After days of hourslong budget hearings at City Hall, Gary Common Council Vice President Lori Latham had seen and heard enough. Throughout the week, department head after department head took to the podium in the council chambers, some with requests for additional funding, until she emphatically addressed the elephant in the room — the city’s lack of funds.
“I just want to be clear,” she said firmly. “We want everybody to get raises. We don’t want to tie anyone’s hands in [city] services. Our challenge is the money is not here.”
Latham, referencing the city’s already tight budget, then highlighted the budgetary obstacles that could be on the horizon depending on the results of this year’s governor’s race. “I don’t know if anybody else is familiar with our Republican gubernatorial candidate’s tax plan,” Latham said. “It’s not getting better. There’ll be more property tax cuts, maybe even property tax elimination.”
When they step to the polls and make their selections for governor, Gary voters will be voting for more than a name on a ballot: They could be voting for the future of their city’s budget, the services they’ll receive, and their overall quality of life.
Republican U.S. Sen. and gubernatorial front-runner Mike Braun and Libertarian candidate Donald Rainwater are both proposing plans to cut property taxes for Hoosiers. While the move could bring much-needed relief to homeowners, particularly those in communities with high home values, it could have a disastrous effect on cities like Gary, where tax cuts can worsen inequities by causing cuts to services the community gravely depends on.
An already tight budget
Gary’s money struggles are well known and understood by its leadership. In his first State of the City address earlier this year, Mayor Eddie Melton highlighted the city’s tax struggles, juxtaposing Gary’s general services department with nearby Hammond’s, which, despite being more than 20 square miles smaller than Gary, has almost five times the employees.
Additionally, according to the Indiana Department of Local Government Finance, for 2024, Hammond has a general fund budget of $78 million, $13 million more than Gary’s.
“There’s a lot of reason behind that. It’s our tax base, of course. It’s the low collection of revenue we bring in because of our taxes,” Melton said during his address.
Gary is similar to most American cities, where property taxes contribute significantly to the city budget. According to the Tax Foundation, property taxes account for 31% of local revenues on average. For cities like Gary, though, the lack of a robust revenue-generating economy makes the dependence on property taxes much more pronounced. Nearly 60% of the city’s budget is supplied by property taxes.
“The city of Gary faces significant challenges in our efforts to generate revenue,” Melton told Capital B Gary.
“Since U.S. Steel began self-assessing their tax values in 2003, our financial landscape has been constrained. The introduction of property tax caps in 2009 further compounded these difficulties.”
City and county officials have been extending efforts to secure more tax revenue for the city. Just this year, Lake County Assessor LaTonya Spearman, in an attempt to secure more tax revenue for the city and county, petitioned the Lake County Council to challenge U.S. Steel’s property tax self-assessment. Gary receives roughly 93% of the yearly tax payment from U.S. Steel.
The city’s budget has been inflated over the past three years following the injection of American Rescue Plan Act funds, which puffed the city’s coffers by $80 million. However, the window for the use of those funds is slowly closing, as all money received through the legislation must be obligated by December of this year. In addition, all projects must be completed by 2026.
Latham fears the consequences of a major cut to one of the city’s main revenue sources.
“It would be detrimental,” Latham told Capital B Gary.
“So the city has to borrow from other funds to cover just the basic, general operating of the city. And they’ve been doing that since the original property tax caps. The truth of the matter is, when you operate at a debt, at a deficit, the way we do, we have to count every single penny because the impact of every dollar or lack thereof is felt immediately on the streets.”
Taxing property in Indiana
Like in many states, homeowners in Indiana are subject to a mass appraisal assessment process where individual homes are viewed in conjunction with other homes in a given area. After considering age, grade, and condition, assessors, through an annual adjustment process called “trending,” use recent sales data to determine if a change is warranted.
What separates Indiana from many states is that tax rates are determined when municipalities submit their budgets to the Department of Local Government Finance, which then approves the budget and develops the tax rate for that particular taxing unit.
In this tax system, Gary taxing units are the highest in the state.
Mike Hicks, professor of economics and director of the Center for Business and Economic Research at Ball State University, says the uniqueness of Indiana’s tax system plays a role in Gary’s revenue woes.
“In many states, for example, you’ll simply say we’re going to tax 1% or 2% of your property value, and as your property value changes, your taxes automatically rise. That’s not the case in Indiana,” Hicks said.
The plans
According to Hicks, the plans introduced by Rainwater and Braun could be harmful for Gary’s budget, as there’s no planned recourse for local governments to recoup the lost revenue.
“The Libertarian plan is essentially eliminating property tax on residents,” he said. “For a residential area like Gary, that’s probably 60% of the property tax base.”
The plan proposes an elimination of property taxes, replaced by what Hicks refers to as a “quasi-sales tax” to be collected at a 1% rate for seven years. Under such a plan, a home purchased at $100,000, for instance, would incur a tax of $1,000 for seven years, which would replace the property tax.
“So what that means is, in a place like Gary that doesn’t have the sort of heavy turnover, you’re gonna see a massive cut in the revenue to all forms of government. It affects Gary. It affects Lake County. It affects Gary’s public schools and the townships. It’s probably somewhere between a 40% and 60% tax cut right away,” Hicks said.
“To put it in magnitude, that would be defunding part of the police, it would be restricting fire service, and immediately affect the ability to maintain parks and recreational facilities for schools. It means closing pools. It means closing some facilities. It means difficulty getting kids on buses.”
Rainwater’s plan centers on delivering tax relief for homeowners. In a statement to Capital B Gary, Rainwater highlighted two main components of his plan: preventing property tax hikes and ensuring Hoosiers aren’t burdened with perpetual taxes.
“No Hoosier should have their property taxes increase, because the assessment is an arbitrary guess made by the government on the value of your property. The only accurate value of property is what you paid for it until you actually sell it,” Rainwater said.
“No Hoosier should have to continue to pay property taxes in perpetuity. If you always must pay the government to keep them from taking your property, it isn’t really yours.”
While Hicks labeled the Libertarian plan unfeasible, he was critical of the plan proposed by Senator Braun, which has gone through several revisions since its initial release due to what Hicks called a lack of due diligence.
Braun did not respond to Capital B Gary’s requests for comment.
The plan proposed by Democrat Jennifer McCormick looks to make similar cuts, but instead of gutting local municipalities, leans more on the state.
“What they propose to do is to take that from state budgets through the income tax system, so that taxpayers would get to deduct the larger share of their property tax from their state income tax, and so that would give taxpayers relief. It falls on the state, not local government, and that’s important,” said Hicks.
McCormick credited her work as Indiana education superintendent for her familiarity with cities like Gary and an understanding of their need for tax revenue.
“I was worried about what relies on that public tax dollar and the property taxes at the local level, like our schools, our police, our fire, you know, our libraries and our parks, and so I did not want to defund them any more than what we’ve already done from the state of Indiana.”
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