National Credit Rating Agencies Warn Indiana Property Tax Reforms Risk Bond Downgrades, Higher Costs for Local Governments

From a Bond Buyer analysis published August 5, 2026

National credit rating agencies are raising alarms about Indiana's property tax reform proposals, warning that both Governor Braun's senior exemption plan and a bill to eliminate property taxes entirely could damage local governments' ability to borrow money affordably.

Fitch Ratings senior director Ashlee Gabrysch said exempting seniors from property taxes "means that as long as you're keeping property taxes at that same rate, you're increasing the property taxes on younger homeowners and commercial, retail, industrial property tax owners." She warned the shift could drive outward migration longer term — a risk for a state where net migration accounted for 81% of demographic growth from 2023 to 2025, according to Indiana University data.

Representative Prescott's HB 1288 would go further, replacing all property taxes with a 7% sales tax on services, ending TIF districts, abolishing county and township assessors, and barring local governments from taking on new debt. Gabrysch cautioned that sales taxes are "very elastic and very sensitive to swings in the economy," unlike property taxes. Association of Indiana Counties executive director David Bottorff noted there are "over $50 billion in existing property tax-backed bonds" that constrain any rapid elimination.

Accelerate Indiana Municipalities CEO Matt Greller confirmed that bond ratings have already taken hits "at the city and town level" from SEA 1, the property tax reform law passed earlier this year. The Indiana School Boards Association reported SEA 1 will cost schools $770 million, while 46 school districts — 16% statewide — now qualify as "high circuit breaker loss districts," meaning their costs for transportation, utilities, and insurance exceed operations fund revenues. Since the 2008 Daniels-era property tax reform, school districts have lost a cumulative $4.2 billion.

For Blackford County, these warnings carry practical weight. Small cities that need to issue bonds for infrastructure — water systems, fire equipment, public buildings — could face higher borrowing costs or reduced access to credit. HB 1288's ban on new local debt would eliminate that option entirely. Indiana's sales tax rate is already the second highest in the nation, behind only California.

Greller said he doubts Prescott's proposal will advance: "I don't know that Prescott's proposal will move. I'm sure we'll get a hearing and have some debate around it."

Source: Bond Buyer — "Indiana mulls second bite at property tax reform apple" (Aug 5, 2026)