Indiana Senator Andy Zay’s Candid Take on Property Tax Reform

Local elected officials grapple with legislation that promises homeowner relief while challenging municipal budgets

Upland, Ind. — In a candid presentation that peeled back the legislative curtain on Indiana's controversial property tax overhaul, State Senator Andy Zay delivered an honest message: he never supported the very law they're now scrambling to implement.

“I never liked this bill from the beginning,” Zay told a room of Grant County elected officials Tuesday evening at Taylor University. His admission drew knowing nods—and even a solitary “amen”—from an audience of mayors, council members, and school administrators facing budget uncertainty. Also in attendance was Indiana State Representative Lori Goss-Reaves.

The dinner, hosted by the Grant County Economic Growth Council, clarified Senate Bill 1, the sweeping property tax reform package signed into law in April. It also became a revealing window into the political calculus, budgetary realities, and institutional tensions reshaping local government finance across Indiana.

The Budget Boom Nobody Talks About

What emerged in Zay's presentation was a data point largely absent from public discourse: government at all levels in Indiana has experienced extraordinary budget growth in recent years, fueled by federal pandemic spending.

According to research Zay's policy team compiled, state budgets ballooned from approximately $36 billion in 2018 to $47.5 billion proposed in 2024—a stunning increase driven by federal COVID relief funds. After revenue projections came back to earth, the final budget settled at $45 billion, representing a $2.4 billion cut.

At the local level, the pattern repeated. Prior to COVID-19, municipalities, counties, schools, and libraries typically saw annual budget growth of one to three percent. During the pandemic, growth rates exploded to six to twelve percent annually across the three counties Zay represents.

"We were working and operating as public officials the last four or six years in a fictitious world," Zay told the audience. "The money trees aren't bringing money out of Washington DC anymore."

Those inflated budgets funded one-time projects, launched new programs, and expanded services. Now, with federal funds exhausted and Senate Bill 1 constraining property tax growth, local officials face a reckoning.

Winners and Losers: The Local Impact

Senate Bill 1 is projected to save homeowners $1.3 billion in property taxes over three years, primarily through a 10 percent credit on homestead property tax bills, capped at $300 annually. The law also expands benefits for seniors, adjusts agricultural land assessments to help farmers, and exempts businesses with less than $2 million in equipment from personal property taxes.

But those savings come directly from local government revenue. The legislation projects local units will collectively lose approximately $1.5 billion over three years, with school corporations representing roughly half that amount.

The detailed projections Zay shared revealed stark disparities within his district. In Grant County, Marion's civil city faces a 3.52 percent levy increase in 2026—modest compared to prior years but still an increase. Meanwhile, several townships will see virtually flat or even declining levies.

In Wabash County, the city of Wabash faces a 12.11 percent levy increase, while the Wabash City School Corporation confronts a 10.74 percent jump. Similarly, Huntington County's Andrews civil town shows a startling 15.62 percent increase.

These aren't cuts—they're reductions in anticipated growth. As Zay explained, most units will still receive more total property tax revenue than the previous year, just significantly less than projected under the old system.

"It's a little bit of Washington DC speak where it's a decrease in the increase," Zay acknowledged. Yet he insisted: "That doesn't change the fact that we all need to be good stewards of the public's money."

The Local Income Tax Trade-Off

To help local governments offset property tax losses, Senate Bill 1 restructures Indiana's local income tax system. Previously, each county set a single rate applying to all residents, regardless of which municipality they lived in. The rate was determined by a county council where each unit's share matched its portion of countywide property tax revenue—creating what legislators saw as a perverse incentive to raise property taxes.

Starting in 2028, cities and towns with at least 3,500 residents can set their own local income tax rates up to 1.2 percent, while the county maximum drops from 3.75 percent to 2.9 percent.

In theory, this gives municipalities direct control. In practice, it means residents could face higher income taxes even as property taxes decline—a trade-off that troubles some observers.

Zay acknowledged the concern but framed the changes as providing local flexibility. Still, he identified a critical flaw: the requirement that local income tax rates be renewed annually, even when funding long-term bonds. "You have to go before a council every year for that repayment," Zay said. "That doesn't give the bank or the bonding agency much security."

The legislature is already discussing fixes, he reported, likely allowing multi-year income tax commitments tied to bond durations.

The Union City School Controversy

For Zay, the final straw came not from the bill's property tax provisions but from a last-minute amendment to close Union City School Corporation—inserted without committee hearings or public debate.

"I've been in the legislature 10 years, and I've never seen that ever done," Zay said, his frustration palpable. "I am not going to support closing any schools by simply slipping it in."

Union City Schools faces legitimate challenges. The district hosts 7,400 virtual students—far more than its physical enrollment—with only a 35 percent graduation rate among those online learners. The district receives millions in state funding for those students despite poor outcomes.

"I believe there's a conversation to be had," Zay said. "But that process, and how that happened, is something that I simply could not support."

He criticized legislative leadership for not pushing back against the House amendment. "There's times where you got to do that, times you got to stand up for that," Zay said. The Union City provision became emblematic of his broader concerns: important policy decisions driven by politics rather than deliberation.

The Debt Question

Senate Bill 1 also addresses what legislators view as excessive local government debt. Indiana's municipalities, counties, schools, and other local entities collectively carry $54 billion in outstanding obligations—a figure that alarmed many state lawmakers.

The law expands "controlled project" requirements, giving taxpayers more say before high-debt units can approve capital projects. It also institutes a one-year "cooling off" period after certain debt is retired before new debt can be issued.

Additionally, the law prohibits local governments from bonding against more than 25 percent of their local income tax distributions for debt issued after May 2025.

But Zay suggested some colleagues misunderstand the difference between debt and reserves—healthy fund balances that provide financial stability versus borrowing that must be repaid.

"I think there's still some education that needs to come," Zay said.

Budget Cuts at Every Level

To demonstrate shared sacrifice, Zay noted the state isn't exempting itself from fiscal restraint. The legislature cut its own operating budget by five percent, along with many state programs. Local property tax revenue is projected to grow faster than state general fund revenue over the next two years.

"The state is not asking local officials to do anything more than we are doing ourselves," Zay said.

Schools received a two percent state funding increase—modest compared to recent years but an increase nonetheless.

The Path Forward: Implementation and Revision

Senate Bill 1 phases in gradually, with full implementation not expected until 2031. The homestead deduction will increase incrementally each year until two-thirds of every homestead's value is exempt from property taxation. Agricultural property deductions will similarly expand until one-third of value is exempt.

The legislation's authors—Representative Jeff Thompson in the House and Senator Travis Holdman in the Senate—have already signaled openness to revisions. Zay specifically mentioned assessment reform as a priority, seeking to stabilize property valuations and hold assessors more accountable for wide swings.

"The talking points and the things we work through in Indianapolis and the reality on the ground many times are two different things," Zay cautioned.

He urged local officials to remain engaged through their associations, promising that lawmakers are listening. "They don't believe this is the end of the legislation, or that they have it all right," he said.

Economic Development Implications

For the Grant County Economic Growth Council members in attendance, the question looms: how will constrained local budgets affect their ability to compete for business investment?

The elimination of business personal property tax for equipment under $2 million represents a significant competitive advantage. Previously, businesses with equipment totaling less than $80,000 were exempt; Senate Bill 1 dramatically increases that threshold.

"Farmers and small businesses will see the most benefit," according to Zay's presentation materials.

The removal of the 30 percent depreciation floor—which artificially maintained business equipment values for tax purposes—provides additional relief, though the change doesn't apply to property in Tax Increment Financing districts.

But infrastructure investments, workforce development programs, and quality-of-place amenities that attract businesses all depend on local government capacity. If municipalities must cut services or dramatically raise income taxes to maintain basic operations, economic competitiveness could suffer.

"We have to decide how much government we need and how much government we can afford," Zay said. "There's a lot of pressure on the individual to pay property taxes, to pay income taxes, to provide the public services that we provide."

Political Accountability and Voter Expectations

Underlying the entire discussion is a fundamental tension: voters demanded property tax relief, and politicians delivered. But the relief comes with trade-offs that may not have been fully communicated during the campaign.

Homeowners will see lower property tax bills in 2026—fulfilling the promise. But municipalities facing tighter budgets will need to either cut services, raise local income taxes, or defer maintenance and projects. Those decisions will be made by local elected officials who must answer to voters.

"If local units of government choose to raise other taxes, like a local income tax, those units will have to justify to their taxpayers why they need more hard-earned taxpayer money instead of first looking to make their operations more efficient," Senate Majority Floor Leader Chris Garten said in April.

For Zay, the accountability should flow both ways. He emphasized that 100 percent of property tax revenue goes to local governments, not the state. "None of the money goes to the state government," his presentation noted.

That means decisions about service levels, tax rates, and budget priorities ultimately rest with local officials—who are closest to constituents and best positioned to make those judgments.

The Stewardship Question

Throughout his presentation, Zay returned to a theme: good stewardship of public resources. The pandemic-era budget boom created what he characterized as an artificial baseline. Returning to sustainable growth rates requires discipline.

"We've all got to walk through this together," Zay told the officials. "That's always a hard thing to do because it's a lot easier to give than it is to take back."

But he acknowledged the human cost. Local governments provide essential services: police and fire protection, road maintenance, libraries, parks, trash collection. School corporations educate the next generation. These aren't luxuries that can simply be eliminated.

The challenge, particularly acute in smaller communities, is maintaining service quality with fewer resources. Marion, as the county seat and largest city in Grant County, has more capacity to absorb the changes than tiny Fowlerton or Mount Etna.

A Legislator's Dilemma

Throughout the evening, Zay positioned himself as an independent voice willing to buck party orthodoxy when necessary. He opposed Senate Bill 1 despite Republican leadership support. He criticized the legislative process that inserted the Union City provision. He questioned whether property tax reform should have been the priority over income tax cuts.

"I thought I might support it" at various points, Zay said, but ultimately, "this was a huge priority of the governor" that passed despite his concerns.

His candor resonated with local officials navigating their own difficult positions: implementing a law they didn't write, facing constituent questions they can't fully answer, and making budget decisions that will inevitably disappoint someone.

Looking Ahead

As officials filed out of Taylor University's venue Tuesday evening, the questions outnumbered the answers. How much will income taxes need to increase to maintain services? Which programs will be cut? How will school corporations compete for teachers when referendum restrictions limit their flexibility?

Chuck Binkerd, the Economic Growth Council's executive director, thanked the assembled officials "who are in the trenches and who are serving and who are sacrificing." The challenges ahead, he acknowledged, are formidable.

For his part, Zay pledged continued availability and responsiveness—his office's core philosophy, he said, is that every constituent who reaches out will receive a reply, even if the answer isn't what they want to hear.

"You need to be heard by your government," Zay said. "I represent the state, and I will always do the best I can with myself and my staff to help you get the answers that you need."

Whether those answers prove satisfactory as Senate Bill 1's effects ripple through Indiana communities over the next several years remains to be seen. What's clear from Tuesday's dinner is that even the legislation's opponents recognize it as "the law of the land"—one local officials must now navigate while preserving the quality of life that makes their communities attractive places to live and do business.

The grand experiment in property tax reform has begun. Its success or failure will be measured not in Indianapolis talking points, but in the daily realities of the Grant Counties, Wabashes, and Huntingtons across Indiana—communities where government isn't an abstraction but the people who plow roads, teach children, and answer 911 calls.

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Senate Bill 1 was signed into law in April 2025 and will be fully implemented by 2031. Local officials and taxpayers can track its effects through a property tax transparency portal that the state is required to launch by 2026.