretty significant, it's a pretty significant step, both in the immediate and in the longer term.

So you call it significant step, the governor call it historic.

Others call it big win.

Members of your caucus, Ed DeLaney said scam, bait and switch.

But I'm laughing.

I just paid seven bucks for one scoop of ice cream in an ice cream shop yesterday.

So 300 bucks doesn't sound like it used to.

Okay.

I mean, that's part of the problem, and I think.

And you think that's how this should be viewed, not the 1.5 billion.

Yeah, the market number.

But we're still average is the time when it might be again, more like 100 for me.

Yeah.

We're selling it to homeowners okay.

So let's talk about that.

The tax is probably will property tax probably will go up for a lot of people this year okay.

So what we're talking about is what happens next year.

And if I heard Representative Thompson who's the chairman whom I respect, what we're going to have is a smaller increase than we otherwise would have had for many people.

And I think this $300 will help achieve that.

And I think that's a good thing.

How many people will actually have less?

I don't know, that's going to vary from what district you live in.

You know, all these factors in there.

I think, Representative Lopez is right to say that this I don't want to his historic.

But this is a big move because it's moving away from looking at the overall levy to looking at the rate, which is something we have not focused on for a long time.

And that will put more responsibility on the locals because they set the rates.

We set the outer bounds, the broad rules, but they set the rates.

So we'll have to see.

I think the core problem, which is not addressed by this bill, is that we have too many units of government, and it's just that simple.

We got over 2300 units.

They can hit you with property taxes.

And that's why we'll have some of these distortions, because some places are going to be hurt badly by this.

Some local units, others are going to be fine.

So we got to work through that problem.

But that's not a one day problem.

Well, let's Senator Scott Baldwin, your constituents, will this satisfy those who were emailing you, sending me letters, seeing you at the coffee shop saying do something about property taxes.

Is this the fix they wanted one of?

I mean, I have a pretty diverse district, you know, I we we have certainly, you know, constituents that are upset about their property tax bills and we have others that are completely fine.

And this is not an issue for them, you know, and that kind of kind of demonstrates how difficult it is.

We're already a very complex tax system.

And to, to find a solution, you know, is, is quite difficult.

And one size just doesn't fit all.

And, you know, you hear from those anomalies out there, you know, how they are disproportionately affected.

We'll have some units are, you know, screaming about, an an inability to service police and fire and, and then you've got, you know, the other side that are saying that, you know, $300 or $100 just isn't enough.

Finding that broad balance in the middle is is a is no easy task.

And I think we've done it, though.

we've I think what we've done is, is good policy.

right now it's such a complex system.

And I'll say, we've got this perverse incentive for local government to raise their levy, to make sure they mark time with the ability to keep local income tax at a rate that they have kept in previous years.

And until we decouple local income tax and property tax, we're going to continue to have this problem.

Real estate, homesteads, they increase disproportionately to businesses.

And you're going to continue to see that divergence in those increases.

And so until we decouple those and head toward a rate based system, which Chairman Thompson and others, I think we all agree on that, at least where, cities and counties and local government, they eat what they kill.

So if they raise or lower their rate, their taxpayers will see the benefit thereof.

They need to buy a fire truck.

They can go lobby that issue to their constituents.

If if they've done really well, they can raise their their they can lower their rate and their constituents should see a corresponding decrease on their tax bills.

That's not the case right now.

And you mentioned business too.

We should.

I'd be remiss if I didn't point out also that small businesses would see the exemption on the tax, the property tax that they pay on equipment.

Let's just say for for simplicity's sake now, they're exempted anything up to 80,000.

This would raise that to 2 million, which would affect a large number of of small businesses.

Is that is that as important in the big picture, in terms of relief as, as, you know what, how we got into this in the first place, which is I.

Think it's part of the balancing.

John.

That's one thing.

is it important in the relief?

Yeah.

I also think it's a good example.

I mean, the BP question is a good example of how we really went through a very, diligent process to ensure that we were having the right kinds of impacts on the local level.

And not disproportionately throwing off what locals were doing and punishing those that were growing.

I mean, we come from communities that are driving a lot of the growth and population in the state.

and we we don't want to create a system that punishes good behavior and punishes investment and quality of place and those types of things.

That's one of the reasons I ran, and to ensure that in these conversations that's reflected, I think when the BP, when we started with BP and the, you know, the total exemption where we wanted, where we ultimately did not get walked that back, one of the things we heard from locals was for Tiff and other things that are backed by, you know, BP bonds that are backed by BP.

This is going to kill us, and it's going to really hamstring our ability to do economic development.

I think we addressed that late in the game, but we addressed that before the final bill, and that was a big, big step.

And, you know, Representative DeLaney said something that I think is spot on.

we have too many units of local government, and I know he's been a champion of this and talking about this for a long time, that are, that are taxing.

And I do think while this is not, explicitly addressed in this bill, I think one of the consequences of this bill is you put you've put a lot of control at the county level for them to now make determinations down the chain as to what, what is going to receive funding or not, because you're you're capped.

We've we've lowered the ability of a county to rate the capture rate that a county can have by, you know, by almost a full percentage point.

And so now counties are going to have to make some difficult decisions down the chain, which I think is part.

Of there's a lot of terminology here So I'm going to try to help viewers and listeners here just, a little bit.

When you talk about the the caps on the at the county level, it's used, it's now 3.75 total that a county can charge under this income tax.

Yes.

Uncontested.

Right.

see, it's more complex than we even thought.

Yeah.

And it goes down to 2.9 total.

Yeah.

And by the way, we should say real quick because this is one of the things that we hear a lot, understandably, again, as we saw through this at the local level.

Well, this is going to raise income taxes and communities are going to have to raise income taxes.

Well, the reality is they can do that now.

Right.

And we're actually lowering that.

Well counties cities couldn't unilaterally they'd have to to persuade the county to go along.

Now they have the capacity or authority on their own unilaterally to do 1.2% income.

Bigger cities.

Yes.

So that all sounds good, right.

But reading something that Michael Hicks, a Ball State economist, said that actually and we keep in mind, we talked about property tax cuts on average for homeowners of, say, 100 bucks capped at 300, that the average Hoosier family will see an increased tax burden because of the changes here in the shifting to local property or local income taxes of maybe $1,250, which.

That's the risk of this.

That's the.

Presidency.

Is this his fear?

valid?

Yeah.

I think the pressure is to move towards and I think Governor Lopez mentioned this move towards local responsibility by using the local income tax, which they and they alone can impose with caps, but they can do that.

And I think that's exactly what's going to happen in some communities, not in others.

But it's going to happen is going to be noticed and and there'll be more accountability.

In the other hand, we did to one good thing, which is we did allow the cities to have the tax, whether the county wanted them to have it or not.

Okay.

And we also, I think I'm moving towards a system where if I cut my tax rates, let's say for a fire district, it doesn't just get shifted over to another unit.

I've actually made a cut.

That's been one of the problems that we've had.

It's like, you know, why would the library cut its budget when the citizens are going to get nothing out of it except fewer books?

Okay.

So we've we're getting in a rational direction.

It's a long haul.

I think Jeff Thompson is one of the people that could help get us there.

The core problem is, is the public school system is depending 3,040% of the property taxes.

We've got to help the poor districts poor, meaning they don't have a lot of assets and have a lot of factories.

They don't have a lot of fancy homes.

We got to find a way to fund them, take the pressure off the property tax system.

And I think that's well and represented.

Thompson wants to do that, but we didn't do that yet.

And that's I think, the ultimate solution.

And I do.

Want to get to school because that's a huge part of this discussion.

But for those again, trying to follow this who aren't accountants or don't have an army of accountants at their disposal, if they're just listening at home and they say, wow, the cap before at the county income tax cap was 3.75.

Under this legislation, it reduces to 2.9 celebration balloon drop of a, you know, bring the confetti out.

So why is it that that's charging it.

That's well they weren't charging.

I was going to get to the point that the difference there is because they were getting the property tax revenue, which is the state's a pass through.

And essentially they didn't feel that they needed to.

Now they may feel the need and they may in fact take advantage of the new cap found capacity is that.

I think most citizens think that the state of Indiana assesses and collects their real estate property tax, which is just not the case.

So we end up with a lot of telephone bill.

You put the system in place when the dollars, of course, flow.

Right.

It's important to know that, the state government neither assesses your property tax nor collects it, nor benefits from it at all.

And but that's not what most constituents think.

Our inbox is filled responsibly.

Yeah.

And you know, the the there is a concern I think rapidly.

And he said it will there will be pressures put on certain local units of government to raise that.

But I think that's the that's the beauty of this.

We've empowered that with some restrictions to do exactly that.

If you're in a community where you feel like that's the only backstop that you have, but nothing in the bill directs it to be so, it isn't a shift to local income tax, unless, of course, your local government chooses to do so or feels they absolutely need to make that happen.

And that's going to be a case by case basis.

We've put some levee control measures in place.

But but I think citizens have spoken pretty clearly that they want to see some tax relief that was one of the number one things we heard over the summer, which crafted our idea that we needed to do something about it.

And I think we can all agree there was a lot of vocalization of a need for tax relief.

And, you know, there was a lot of inflation in the past few years that caused a lot of these assessments to go up.

And, you know, whatever the case may be, folks in, you know, we're experiencing a 10 to 20% increase in their real estate property taxes.

So we had to step in and do something.

They were demanding it.

And so this is the very complex solution in a very complex system to try to address that.

Danny Lopez, do you think most municipalities now that they have this capacity to tack on a 1.2% income tax and collect it, will they take advantage, avail themselves to that, or will they look for cuts?

First it's hard to tell.

We're going to see as we get into presentation.

I don't know what the answer to that is.

I do know that.

I mean, again, in communities like ours, we've got exceptional leadership at the local level and we've got, leadership that is already sort of casting a vision for our community, for what we want to be and how we want to grow in the next five, ten, 20, 30 years and can now go out and make the case as to what levels of funding we need to have from an income tax perspective in order to achieve that.

And I think that's critically important.

There are other communities in the state that are going to say, you know, we can make these reductions and it's it's prudent to make these reductions and their tax bases, their local constituents are going to hold them accountable to those decisions.

They're either supportive or they're not.

You know, we've shown in in Carmel, we've seen over and over again a willingness to, to fund referenda, school referenda, or to, or to be okay.

I heard from a lot of folks who said, you know, we're okay with traffic circles.

We're not paying for amenities again.

I mean.

50 million, no swimming.

Pool.

Yeah, well, look at the economic look at the economic impacts that we're seeing from some of the some of those investments.

But the point is locals are saying, here's the here's the government we want, and this is what we're willing to put on the table to fund it.

And I think that those are the decisions that should be localized, that now through this legislative.

Can you just look at it at a local prism?

Because again, if you think about tax climate, and we often hear people say, well, you going to have a very inviting tax climate to get businesses to come here and to hire here.

and businesses that are thinking about relocating from Nebraska or North Carolina aren't necessarily going to pass that.

They're just going to say the burden is the burden.

That they look at the tax foundation or the other groups.

Our overall tax system is quite moderate.

They say we're the fifth best and the fourth by another group for the fifth.

So we're supposedly pretty well off.

And the question is whether or not we have three parts we draw from essentially the sales tax, the personal income tax and the property tax.

Those are the three big pots.

And we got to keep them in balance.

This one got out of balance.

The property tax got out of balance partly because of inflation and home prices and so forth, and because business assessment occurs some much slower.

So much later that they didn't catch up or getting hit with the higher taxes the homeowners did.

So we got to make adjustments.

But I don't think our overall tax plan is anything other than positive.

The real one of the real concerns is the growing communities.

Dennis community is sort of stable and and well off.

But the growing communities, the McCord levels in this world, are in trouble because they can't provide fire services and other things under our current system, and we got to work with them.

I think they're the ones I'm hearing from that are feeling stressed out, that they may not be able to build that next new school, that next new firehouse.

And we're gonna have to work on that.

And I think, Chairman Thompson sees that.

So that's, you know, it's interesting for me from the city to be concerned with that, but I'm concerned with that because it causes ripples all through the system is because real estate is burning and screaming.

It doesn't help me.

Isn't that ironic after all these years that a little place like that could become so important?

So we got to address their particular concerns.

But I think we need to stop saying that we tax too hard.

We need to talk tax well and then correct proportions.

And that's part of the strain here.

One of you mentioned 27% hike in property taxes, which sort of sparked a lot of the vociferous concern.

But again, if you look at the data, we're still lower even with that increase than any of our neighboring states by a significant amount.

A very positive net effective tax rate in the state of Indiana.

And, you know, we've been.

Put here, but that's not the message that was being shared with voters.

It was that shared outrage at the increase.

Right.

I did hear some outrage for sure.

Yeah.

I mean and but.

But I'm just devil's advocate.

Why couldn't the state say, I know taxpayers, this is a pain.

It's because your assessed values have gone up.

You're sitting on a lot of nice property, but we're not screwing you essentially because our tax rate.

But that's I guess that's not.

You know, we have got.

To drive the, All right, Pollyanna has arrived.

And I mean, here.

We we you know, we've studied this for the past, the last two years in this Salter test for state and local tax tests for, too many words for that, task force that we had there.

But, for two years, we had economists come in and talk to us, and, and, There weren't any clear recommendations necessarily that came out of it.

I mean, there were recommendations, but not an overhaul of the type that people suggest.

No, I mean, I think we we we acknowledged that, we were very complex, but we had a very good net assessed tax rate or net, effective tax rate in the state of Indiana.

And, one thing that was pretty strong and resounding amongst most of the economist with whom we spoke or things that I read were was keep your tax base broad and low, you know, don't necessarily eliminate or kick one of the legs, the school or the stool out beneath you.

and I think, you know, you've seen us try to lower our income tax rate and we've now got a measure to try to, you know, set that rate, to be lower to the extent that our budget permits it and, our income permits it.

And but I don't know that you'll see us want to eliminate any, any tax.

I'll tell you, I would probably personally be a fan of trying to find a way to eliminate homestead taxes.

Probably not property tax altogether.

but, you know, we come back seemingly every year and we hear, malcontent over homestead taxes, the 1% tax.

it's a it would be a pretty tall lift, but there may be a way that we could do that and that we are discussing that.

I don't know if that's a, a reality just yet, but it's certainly on the table.

And there were bills filed this session, as there are, I presume, most every session saying, let's do away with property taxes altogether.

Let's go to a, for instance, a sales tax on services.

Doesn't work.

There's a lot of, you know, there's a lot of bills filed every year and there's a lot of discussion.

but.

And you don't foresee discussion, this is not going I mean, listen.

I think some of these discussions are worthy of having I mean, they bring to light certain issues that we should be talking about in the legislature.

I don't have any issue with that.

But I think, you know, Scott's right.

We've we've taken a measured approach.

I think we've, done a good job over time in the state of making ourselves competitive from a, from a tax climate perspective.

And it's why we've seen the growth that we've we have.

It's why we've seen the investment here that we have.

I mean, none of that is surprising.

you know, I've got one of Westfield is one of those communities that is growing exponentially.

Right.

And you're seeing massive growth, I think is one of the reasons.

And again, we wanted to provide a glide path in this bill to a new system that MLG Q keeping that at 4% for another year, so that there was a runway for a community like that to continue to.

That's you love the irony.

The oh, sorry, but that is the the cap, the growth, the county.

The government right to be able to to fund the priorities of that community as we transition to a new system.

I think it's incredibly important.

So I think there were a lot of steps here to get us to the right place in full implementation in 2031.

So we're of.

Course, now in the short term, because some of these things are phased in, over time.

But one thing that there will be that kind of initial impact is that hit, one estimated to be 1.3 to 1.5 billion on locals.

about half of that is schools, 40 to 50%.

they've gotten a lot of attention now.

They, of course, could go to voters and no doubt will to to with the referendum, request.

that's that's not a there are fewer tools are there in or weapons in the arsenal, so to speak, because now they have to do so in certain times in general elections.

And they have to share the bounty.

Look with, with charter schools.

Yeah.

Well that's.

Just, that's.

There's a terrible idea.

So you get more miles at the trough.

So that's not a good idea.

And the other thing.

Is so they can raise they can do what you.

But yeah, for example, take it upon yourself to get your money, but then you have to share it.

What's with schools that I don't own or control and don't vote for it?

So that's a big problem.

You don't have a problem with schools levy request.

You're have a concern more with the distribution of the dollars.

I think that's a bad idea.

But let's go back to the the core thing here is we made it harder for a referendum to pass.

So we put more pressure on the school districts and the two that are going to hurt the poor districts and the rapidly growing, and we're going to have to figure out how to deal with that.

And the answer is pretty clear.

The state's going to have to pony up more money for those schools that don't have the assets locally.

That's just all we can do.

Then we can do that.

It takes the pressure off all the other parts of the property tax system.

We can pay for the fire trucks because we're not paying for the school books or whatever.

That's what we're going to have to do.

Until we do that, I think we're going to have a major lawsuit about whether we're complying with our statutory or constitutional mandates for our schools, but so we got to get to that next.

But I agree completely.

We don't want to blow up the system.

We have three three legs on this stool.

If we cut one of them off, I don't care whether it's sales income, property tax, that school is going to fall over.

We have a very rickety school because we don't want to have a lot of money.

That's just the way it is in Indiana.

I'm a realist about that.

We are a low tax, low government service state.

But be careful.

Don't undercut your ability to maintain.

And I think that's why we get the budget.

Prospect just cure hair and, and you know, I agree with most everything Ed is saying.

I'll just I just want to remind everybody that, you know, we talked a lot about the concept of loss of revenue, and I think you, John, used the the word at $1.4 billion hit.

And I think, again, I'll say the words I said.

I don't know, for 1.4.

Yeah, $1.4 billion hit.

I'm going to say it's even worse than I thought.

Everybody thought.

Yeah, yeah.

it's actually, an unrealized potential gain.

it they didn't grow as much as they had hoped.

Yeah.

Repeat what you said on the floor that that nobody's going to receive.

Well, well, I did not.

And I would just say in aggregate.

Standing.

In aggregate, schools and local government are not losing.

They're not losing.

They're making more money in 26 than they than they did in 25 and in 27 and 26 and 27. they're in aggregate big winners in this bill.

And I think the outcry for tax relief, you know, probably would have expected them to be less than that, probably losing money to actually lose money.

And I think we've been pretty masterful in, in providing a 1.5, $1.4 billion tax relief system while not crushing.

We've been really gentle on local government and schools.

No doubt they're not making as much money as they had forecasted or hoped for.

All right.

As we come to a.

But let's be real clear, they've seen, months and years well above inflation for several years now.

Right.

So look at the budget.

Look at where we are, look at our finances.

Everybody citing this is part of the problem.

We'll leave it there.

I was going to say let's start where we, end where we began with agreement.

Does anybody agree or disagree that we will be back talking about property tax reform for every year?

I knew we'd get agreement again.

Well, thank you for, taking allowing us to take this step, in helping Hoosiers understand, what you did as it relates to to the tax burden.

I thank you for your involvement in this discussion.

My guests have been Republican Senator Scott Baldwin of Noblesville, Democratic Representative Ed DeLaney of Indianapolis, and Republican Representative Danny Lopez of Carmel.

Time now for our weekly conversation with Indiana lawmakers analyst Ed Feigenbaum, publisher of the newsletter Indiana Legislative Insight, part of Hanna News Service.

Well, clearly, the Justice still settling, but who are the winners and losers ultimately going to be in this?

Well, the governor came out with a property tax relief package that he didn't get.

He got what the legislature would consider to be reform.

But it's really basically just a burden shift.

The governor did not come out a winner on this doesn't.

Stop him from saying it's historic win for.

Hoosiers.

And that's something that the legislature came out and did as well.

You know, the first thing they did was was tout what a great win this was with the $100 $300 or whatever.

And they ignored some of the people like renters and multifamily ownerships that will not be getting any kind of relief.

So they started out with, hey, this is a big victory.

But at the same time, then they started kind of backing off a bit and saying, oh yeah, well, we may come back and do some fine tuning when we see what the impact is going to be.

During the panel, we heard a lot about, oh yeah, we're going to come back every year.

So maybe this isn't quite the perfect package.

And then they got defensive.

They got very defensive after they passed the budget.

They said, hey look we're tightening our belt more than then.

We're forcing the locals to tighten their belt.

We're doing 0.8% revenue growth in year one, 0.1.

In the second year, the locals are getting basically 1.6 in the first year and 5.1 in the second year.

They're making out better than we are.

So bottom line, today's winners apparent winners might be tomorrow's losers.

In terms of.

Public, we have to see after the fine tuning, John.

All right.

Well, thankfully we'll be back as well as lawmakers.

Thank you.

Had as always, I appreciate your insight.

Thank you.

John.

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