Indiana's governor candidates want property tax relief. Here's why change is tricky

The massive surge in home value assessments ― and resulting property tax bills ― that landed in Hoosiers' mailboxes last year has led to property tax relief becoming one of the hottest topics on the campaign trail.

Property tax bills for homeowners across Indiana went up 18% on average in 2023, thanks to pandemic-related spikes in home values and voter-approved referendum projects. The state also granted appeals from about 70 growing communities to collect more tax revenue than state law typically allows to keep up with their own inflated costs.

Indiana's gubernatorial candidates have their own ideas about how to reform or adjust property taxes, but the issue is often vexing for lawmakers: How can they provide relief for some groups without shifting undue burden to other taxpayers, and without jeopardizing the public services that local units of government provide with this tax revenue?

And furthermore, with inflation cooling, is now the time for making major changes?

What Mike Braun wants to do

Republican gubernatorial nominee and U.S. Sen. Mike Braun released his own suggested framework Friday for curbing homeowners' costs in an attempt to "reset" property tax bills back to pre-pandemic levels.

His proposal is to significantly increase how much a homeowner can deduct of their home's assessed value from their tax bill. Braun also calls for reducing how much property taxes can grow from year to year and requiring local units of government to go to referendum to exceed their caps. He also wants to restrict property-tax-related referenda to high-turnout elections , like general elections.

Braun's proposal to increase homestead deductions would result in a 21% decrease in the average homeowner tax bill, according to his team's analysis. A preliminary analysis of Braun's proposal by David Ober, senior vice president of business operations and finance at the Indiana Chamber, show the largest savings occurring for owners of homes worth less than $125,000, as well as owners of high-end homes, worth north of $875,000.

But Braun isn't hung up on the details ― he wants to get the conversation started. Since releasing his plan late last week, he's already amended it based on feedback that communities with higher tax rates wouldn't find much relief from the plan.

"The exact mechanism, when we put it out there, is not intended to be the one we necessarily end up with," he said. "But there needs to be tax relief. ... It's the concept of it. The details, obviously, are going to be fleshed out once 150 legislators start chewing on it."

What Jennifer McCormick wants to do

Democratic nominee Jennifer McCormick, previously the state schools superintendent, doesn't have a specific proposal for property taxes yet because she said she wants to see what recommendations Indiana's State and Local Tax Review Task Force makes.

The task force has been meeting since the spring of 2023 to hear testimony from county commissioners, school officials and tax experts on every aspect of Indiana's tax system, from property to income taxes, and the pros and cons of tinkering with them. The committee aims to suggest tax reform that the General Assembly could consider during the 2025 session.

McCormick said she understands the concern about rising property tax bills, but thinks the Braun plan's lack of an analysis of the fiscal impact on local governments is a "red flag."

Any tax relief should not compromise public services like road-paving and quality schools, she said. Her idea of a revenue replacement: legalize marijuana and tax it.

"Until that conversation happens on revenue replacement, then I think it’s a lot of lip service, to be honest," she said.

What Donald Rainwater wants to do

Donald Rainwater, the Libertarian candidate, would rather gut the concept of property taxes entirely.

Property taxes are based now on the assessed value of the property, which fluctuates. Rainwater's proposal is to make them more like a sales tax: Cap them at 1% of the purchase price of the property and let them expire after seven years. That means no increases from year to year.

His philosophy is that as long as you continue to pay property taxes to the government, even long after you've paid off the mortgage, you never truly own the property.

"I believe that it's criminal that government makes you pay them for the right to keep your property," Rainwater told IndyStar last year.

Why adjusting property taxes is tricky

Indiana lawmakers have made incremental changes in recent years in an attempt to respond to unprecedented property tax bill growth since the pandemic ― but those changes are smaller than what Braun is proposing.

In 2022, lawmakers increased the standard homestead deduction from $45,000 to $48,000 and expanded the eligibility for tax deductions for senior homeowners over the age of 65. In a law passed last year affecting tax years 2024 and 2025, lawmakers increased the homestead supplemental deduction and lowered the percentage by which a local unit can increase their tax levy from year to year. These changes were estimated to result in a local revenue loss of $93 million over the two years, according to the bill's fiscal note .

While homesteads benefited from these changes, the fiscal note shows a shifting of tax burden onto other types of property: multi-unit housing, farmland and commercial buildings.

That's why the Chamber and others have historically urged caution when it comes to messing with homestead deductions, Ober said.

"There are so many dials you can turn," he said. "You have to be careful because it impacts other groups, and local government's ability to provide public services."

That's the rub for Ball State economist Michael Hicks, who argues that what drives economic growth is quality-of-life services that attract college-educated workers.

"The very myopic tax cut sounds good for elections but it becomes a very much different prospect when you’re balancing the effects of those things on services that are valued by the kinds of families that Indiana is struggling to keep," Hicks said.

Has Indiana missed its chance?

Assessed values are on their way back down, and inflation has cooled in the second quarter of 2024 ― finally.

Some argue that lawmakers shouldn't change the structure of property taxes in a permanent way to address a temporary problem like inflation.

"To handle that temporary economy, I understand why the General Assembly felt like they had to take action," said Dave Bottorff, executive director of the Association of Indiana Counties. "But going forward, we're going to start to see assessed value go back to historic levels... and the system would have sort of self corrected. But now we have this lower levy growth quotient which is permanent, and may or might not keep up with inflation going forward. That's a concern."

To that, Braun argues we can't know if we'll have another inflationary period again.

"So this is to put something in place that will fix it down the road, because we don't know if it's going to abate," he said.

The general election is Nov. 5.

Contact IndyStar state government and politics reporter Kayla Dwyer at kdwyer@indystar.com or follow her on Twitter @kayla_dwyer17 .

This article originally appeared on Indianapolis Star: Indiana's governor candidates want property tax relief. Here's why change is tricky