Indiana’s recent property tax relief legislation, Senate Enrolled Act 1, significantly impacts school districts’ ability to issue debt. That, in turn, will affect a districts’ ability to maintain facilities, say officials with the Indiana School Boards Association and Indiana Association of School Business Officials.
SEA 1 limits referendums to general elections and introduces a one-year waiting period after the expiration of certain shortterm general obligation bonds before new ones can be issued.
Because of property tax caps, school districts have been relying more on debt, including short-term general obligation bond issues, to maintain facilities, said Terry Spradlin, executive director of the Indiana School Boards Association.
The legislation places additional controls that will impact debt service. “We’ll have far fewer tools to use to manage our budgets and to maintain our facilities,” Spradlin has said.
Indiana’s 290 school districts have been tightening their belts financially in adjusting to prior fiscal policies enacted by the Indiana General Assembly that impact their operations fund and debt service fund levies, he said.
The implementation of the circuit breaker/property tax caps 15 years ago has resulted in the reduction of property tax levies to schools totaling more than $3.5 billion over this period, Spradlin said.
The figure represents the difference between the funds they would have collected and the amount they actually received.
Scott Bowling, director of the Indiana Association of School Business Officials, pointed to four specific provisions limiting schools in use of debt.
• The Legislature placed a cap on the debt service fund of 70 cents (per $100 assessed value). If a district exceeds that threshold, it must use a referendum for debt issuance of any kind.
For those schools well below the 70-cent threshold, “It’s not a huge deal,” Bowling said. “But there are others out there that are close to that and they do have to watch that; they are just going to have to manage their debt and rate on that debt service fund.”
• If a district has a referendum for capital improvements, when that referendum expires, the district must wait a year before it can run another referendum.
“It was pretty purposefully said during the legislative session that the reason for that is because the Legislature wants taxpayers to see their tax bill go down to see what their tax bill is like without the referendum,” Bowling said.
The Legislature wants taxpayers to know why their taxes are increasing and what entity — whether schools or other local units of government — are creating that tax increase, Bowling said.
• A referendum can only take place during general elections every two years. It applies to capital, operations and safety referendums.
Legislators pointed to greater voter turnout during general elections, Bowling said.
“From a school perspective, it makes it very difficult because it limits the amount of times” a district can pursue a referendum, he said.
Many schools run referendums to pay their teachers “and you can’t promise a raise until the referendum has passed,” he said. “As schools, we would have preferred to keep the system the same way it was because it helps quite a bit with being able to plan.”
Prior to the new law, a referendum could also be held during a primary, municipal or special election.
One silver lining, according to Spradlin, is that the law changed the referendum wording in a way that makes it more straightforward for voters to comprehend the tax impact.
• In certain circumstances, when short term general obligation bonds expire, a district must wait another year before issuing another general obligation bond.
There is some disagreement about what GO bonds are impacted by the limits.
ISBA says Senate Enrolled Act 1 applies to general obligation bonds of two years or less issued before May 1, 2025, while a Department of Local Government Finance FAQ (frequently asked questions) indicates it also applies to GO bonds of five years or less issued after May 1, 2025.
Spradlin said he is seeking clarification on that aspect of the legislation.
Commenting overall on the changes and limits on school debt, Bowling states, “I think it falls under the Legislature’s desire for schools to have less debt in general.” Describing the long-term impact for schools, Bowling said, “You are going to get into a lot of deferred maintenance across the state … Schools are going to make what they have last longer as best they can. We all know what happens when you do that.”
‘Outcry’ prompts legislation
Republican State Sen. Travis Holdman (R-Markle), an author of SEA 1, said the provisions and overall property tax legislation were passed “because of the outcry we’ve heard from taxpayers that they’ve just had enough,” he said.
School corporations can incur debt “by just having two public hearings and most people don’t even know that’s happening because they don’t see the agenda or have access to the agenda or to even know what’s going on,” he said.
Holdman spoke of two school corporations in his district last fall that both “rolled their debt from one five-year term to the next, and not one taxpayer showed up at either hearing,” he said.
With the so-called “cooling off period,” the taxpayer “will see that debt off their tax bill for at least a year to sort of wake them up to let them know debt is being incurred again if they choose to do that.”
Asked about school’s ability to maintain facilities, given property tax dollar restraints, he said: “There are a lot of schools that don’t have up-to-date facilities that are knocking the ball out of the park on test scores,” Holdman said.
As far as new schools, which would typically require a referendum, “It’s really up to the taxpayer on the referendum process to do that,” he said.
Holdman stated, “I think there comes a time for school corporations and all other units of local government to sort of take a look at what they are doing to become more efficient with less dollars because taxpayers are just demanding they get by with less,” Holdman said.
Local impact
In recent years, the Vigo County School Corp. has frequently used short term general obligation bonds to address facility maintenance needs, particularly in response to property tax cap losses.
When asked about the potential impact of the legislation, Superintendent Chris Himsel stated, “As with many of the changes that have been coming from the state and federal government, it’s too soon to know the true impact of many of them.”
As far as SEA 1, he has spoken with policy makers and representatives from Baker Tilly (advisory, tax and assurance firm) and Ice Miller (bond/financing attorneys).
VCSC also has received information from various workshops, “and the consistent themes are that it’s too early to know for sure what the full impact will be and we should start preparing for reduced revenue streams,” Himsel said. “Therefore, we will continue learning about the potential impact of SEA 1, and we will continue with our consolidation plans in preparation for fewer available resources in the future.”
Chris Stitzle, Southwest Sullivan superintendent, responded, “After consulting with our municipal advisors at Baker Tilly, we do not expect the legislation to create any significant financial or bonding constraints for Southwest School Corp. While SEA 1 may impact districts that rely heavily on general obligation bonds or referendums for ongoing capital improvements, our current debt structure and financial strategy position us well to navigate the changes without major disruption.”
Mike Schimpf, superintendent at North Central Parke Community Schools, said, “We will most certainly be impacted by these changes. I am meeting with some experts next week to obtain some additional vantage points, but the changes do appear to be detrimental to us.”
© 2025 Community Newspaper Holdings, Inc.