Johnson County officials may be facing a financial rock and a hard place in the coming years.
The Johnson County Board of Commissioners and Council held a joint meeting on July 25, where financial consultant Mike Reuter gave county officials an updated fiscal plan that takes into account several state law changes. After what Reuter calls probably the most active legislative session he can remember in his career, he said county officials will need to make some tough decisions.
Some of the changes they are facing include a rising supplemental homestead deduction, property credits for people in certain categories, a new deduction for rentals and agriculture properties, a raised exemption ceiling for business personal property and more taxing authority for the local option income tax, Reuter said.
Johnson County’s general fund is expected to be out of balance by $2.2 million in 2026 because of losses from the circuit breaker credit, the new cumulative bridge fund and previously committed money that is earmarked for upcoming road projects. Those committments total around $4 million, he said.
A property tax credit passed in Senate Enrolled Act 1 is expected to reduced tax revenue by $2 million compared to what was previously predicted, Reuter said. Losses from the circuit breaker credit is expected to make the loss approximately $5 million annually, said county commissioner Ron West, which Reuter confirmed.
However, Reuter believes Johnson County is in a better position than they could be because of the cash balance they county is expected to have going into 2026. The situation is not so dire that the council needs to have “a knee jerk reaction” to the shortfall immediately.
Though decisions on raising taxes may be in their future, Johnson County officials at least have the luxury of planning.
“We’re probably going to have, for the most part, a fairly normal year in 2026,” Reuter said. “But thereafter is where you’re going to be faced with a lot of political decisions as it relates to tax rates and income tax.”
Less tax base
The supplemental homestead deduction is set to rise from 37.5% to 66.7% by 2031, which reduces the amount a homeowner has to pay in taxes for their home. For example, if a person has a $300,000 home, it would only be taxed for a third of its value, Reuter said.
At the same time, the standard deduction currently at $48,000 will be phased out over time after 2026. There will also be property tax credits for people in certain categories, including disabled veterans.
In 2026, a new deduction will be start for properties in the 2% category, which Reuter said are basically rentals and agriculture properties, which haven’t had deductions in the past. It will start at 6% and grow to 33% by 2031, he said.
After a change in how farmground was assessed, property owners are expected to pay lower taxes and the county will see a 7% drop from this revenue stream, Reuter said.
“When you say relief, is really means less property tax, and that particular one, that really hurts rural communities that don’t have much tax base other than farm ground,” he said. “You might hear rural schools really screaming as these things come on because that’s their tax base.”
Another concern for Johnson County is an exemption for business personal property. Originally part of SEA 1 but amended by House Enrolled Act 1427, the ceiling for business personal property tax exemptions is rising from $80,000 to $2 million in 2027. This will cut the tax base by a significant amount, Reuter said.
Assuming that Johnson County officials don’t raise the tax rate for 2026, Reuter projects that property taxes will increase by 11.79% in 2027 and 7.72% in 2028. When council member Jonathan Myers asked who county officials should credit that tax increase to, Reuter said it comes from changes in the state legislature.
More taxing authority
With new state law, Johnson County will have more taxing authority for the local option income tax, or LIT.
Currently, there is a 1% LIT expenditure rate shared among units, a 0.2% rate for the jail and a 0.2% rate for the economic development income tax, or EDIT, which the county gets approximately 40% of, Reuter said.
Now, the county can establish a LIT expenditure rate up to 1.2% that is not shared among other units, giving the county a larger amount of LIT capacity, Reuter said. To “be whole,” Reuter suggests that Johnson County would only need to adopt a 0.27% rate out of that 1.2% LIT capacity, while adopting a 0.08% rate for the EDIT and continuing the 0.2% rate for the jail. In total, that would be a tax rate of 0.4% to 0.5%, which is less than the tax capacity they have, Reuter said.
“This new property tax credit will affect the bottom line … about $2 million a year,” Reuter said. “So you would have to decide, do we want to raise a little more on the LIT rate to make that up?”
Another big change for Johnson County comes with determining the tax rates for libraries, townships and special units. The council would also not be required to provide any amount of funding libraries they choose not to. The council can establish up to 0.2%, but not to exceed 0.05% to any particular category.
County officials also now have the authority to establish the rate up to 0.4% for fire and EMS, which Reuter said could become “extra political.” It would be distributed to municipalities according to population and coverage area, and county officials could opt to distribute it to townships.
Municipalities will also be able to adopt up to a 1.2% tax rate as well, a change from getting portions of the previous 1% LIT expenditure rate from the county and EDIT. Municipalities across Johnson County could soon have different tax rates, Reuter said.
Schools, however, do not have that same authority to raise LIT and the county cannot raise LIT for them, Reuter said.
A few years ago, Johnson County had a county adjusted gross income tax where 75% flowed through all units except schools and the remaining 25% was used for property tax replacement where the levy was lowered by what was collected and schools received that, Reuter said.
Although the replacement piece stopped, Johnson County’s schools continued to get that revenue of local option income tax. That is now gone, so county schools will lose that revenue, he said.
The current LIT formula is set to stay in place through 2027 and change in 2028, which gives Johnson County officials time to make decisions on how to move forward, he said.
Growth appeal
Thanks to a technicality in local government budget submission dates, Johnson County and other communities are expected to be able to apply for one more growth appeal. However, by Jan. 1, 2026, the state legislature is capping the max levy growth quotient at 4%, which limits appeals.
Reuter said this “made him sick” for Johnson County because of the growth the county has experienced. These appeals are needed because it gives governments more money to deal with growth before tax dollars start coming in. The county, nor any other municipality sees any property tax revenue for new homes or businesses for the first year because taxes are assessed based on the prior year.
Getting one more appeal is “really good,” Reuter said, and was met with audible sighs of relief from county officials.
Getting another growth appeal levy this year will help with the county’s transition in reestablishing the cumulative bridge fund. Through talking with county officials from the highway department, Reuter recommended a possible $3 million levy for the bridge fund as a starting point for the conversation, although that number is not final. Reuter said the new fund will take revenue away from other places, but that transition will be easier with the growth appeal this year.
However, Reuter does question whether review standards for the last growth appeal cycle will change. He said Johnson County has struggled for the last couple of years to get that growth appeal over the finish line.
He hopes county officials are able to lobby for the growth appeal to stay.
“I just struggle with this policy decision,” Reuter said. “How do you treat Johnson County growing 10% a year the same as another county that’s growing zero? How does it make sense to give both of them 4%?”
Interested taxpayers can watch the entire budget preview on the Johnson County government’s YouTube channel.