State property-tax overhaul will shrink Elkhart school tax base, consultants tell board

Policy Analytics, an Indianapolis firm working with more than 80 Indiana districts, told the Elkhart Community Schools board on July 22 that the state's Senate Enrolled Act 1 will shrink the district's property-tax base, push local tax rates higher and reduce annual revenues by millions of dollars.

The firm's lead presenter, Barry Gardner, said the law phases in larger deductions for homeowners, raises the homestead credit beginning in 2026 and effectively removes much small-scale business personal property from taxable rolls. "It's going to increase the deduction for homeowners," Gardner told the board, and the combined changes will lower net assessed value for the district through 2031.

That matters because the district's revenue is the product of net assessed value times local tax rates. Gardner said the projected decline in net assessed value could force tax rates up by roughly 30 to 50 cents over the next six years even while measured revenues for many districts remain flat or decline. He showed a scenario in which Elkhart's operations fund revenue is about $5 million lower annually in 2031 than it would have been under the prior system.

Gardner walked the board through the law's major mechanics: the phase-out of the standard homeowner deduction over six years, an increase of the supplemental deduction from 35% to about 66%, a new homestead liability credit (10% of tax liability up to $300) starting in 2026, and a rise in the business-personal-property de minimis threshold to $2,000,000 beginning in 2027. He said the homestead credit will reduce district receipts in 2026 by an amount the presentation aggregated to about $1.2 million statewide for the taxing district example shown, with roughly $400,000 of that affecting the debt-service fund in the district's model.

Gardner said the debt-service changes warrant attention because state law ties certain project requirements to debt-service rate thresholds (an 80-cent threshold that can trigger a referendum and a 40-cent threshold that requires additional hearings). Elkhart's current debt-service rate was described as roughly 28'29 cents, below those triggers, but Gardner warned that declining assessed value could eventually move a district closer to the thresholds. He added the legislature might act to protect debt service receipts because the current mechanics could otherwise create the risk of missed debt payments or credit-rating downgrades.

The consultants also presented a separate, related analysis of Elkhart's recent expenditure and revenue trends. Gardner said the district has seen enrollment declines of roughly a thousand students over several years and that, between the two most recent comparable school-year periods analyzed, expenditures rose about 18% while revenues rose about 5%. "Expenses are outpacing revenues," he told the board, citing large increases in special-education costs, noncertified salaries (bus drivers, paraprofessionals, maintenance) and stipends/additional compensation.

Gardner highlighted a set of timing and program changes that amplify the effect: pension-bond levy roll-offs that shift money back into operations in 2027, elimination of a property-tax replacement credit tied to local income tax in 2027, and new statutory sharing of operations dollars with charter schools beginning in 2028 (25% of the per-student amount in 2028, rising to 50% in 2029, 75% in 2030 and 100% thereafter for districts that meet the enrollment-share threshold). "It starts in 2028," Gardner said of the charter-sharing provision.

Board members and Superintendent Dr. Huff discussed implications. Gardner warned that, without corrective action to align expenditures to the new revenue reality, a district could slide into structural deficits and face review by the Distressed Unit Appeals Board (DUAB). "If you do not do that on your own, they'll require that," Gardner said, describing DUAB's role in seeking corrective action and, in extreme cases, state financial intervention.

Votes at a glance: the board carried several routine and administrative items later in the same meeting. Consent items passed unanimously; contracts presented for final consideration were approved; the bulk sale of end-of-life iPads was authorized; and a revised substitute-compensation policy (with a requested waiver of second reading) was approved. Those votes were recorded as unanimous and were not tied in the transcript to roll-call tallies or named vote counts.

Board direction and next steps: Gardner and district staff said the district will refine projections when new assessed-value numbers arrive in the fall, perform a staffing-and-expenditure peer review and model cash-flow impacts. Superintendent Dr. Huff and other administrators said they will present regular financial updates and work with the board and the community on difficult budget choices to restore structural balance.

The presentation and the financial review together framed the issue as a combination of state-mandated revenue changes and local spending trends. Gardner emphasized that some impacts are immediate (the 2026 homestead credit) and some phase in over several years, and that the district's choices on levies and expenditures will determine how the revenue gap affects programs and balances going forward.

Elkhart's administration said it will continue to share refined models with the board and the community and to pursue options to align staffing and nonstaff expenses with the district's updated revenue outlook.