Rory Appleton, State Affairs
Cutting property taxes has emerged this year as both a gubernatorial campaign issue and a discussion topic for the Indiana General Assembly.
But the state’s cities and towns — which derive more than half of their annual budgets from property tax revenue and use it to pay for police officers, firefighters and other key services — are urging lawmakers to be patient.
Matt Greller, CEO of Accelerate Indiana Municipalities (Aim), which represents more than 470 Indiana cities and towns, sat down with State Affairs for an in-depth interview on the property tax issue and other matters facing Indiana’s municipal governments.
This interview has been edited for clarity and brevity.
Q. Explain what Aim does.
A. Aim was founded way back in 1891 when a group of mayors got together to lobby the Indiana General Assembly on an issue about horses, believe it or not, and has grown immensely since then. Although lobbying and representing cities and towns at the Indiana General Assembly is still at the forefront of what we do, we also do a whole lot of education for municipal officials.
We provide a lot of opportunities for municipal officials to network and share best practices, lessons learned, borrow ideas, things like that. Communication sort of goes along with education. We have lots of avenues to communicate with our city and town membership throughout the state.
Since 2010, we have also provided health insurance for cities and towns that choose to opt into our program. We have a large consortium that’s put together out of about 70 cities and towns with multiple thousands of individuals who receive their health insurance through our program.
“The dependence on [property taxes] in Indiana is high, and it’s a very, very important resource.”
Aim CEO Matt Greller
Q. What are some issues that cities and towns are facing?
A. The main driver would be housing. There is a lot of demand in particular areas around the state for new housing, and sometimes it’s difficult to get some developers to come down and do that work in particular areas of the state.
Municipal finance is always important, but in the context of building quality places. We know now, and I think it’s generally accepted, that people are moving to the places they want to live in, not necessarily where they have found a job. That’s something that’s changed over the last 15 or 20 years, and the communities that have responded well to that are doing well now.
If you’re in a community that’s seeing growth, it’s likely because you have the amenities people want these days: quality parks, trails, vibrant downtowns, eateries in your downtowns that are within walking distance. Those kinds of things really seem to drive population growth, and that’s what we’re all after. Making sure that cities and towns have the resources to provide those kinds of amenities has become a huge undertaking for us and drives really everything we talk about within the organization.
Q. What do cities use property taxes for?
A. Property taxes in Indiana are extremely important to local governments — not just cities and towns, but counties, townships, libraries and still schools to some degree. Property taxes are collected at the county level and returned to the local level.
In Indiana, we’re a little bit different from a lot of other states with our dependency on property taxes. Generally, somewhere north of 50% of a municipality’s general fund budget comes from property taxes. Anytime you talk about changing the formula or putting restrictions on property tax — amounts people pay, caps, things of that nature — it becomes a direct impact.
They fund all your basic services. Police and fire in particular take up a tremendous amount of a local government’s budget. Generally, north of 65% of a local government’s budget goes to public safety.
Property taxes really fund the general operations of any city or town. They’re often used to supplement road and street projects. They’re used to pay the salaries and benefits of city and town officials who are working for the community. The dependence on them in Indiana is high, and it’s a very, very important resource.
Q. The amount of property taxes that people pay has jumped in recent years. Why do you think that is, and do you think that’s an anomaly?
A. I do think it’s an anomaly. I think most economists will tell you that a lack of supply and a high-demand post-COVID really pushed the value of homes up, not only in Indiana but across the country.
The way the system works in Indiana is your assessments go up, and every city or town or county has a different property tax rate based on their own individual circumstances. Some people did see an increase in the amount of money they’re paying. A lot of our city and town leadership saw this coming. They kept their rates flat or even lowered them a little bit to account for the anomaly.
The market now is starting to already go back to a normal situation from that pretty significant spike a year or two ago. We want to avoid wholesale change based on a problem that’s already passed.
Q. Sen. Mike Braun [the Republican nominee for governor] has put forward a property tax plan that seeks to roll back property taxes to 2021 levels. He wants a cap. He wants a huge cut that would take away hundreds of millions of dollars in property taxes. What do you think of that plan?
A. I think it was a first step to put some ideas out on the table, and that’s appreciated. I do think the impacts are hard to define, because we don’t know all the specifics of the plan and how it would actually be implemented.
From the 1,000-foot level, it certainly seems that plan would have some significant fiscal impacts on cities and towns that we would have concerns about. On the flip side, there’s a long process to go through, and I think we’re confident that we can work with Sen. Braun’s team, should he be elected governor, to put something together that makes sense and doesn’t hamstring local governments.
Q. To be clear, a cut to property taxes would almost certainly mean a cut to the budget for police and fire in your local government, right?
A. Without question.
Q. How about [Democratic gubernatorial nominee] Jennifer McCormick’s plan? She proposes tackling the issue a bit differently through state income tax. What do you think about her plan?
A. The devil is in the details. We need more detail to fully understand what her plan does. From an outward appearance, it does seem to have a little bit less impact on cities and towns. But it’s still significant.
We’d have to look at that and make sure that no significant harm is done to cities and towns. But again, happy to work with her as well as her team if she’s elected governor.
“Compared to 11 or 12 other benchmark states, we don’t have a high property tax rate in the state of Indiana.”
Aim CEO Matt Greller
Q. Does Indiana have a high property tax rate in general?
A. No. The Indiana Chamber [Foundation] just released its property tax study. It shows that when compared to 11 or 12 other benchmark states, we don’t have a high property tax rate in the state of Indiana.
Q. Both of the property tax plans put forward by the two governor candidates talk about protections for seniors. What do you think about that idea?
A. It depends on which seniors we’re talking about. Certainly, if there are seniors in need, we don’t want anybody to lose their home. No mayor, no city council, no town council in the state of Indiana will want that for anybody living in their community, and we do want to protect those folks. If there’s an issue for those on fixed incomes or incomes controlled by others, we are certainly open to those things.
We’ll have some concepts that we’ll share with the General Assembly or in conversations with them as we get closer to the legislative session.
On the flip side, I look at my own parents as an example. They’re nearing 80, and they’re not rich by any stretch of the imagination, but they’ve been smart with their money over the years. They’re constantly on the [nature] trails in their community. They’re constantly driving around on the roads. They’ve even had to call the fire department one time to put out a brush fire. They are users of property tax-funded services that their community provides.
It’s important that we remember a lot of seniors are in a good spot financially and not at risk of losing their home. They should be able to contribute and pay for the services they’re receiving from their local community.
Q. Are you looking to partner with other organizations like the school districts or the Association of Indiana Counties on property tax lobbying?
A. Yep, we’re in very regular communication with the county association. We just had a meeting with all of the school associations last week, and they will be partners of ours. We’ve worked together many times over the years.
“You’re seeing this number that’s bigger than any other taxes you pay, but you also probably get more bang for your buck than any other tax you pay.”
Aim CEO Matt Greller
Q. Do you think the Statehouse could allow cities to make up money lost through property tax cuts in other ways? Could lawmakers allow cities and counties a little bit more leeway with income taxes and sales taxes?
A. I think there is opportunity on the income tax side. We’re nearing a point where the technology will allow the state to know where you live in order to collect the appropriate income tax for your address. That’s been a hang-up for a long time.
A local option income tax would be something that would be welcomed by the majority of our membership and something that would be put to good use.
There are some drawbacks, too. Income tax is a little more volatile than property taxes. It’s less predictable, so you have to make sure that local governments have the sophistication to model what kind of income tax revenue would be coming in if we move away from such a reliance on property taxes.
Sales tax is going to be a lot harder. The state has for years held that sacred as state revenue. However, it is pretty common in other parts of the country. A lot of jurisdictions outside of Indiana certainly have local option sales tax as a tool to fund local government services. It would certainly be welcomed.
Q. What’s one thing about property taxes that people might not fully understand, or what’s important to know as we get into this long debate that’s likely coming on the issue?
A. When you’re paying your property taxes in May of 2024, you’re actually paying the taxes from 2023. You’re paying for something — an anomaly has happened in the past. When you’re paying that bill, that concern could already be gone.
The other tough thing when you talk about property taxes is it’s not a bill we’re paying incrementally. Every time we go to the grocery store or purchase something or get a paycheck and have our income taxes taken out, it’s little bit by little bit. We’re paying property tax in two chunks a year, right? You’re seeing this number that’s bigger than any other taxes you pay, but you also probably get more bang for your buck than any other tax you pay.
When it comes to property taxes, they make your community something you want to live in.
Contact Rory Appleton on X at @roryehappleton or email him at rappleton@stateaffairs.com.