Indianapolis can enact new tax to pay for homeless outreach with some limits, state decides

UPDATE: Gov. Eric Holcomb signed House Bill 1199 into law on Friday, March 15, 2024.

Indianapolis' special downtown taxing district is likely saved ― with a caveat.

Lawmakers gave final approval Thursday to a bill that originally sought to repeal the tax district. The final version now saves it, though the city will have to go through the ordinance-passing process again if Gov. Eric Holcomb signs House Bill 1199.

The compromise throws a bone in every direction: It exempts from the tax a key constituent group that mobilized opposition ― apartment owners, represented by the powerful lobbying group Indiana Apartment Association; it adds in a 60-day public notice and hearing requirement, a nod to concerns about transparency; and ultimately, the city can still accomplish its original goal of raising money for downtown improvements.

It's not the city's only win this session. State lawmakers also worked out a compromise on Senate Bill 52, the dedicated lanes ban that threw IndyGo's Blue Line plans into a tailspin. The deal: Lawmakers killed the ban, and IndyGo promises to do its best to limit dedicated lanes.

The Indy Chamber, an advocacy force fighting both bills, praised the outcome of House Bill 1199, the culmination of a decades-long effort to find a new, sustainable funding source for downtown improvements.

The economic enhancement district "will provide significant new resources to ensure that Indiana’s capital can compete on a national level as a walkable, safe, and vibrant urban center," the Chamber wrote in a statement.

"We thank legislative leaders for their partnership in moving this structure forward, as well as the hundreds of downtown businesses, residents, and property owners who raised their voices to make the EED a reality," the statement reads. "Indiana is on the move."

How we got here

The City-County Council passed the Mile Square tax on property owners, called an "economic enhancement district," at its final meeting of 2023, to help pay for improvements, security and homeless outreach downtown. It would have charged homeowners a flat rate of $250 per year and other property owners 0.1681% of their gross assessed value.

State lawmakers gave city councilors the ability to pass such a tax in the waning hours of the 2023 legislative session.

But what was clearly a Senate-led initiative was not taken well by the House. Under House Bill 1199 this year, the House proposed repealing the district. The passion for and against the bill was intense: hours-long hearings, podium-pounding in the chambers and even a speech on the floor from House Speaker Todd Huston.

"We created a special tax on a select group of people for a specific area," he said on Jan. 30. "And I don't know why we would do this. And that’s our fault. It wasn’t properly vetted. We should acknowledge that. That’s how we got here today."

Senators softened the bill, against the backdrop of a highly attended and nationally publicized NBA All-Star game that took over downtown for a February weekend. The final version allows the city to move forward with such a district, but with new parameters.

Among the additional limits are a 10-year expiration date that cannot be renewed, and a board with fewer members appointed by the mayor and more members appointed by the governor. And, the city must act by the end of 2024.

What's next for Indianapolis?

The city hoped to raise $5.5 million through the tax, but it remains unclear just how much the bill's exemptions would chip away from that figure.

The bill now exempts apartment buildings and properties that receive a homestead deduction, though these property owners could opt into the tax.

During discussion on the House floor Thursday, Rep. Jeff Thompson, R-Lizton ― who replaced Rep. Julie McGuire, R-Indianapolis, as the bill's author ― acknowledged the possibility of a shortfall. He noted the bill now allows for a new tax district to extend up to two square miles, meaning the city could expand from its original scale of only Mile Square.

In a statement sent to IndyStar, Indianapolis Mayor Joe Hogsett cited the recent NBA All-Star weekend as "a prime example" of what the economic enhancement district is capable of.

"Downtown Indianapolis is the center of our bustling tourism industry and the economic engine of our state," he said, "and I am grateful to all of the residents and business owners who used their voices to advocate for its future."

Hogsett also thanked the legislature for "continuing to understand the importance of our city's first neighborhood, and for working with property owners and stakeholders to identify tools that allow the downtown Indianapolis community to invest in itself."

Bill goes to Gov. Holcomb

The House on Thursday voted 86-4 to approve the Senate's changes. McGuire was one of the four dissenting votes.

“I don’t support more property taxes on businesses," McGuire told IndyStar after the vote.

House Bill 1199 will now head to Gov. Eric Holcomb's desk.

Rory Appleton is a reporter at IndyStar. Contact him at [email protected] or follow him on X, formerly Twitter, at @RoryEHAppleton.

Contact IndyStar state government and politics reporter Kayla Dwyer at [email protected] or follow her on Twitter @kayla_dwyer17.

This article originally appeared on Indianapolis Star: Indiana will allow new downtown Indianapolis tax, with caveats