Indiana’s new property tax system will result in an approximately $303 million reduction over the course of three years for Lake, Porter and LaPorte counties, according to the state’s Legislative Services Agency.

Lake County will see a reduction of $32.9 million in 2026, $37.2 million in 2027 and $165.1 million in 2028 for a total of $235.2 million in three years. Northern Lake County will see the highest reduction in property tax dollars in Northwest Indiana, said Beth Shrader, a planner and project manager with SEH, which along with Baker-Tilly, and Development Economic Finance held a Lunch & Learn session about the fiscal and planning challenges for cities and towns in Porter and Lake County in the wake of Indiana Senate Enrolled Act 1 (SEA 1).

Porter County will see a reduction of $13.7 million in 2026, $14.5 million in 2027 and $21.4 million in 2028 for a total of $49.6 million in three years, LaPorte County will see a reduction of $5.3 million in 2026, $6.3 million in 2027 and $6.5 million in 2028, for a total of $18.1 million in three years, according to LSA.

Jason Semler, principal with Baker Tilly Municipal Advisors, said overall the new property tax system will benefit property owners but hurt local government funding.

“We’re going to hurt,” Semler told the crowd of around 35 municipal officials. “The less that they have to pay, the less money we receive.”

Senate Enrolled Act 1 established a new property tax system by saving two-thirds of taxpayers up to $300 on their 2025 property tax bill while local governments, school districts, libraries and other units will lose $1.4 billion through 2028.

As the bill moved through the legislature, county, city, and school leaders came to the legislature to testify about its financial impacts. Legislators told the local leaders that they could lean on local income tax to make up any budgetary shortfalls.

Semler said Tuesday the legislature took the local income tax structure and “threw it out and started over.”

The local income tax, effective July 1, 2027, will decrease from 3.75% to 2.9%, Semler said. The 2.9% has to be allocated as follows: 1.2% for county general revenue, 0.4% for EMS and fire departments, 0.2% for townships and libraries, he said.

Local income tax councils will be eliminated beginning July 1, 2027, and all local income tax rates have to be affirmed by Oct. 1, 2027, to continue into 2028, Semler said. Starting in 2031, the local income tax rates must be adopted annually by county councils, he said.

In Porter County, state law requires a portion of the local income tax to go toward the Northwest Indiana Regional Development Authority, said Portage Mayor Austin Bonta. He asked how that will be impacted under the new property tax law.

Porter County will have to continue making that payment from its local income tax, Semler said.

Hobart Mayor Josh Huddlestun asked about implementing the local income tax changes in cities and towns that have different zip codes. Hobart has four zip codes, he said, including people who have a Merrillville address but live in the corporate boundaries of Hobart.

“We’re going to have to throw darts at a map,” when calculating local income tax rates, Huddlestun said. “It’s a nightmare.”

Officials at the Indiana Department of Revenue have said that won’t be known for a couple of years, Semler said. But, Semler said that’s a good point because someone with a Valparaiso address doesn’t necessarily live in city limits, so the tax allocations have to be looked at.

“That is something that’s going to have to be worked out,” Semler said.

Local leaders can begin preparing and mitigating the fiscal impact under the new property tax system by reviewing revenue projections, preparing a budget outlook, collaborating, creating a capital improvement plan, getting creative and communicating, Shrader said.

A capital improvement plan typically projects five years out, Shrader said, and highlights specific projects, which includes linking the projects to budgets and timelines. Capital improvement plans also help build trust with the community, she said.

Local officials could also apply for grants at the federal, state and private levels to help fund various projects, said SEH associate planner Nate Day.

Another option local officials have to finance big projects amid decreased revenue streams has been lease purchase financing, Shrader said, which is a public-private partnership to complete a project without immediate costs

Local officials have used lease purchase when traditional bond options are “less attractive,” Shrader said.

“A lot of that risk is mitigated through that agreement,” Shrader said.

Since 2019, Indiana has allowed for residential tax increment financing, which captures the assessed value of new residential developments, like new construction or age-restricted housing, said Dan Botich, the president for Development Economic Finance Consulting.

Under the residential TIF, communities could use the funds from the captured assessed value to finance public safety or capital expenditure, Botich said. Another benefit, Botich said, the developer has to put in public improvements — sewer, streets, lighting, parks — around the residential project.

Local leaders have to start preparing for the upcoming change to the property tax system, Shrader said.

“You need to make sure you’re reassessing all of your funding options. You’re shaking out the couch cushions trying to find any grants, any loans, any other opportunities that you left on the table in the past. If nothing else, to assure the people that you are communicating these issues, these changes and how they’re going to impact you that you have looked at all options,” Shrader said.

akukulka@chicagotribune.com