Indiana’s tax code reform in 2025 could significantly impact the funding of public schools across the state. A large portion of funding for Indiana’s public schools comes from state and local taxes, particularly sales, income, and property taxes.
Local property taxes are especially critical, with nearly 43% of all property taxes collected in 2021 allocated to public schools. However, recent increases in property taxes, combined with tax caps, have resulted in reduced funding for many school districts.
Tax caps, introduced through an amendment to Indiana’s constitution in 2010, limit the rate at which property taxes can increase: 1% for homestead properties, 2% for residential properties and agricultural land, and 3% for nonresidential properties.
While designed to ease tax burdens, these caps have caused funding shortages for local governments, including school districts.
In 2023, public schools lost $365 million due to the caps, and districts in high-tax areas, like Lake Station, have experienced significant funding gaps. Lake Station alone has lost $7.4 million since 2019 because of the circuit breaker tax caps.
The funding shortfall has forced districts to seek alternative funding methods, such as referendums, which ask taxpayers to approve additional funds for specific needs.
Lake Station, for example, asked voters to approve a referendum to fund transportation, staff, and programs. Despite initial rejection, voters approved the referendum this year.
Experts like Larry DeBoer argue that tax reforms in Indiana have often been reactive rather than proactive, creating a patchwork system that struggles to meet the long-term needs of public services, especially schools.
As lawmakers revisit tax reform in 2025, it is likely that changes will be considered to address the ongoing challenges and funding imbalances faced by public schools.