In the Statehouse Homestretch
The Indiana General Assembly has pivoted into the second half of this long session: Bills that passed their original chamber have started the process over with committee hearings in full swing on the other side of the rotunda. Most notably, the Senate gets its opportunity to rework the two-year, $43 billion House budget plan (HB1001) after a round of agency hearings.
With just a few hundred bills remaining on the docket (out of more than a thousand filed back in January), the stakes are higher and negotiations tougher – especially around state spending priorities – as lawmakers push to finish their work before the end of April.
Here’s a status update on some of the surviving legislation impacting housing, homeownership and the REALTOR® bottom line:
Inventory, inventory, inventory – Housing Task Force Recommendations
IAR has identified rebuilding residential inventory as our top legislative priority, aligned with the work of the Indiana Housing Task Force created by the General Assembly to study the supply-side challenges that frustrated many Hoosiers shut out of the hyper-competitive seller’s market of 2020 through mid-2022.
HB1005 – paving the way for new housing infrastructure:
The centerpiece of this inventory-building agenda is House Bill 1005, which tackles local infrastructure as a fiscal barrier to the new development Indiana desperately needs to fill a current deficit of 30,000+ housing units and keep up with continued population and economic growth.
HB1005 creates a state-backed revolving loan fund to pave the way for strategic housing projects by financing streets and sidewalks, utility connections and water systems – the cost of infrastructure materials and construction has grown faster than consumer inflation since 2020.
The bill passed the Indiana House with broad bipartisan support and awaits a hearing in the Senate Appropriations Committee.
Other pro-inventory measures that grew out of the Task Force:
- SB300 gives local governments more flexibility to create tax increment financing districts around residential developments – capturing and reinvesting the growth in property tax revenue to support new housing as an important companion measure to HB1005; the bill awaits a hearing in House Ways & Means.
- HB1157 also expands tax increment financing authority for new housing developments and authorizes other workforce housing programs in Marion County (tailored to its consolidated city-county structure).
- SB339 creates an incentive to contribute to organizations like Habitat for Humanity by adding an Indiana state income tax deduction for half a qualified donation under $20,000, and equal to the lesser of either half of contribution amount or $5,000 for any contribution amount exceeding $20,000.
- As supply pressures raise prices across the board, non-profit organizations like Habitat for Humanity are critical to adding affordable housing inventory in many communities across Indiana – SB339 also awaits a hearing in Ways & Means after passing the Senate unanimously.
- HB1627 expands to St. Joseph County a successful pilot project in Marion County that helps move properties back into productive use after two failed tax sales; it passed the House with overwhelming support and is scheduled for a hearing in the Senate Local Government Committee later this week.
Home prices and property tax assessments:
Housing inventory, affordability and property assessments are interconnected topics – residential supply hasn’t kept up with surging demand in recent years, driving home prices up. And because Indiana’s property tax system is based on market values, higher prices mean higher property assessments and homeowners grappling with property tax sticker shock over the past two years.
Lawmakers are sensitive to concerns over rising tax bills, though any rumblings from homeowners are background noise compared to the backlash of the mid-2000s reassessments. How tax relief is structured is critically important (below is a brief detour on tax caps and assessments that helps explain).
Context on property tax relief in 2023:
- Before looking at the property tax proposals being debated this session, let’s take a step back and remember that Indiana has built one of the nation’s most appealing, pro-homeowner property tax climates in the nation (with REALTORS® leading the charge for reform).
- Indiana’s property tax caps limit tax bills to 1% of a homestead’s assessed value, but higher assessed values mean bills can go up until local governments hit their upper ceiling on property tax collections – their maximum levy.
- Tax caps have saved taxpayers more than $7.5 billion since 2011 while maximum levy controls help keep rates in check.
- But as much as the system favors taxpayers, it doesn’t guarantee that tax bills won’t increase as property values rise. When the market is growing and property owners build wealth, their cities, counties and school districts also gain flexibility under the caps to raise additional revenue or lower rates.
- Tax increases are rarely popular, but these were predictable: This year’s taxes reflect the record-setting housing market of 2021, captured in 2022 assessments to calculate 2023 bills (since Indiana property taxes are paid in arrears).
- These increases will undoubtedly create hardship for some homeowners, especially seniors and low-to-moderate income households in communities with rapid price appreciation.
- We’re mindful that Hoosiers have seen their finances stretched by inflation and that wages haven’t kept up with home prices over the past five years – we don’t oppose property tax relief for those in need.
- But REALTORS® have championed accurate property assessments as the foundation of a fair and transparent tax system; an overreaction to 2-3 years of temporarily sharp increases could unravel decades of work on behalf of homeowners if tax relief proposals manipulate assessed values as a way to control bills.
Keep in mind that annual home price appreciation was just over 4% a year from 2010 through 2017 before jumping to 10% from 2018 through 2022 as population growth gained momentum. Addressing housing supply and demand is the best way to deliver long-term property tax relief under our constitutional caps.
But in the meantime:
- HB1499 is the primary remaining vehicle for property tax relief – the bill doesn’t rely on artificial adjustments to assessed values (checking our box for protecting the integrity of the current tax system).
- The bill temporarily lowers the 1% homestead tax cap to 0.95% for taxes payable in 2024, and 0.975% for 2025.
- It also increases the supplemental homestead deduction for property taxes payable in 2024 and 2025, boosts the property tax and renter’s deductions for state income taxes payable the same two years and lowers the allowable levy growth.
- Among other provisions, HB1499 also makes a pro-taxpayer tweak to the property tax appeals process – if a homeowner presents a qualified appraisal to the county property tax assessment board of appeals, the appraisal is presumed to be accurate (shifting the ‘burden of proof’ to the county board).
- HB1499 awaits a hearing in the Senate Tax & Fiscal Policy Committee.
Defining the residential homestead:
Another property assessment issue jumped from the courtroom to the legislative docket after the Indiana Tax Court decided Marion County v. Schiffler in favor of a homeowner seeking a broader interpretation of homestead property eligible for the 1% tax cap.
The residential homestead is a taxpayer’s primary residence, of course, but generally only certain structures and improvements have been placed under the 1% cap according to the labyrinthine rules around property assessments.
SB325 went through significant change in the Senate, from largely undoing the court decision to codifying many of its key elements:
- The bill clarifies some nagging issues with current assessment rules – a garage is a homestead structure, for example, whether it’s attached to the home or not.
- Property is also classified by use, so a personal toolshed in the corner of a backyard would no longer be assessed in the same class as a machine shop in a commercial business district.
- We support a straightforward definition of homestead property within a one-acre area, with a simple certification process for homeowners to report improvements on their land and attest to their use – residential, commercial or agricultural.
- The current version of the bill, however, includes a troubling “pick one” provision that requires taxpayers to choose a single improvement or detached structure (if there are more than one within the one-acre homestead) to include in the 1% tax cap.
- We’re still left with residential property being more-or-less arbitrarily excluded from the 1% cap (essentially the scenario that motivated Mr. Schiffler’s original appeal).
- Especially relevant to REALTORS® and title agents, this taxpayer selection would take place as part of the homestead deduction filing, which adds another complication to closing and creates the potential for disputes among buyers and sellers over the tax implications.
- As this update is being written, IAR CEO Mark Fisher is scheduled to testify on SB325 on March 15th before the House Ways & Means Committee, speaking on behalf of a simplified 1% assessment within the one-acre homestead (and a process for implementing the new rules that doesn’t overwhelm the property tax appeals system).
Playing defense for homeowners and taxpayers:
SB325 is a perfect example of the unexpected twists-and-turns of the legislative session, where emerging issues demand attention within one or more of IAR’s cornerstones of advocacy focus – in this case, defend(ing) consumers and the REALTOR® bottom line.
Other proposals this session fit into the same protective priority:
- HB1155 addresses concerns around unlicensed, unsolicited real estate wholesaling – the practice that targets vulnerable homeowners with too-good-to-be-true “we buy homes for cash” offers – by requiring basic disclosure language in marketing efforts.
- These wholesalers promote cash offers for homes (often with the intent of transferring the property to a third-party without taking possession) for less than market value.
- HB1155 does not prohibit real estate wholesaling – the bill doesn’t target a business model; it only seeks to inform sellers that wholesalers may enter into an offer with pre-existing intent to transfer the property (and cautions them to evaluate the market value of their homes); the bill passed the House and awaits a hearing in the Senate Commerce & Technology Committee.
- Sometimes defending homeowners means defeating negative proposals – SB261 is a perfect example of positive-sounding policy with negative long-term implications.
- SB261 created so-called “community infrastructure improvement districts” purporting to promote new housing developments; the bill actually allowed private developers to shift more of their costs to (eventually) the owners of the completed homes through special assessments that could last as long as 35 years – beyond the duration of a traditional home mortgage.
- In effect, these districts impose a new property tax (outside the constitutional caps) in the form of an enforceable lien on homes, forcing homeowners to help repay debt incurred to build the homes they already purchased.
- IAR rallied to raise these concerns during the Senate Tax & Fiscal Policy Committee hearing on SB261, helping defeat the measure before it could proceed any further.
- One bill that didn’t make it past the mid-point of session but still bears mentioning is HB1151, dealing with fair housing and appraisal practices: Beyond the state’s oversight of appraisals, REALTORS® are firm in our commitment to protecting the hard-earned equity of homeowners with fair and transparent appraisals, untainted by bias.
Several bills that would have complicated property transfers have also been defeated or made better for homeowners:
- IAR defeated two separate proposals mandating well and septic inspections at the point of sale, which would have complicated closings (HB1647 and HB1210).
- We’ve also worked with a coalition of lenders, attorneys and title representatives to make sure the good work our legislature is doing to protect our military installations against potential foreign and domestic threats doesn’t unduly impact the property rights of nearby property owners (SB477 and SB322).
- Finally, IAR has worked with Indiana Department of Natural Resources staff to make sure local building commissions have up to date information on flood maps.
Keeping a high bar for professionalism – a continued concern:
REALTORS® also work to protect consumers by protecting the integrity of Indiana’s real estate license, with clear standards and oversight.
- Several bills continue to move that direct the Professional Licensing Agency to require license reciprocity among non-health related professions and occupations, lower licensing standards or allow for rules regulating the profession to be challenged or revised.
- IAR has long held that raising the bar for professionalism in the industry—not lowering it – was a core value; as we have in the past, we will continue to advocate against lowering the bar for the industry.
- On a positive note, we have successfully opposed efforts to allow automatic license reciprocity without proof of basic competency, loosen IREC enforcement of license requirements, and have proposed improving the military license statute to require residency for any military person seeking license reciprocity.
- We expect license law to continue to be a topic in future sessions, as well, as the legislature has a growing appetite for deregulation across the board.
Support housing and economic development for thriving communities:
Indiana REALTORS® continue to pursue strategic investments in quality of life, economic development and talent attraction, recognizing the symbiotic relationship between a healthy housing market, a growing economy and stronger communities.
Many of our legislative goals are reflected in the current budget plan (HB1001) that’s poised for a Senate rewrite in the Appropriations Committee.
- REALTORS® endorse another $500 million biennial appropriation for the Regional Economic Acceleration and Development Initiative (READI) that prioritizes housing as a cornerstone of regional development plans (especially after more than a third of total funding requested in the first round of READI grants were for new residential projects).
- IAR also supports an increased budget for the Indiana Destination Development Corporation (IDDC) to expand its marketing and awareness campaigns (e.g. ‘Hoosiers by Choice’) – Indiana is currently being outspent by wide margins by neighboring states promoting their hospitality and quality of life assets to attract new visitors and residents (and potential homeowners); the current budget plan roughly triples the existing IDDC budget to just under $15 million a year.
- Importantly, the residential infrastructure loan fund authorized by HB1005 is funded in the current budget bill at $75 million for the biennium – a major commitment to local infrastructure capacity to support new housing across Indiana.
While the House and Senate have some high-profile differences on topics like educational choice, the commitment to support homeownership is broad and bipartisan – so we’re optimistic about our priorities weathering the fiscal face-off that will produce a final budget for the Governor’s signature in April.
A footnote for the future:
If you’ve read this far, there’s a final bill to keep in mind – SB3 could ultimately be more consequential than the budget itself when we look back on this session years from now.
The bill creates a State and Local Tax Review Task Force to study far-reaching changes to Indiana’s tax code, including the elimination of the state income tax and further reform of the residential property tax system. These options could raise some tough choices for REALTORS®: Axing the income tax would almost certainly be accompanied by some expansion of the state sales tax to services, for example, potentially adding cost to every real estate transaction and increasing the burden on brokerages – does the tradeoff make sense for the industry?
And revisiting the nation’s #1 property tax system (courtesy of the Tax Foundation circa 2022) runs the risk of disrupting a system that’s already working predictably well on behalf of homeowners.
If SB3 survives the session and the Task Force is empowered and empaneled in 2024, REALTORS® will need to step up our advocacy and engagement in ways we haven’t since the property tax reform campaigns of 2008-2010 – your IAR team is watching carefully as we hit the five-week homestretch of the 2023 session.
Your IAR State Government Affairs Team:
Senior Vice President of Government Affairs
State Government Affairs Director