Mayor warns state law will shift revenue from property to local income tax, projecting millions lost by 2028
Get AI-powered insights, summaries, and transcripts
Subscribe
Summary
The mayor told the council the recently passed state legislation (referred to in the meeting as Senate Enrolled Act 1) will phase out some property-tax-related local income tax (LIT) revenues and require the city to adopt a municipal local income tax; Michigan City could lose roughly $14 million under the new structure, the mayor said.
At a Sept. 11 budget workshop the mayor said changes in state law will shift revenue from property-tax-related sources toward a reliance on local income tax (LIT), and that the change could substantially reduce the city’s current revenue stream beginning in 2028.
The mayor described Senate Enrolled Act 1 as moving revenue emphasis from property taxes to local income tax and said many of the existing LIT streams that the city now receives will end in 2028. “We’re basically getting rid of property taxes to an extent, and our money’s gonna be based on local income tax,” the mayor said during the presentation.
Projected revenue change and local composition The mayor said Michigan City’s current combined LIT-like rate is about 3.7 percent across funds and that under the new framework the maximum the municipality could impose and collect would be 2.9 percent when shared with the county. The mayor estimated the net effect for Michigan City could be a loss in the ballpark of $14 million because of the city’s tax-base composition and a relatively high share of non-owner-occupied property (rental, second homes and commercial property).
The presentation included a comparison of net assessed-value composition: the mayor said owner-occupied residential property comprises roughly 22 percent of Michigan City’s net assessed value while citing La Porte (the neighboring city) at about 32 percent; the mayor argued that a higher share of rental and second-home properties (he cited about 40 percent of net assessed value) makes Michigan City more vulnerable under the new formulas.
Local options and possible responses The mayor said municipalities will need to pass their own local income taxes to recover revenue that the state formula will stop providing. He also discussed local revenue options that are not restricted by the statute he described — for example, occupancy-related assessments (an EID) and local innkeeper/occupancy taxes targeted at tourists, and the possibility of a food-and-beverage tax (which would require state approval or lobbying to allow cities to retain such revenue and must be tied to tourism or parks and rec projects).
Why this matters The change, as described in the meeting, alters the city’s fiscal foundation: if revenue moves toward income tax the city’s receipts will depend more on resident and regional wages and employment than on property values. The mayor tied that to workforce and economic-development priorities, saying the city must focus on jobs, entrepreneurship and increasing homeownership to protect the local tax base.
Quotations and attribution The mayor summarized the law’s effect directly: “We’re basically getting rid of property taxes to an extent, and our money’s gonna be based on local income tax.” Council members asked clarifying questions about which lids and funds would be affected and the mayor repeated that three LIT funds currently benefiting the city would be eliminated under the new structure in 2028.
Ending The mayor said municipal leaders are coordinating (he described mayors “banding together”) to oppose or seek fixes to the law, and that the administration will include an analysis of the LIT changes in upcoming budget forecasting.