Hamilton County officials say 2026 budget faces multimillion-dollar shortfall; ask council to consider cuts, timing fixes

Hamilton County budget staff told the county council Wednesday that the preliminary 2026 budget is out of balance by roughly $12.9 million and identified several timing and program adjustments that could reduce the shortfall.

County fiscal staff described a revenue picture shaped by recent state tax changes and uneven local receipts: the state is allowing a 4% increase in property tax revenue for local governments, a new circuit-breaker credit will reduce county property tax receipts next year, and certified local-option income tax allocations for Hamilton County rose only about 2.7% — well below neighboring counties. Those factors, combined with rising fixed personnel costs and capital requests, produced the budget gap described to the council.

Why it matters: County leaders said the shortfall is manageable if the council acts on a mix of expense cuts, project timing shifts and reserves, but they warned that relying on interest income and one-time special distributions to bridge structural gaps would increase risk in later years as investment returns fall and state tax credits phase in.

Fiscal overview and near-term fixes County staff gave the council a sequence of adjustments that reduce the headline gap. The starting point presented was a gross deficit of $12,933,000 for 2026. Early internal reviews identified approximately $2.1 million in reductions (including commissioner and court administrative line items) and about $2.5 million of 2026 highway requests that are reappropriations of projects already reserved in 2025. If those items are treated as timing issues, staff said the active target for cuts would fall to about $8.0 million.

Staff noted that one optional approach is to place the state special distribution into rainy-day reserves rather than treating it as ongoing general revenue; doing so would require deeper program reductions but would hedge against future declines in interest income. Staff also flagged that some cumulative funds (capital and courthouse funds) show multi‑million dollar shortfalls that cannot be sustained without either bonding, moving projects between funds, or drawing down reserves.

Revenue details - Property tax: The state-authorized 4% levy increase was cited as the rule for base property revenue in 2026. Staff emphasized most counties will see only that allowed increase unless they qualify for specific appeals. - Local option income tax (LIT): Hamilton County’s certified LIT allocation for 2026 rose only 2.7%. County fiscal staff said the Indiana Department of Revenue’s preliminary explanation cites an apparent drop of about 8.7% in the county’s top 1% of earners as a driver of the lower allocation; the Department of Revenue flagged that as protected taxpayer data and provided limited supporting detail. Staff said there are signs the 2024 (fiscal-year) collections may be stronger, which could lift future base calculations, but that 2026 must be built on the certified number. - Circuit-breaker credit: The budget includes a new line for the expected loss from a state circuit-breaker (tax credit) program; staff estimated roughly $1.7 million in 2026 revenue reduction tied to that credit in the general fund column. - Interest income: Investment yield has been an important offset in recent years. Staff forecast gradually lower interest income over time and warned that a return to 2021 interest levels would create larger structural deficits.

Spending pressures Staff highlighted rising personnel costs as a persistent structural pressure. Excluding health insurance (which the county recently moved into a separate food-and-beverage fund at the state auditor’s direction), base pay budgets in recent years rose substantially. Capital requests also remain a significant lever: staff described roughly $10.0 million of capital in the 2026 requests, including sizable highway and courthouse program asks. Because capital can be re-scoped, financed or postponed, staff described it as a primary place to find savings but noted some projects already have committed expenditures or federal grant timing that must be respected.

Examples of department-level items discussed at the hearing - Highway and local roads: Staff identified approximately $3.6 million of highway capital beyond reappropriations, and noted the highway fund carried an estimated unencumbered cash balance that could be evaluated for transfers if appropriate. Local roads showed estimated ending cash balances that could be tapped for near-term obligations, with attention to monthly cash flow. - Parks and health funds: Both have large cash balances but different policy trade-offs. The health fund’s levy could be adjusted as a one-time action to return cash to the general fund; staff warned this is not a sustainable ongoing fix. The park fund showed potential near-term cash flow issues depending on levy settings and future appropriations for capital projects. - Cumulative capital and courthouse funds: Staff called out the CCD (cumulative capital development) and courthouse funds as having multi‑million-dollar imbalances without additional action.

Policy choices and council next steps Staff presented three broad approaches for the council to consider: (1) targeted reductions to department requests (the typical review process), (2) reclassifying one-time or reserved revenues (for example, placing the special distribution into rainy‑day reserves), and (3) shifting capital projects into future bond issuances or different funds. After the presentation, multiple department heads testified about their requests and potential cuts; commissioners and the auditor’s office also flagged specific line items they believed could be reduced.

What officials said County fiscal staff repeatedly told the council that the 12.9‑million figure is a gross number based on initial departmental submissions and the certified revenue forecast, and that the final out‑of‑balance figure will depend on the council’s policy choices about special distributions, capital timing and program reductions.

Next steps Council members will continue line‑by‑line review in budget work sessions. Staff said they will return with refined scenarios showing (a) the effect of cutting specified capital items, (b) moving the special distribution into reserves, and (c) the impact of shifting certain expenditures into non‑general funds or bond financing. Several department heads agreed to follow up with detail on particular line items (for example, airport reimbursements and fleet costs) to help the council evaluate net effects.

Tighter revenue assumptions and near-term timing adjustments, staff said, can materially reduce the immediate gap and buy time to craft structural changes that avoid one‑time fixes.

Ending The auditor’s office and budget staff urged the council to weigh a mix of temporary and structural fixes, noting that leaving the deficit to be bridged by one‑time reserves or investment income would increase the county’s vulnerability in future years as state tax credits and lower investment returns interact. The council directed staff to prepare detailed reduction options and cash‑flow scenarios for its next meeting.