08-08-2025
- Business
- Indianapolis Star
'Scalpel,' not an 'ax': Why many Indianapolis departments could face budget cuts in 2026
Indianapolis officials are asking department heads — except those who lead public safety agencies — to reduce their annual budgets by about 4% heading into 2026 as the city adjusts to higher labor costs, lower property tax revenue forecasts due to Senate Bill 1 and other state policy changes.
Without those proposed cuts, city leaders would be staring down a roughly $43 million budget deficit caused in part by property tax reforms passed by state lawmakers this spring, City Controller Abby Hanson told IndyStar in a recent interview. After Indianapolis Mayor Joe Hogsett made clear that he wanted to present the city's 10th straight balanced budget with no tax increases, Hanson is pushing most departments to cut 4% of their budgets that "we could live without." Officials are also asking the local police, sheriff's and fire departments to limit their budget growth to 2%.
"Frankly, the amount of property taxes that I was expecting us to have in 2026, that didn't come to fruition," Hanson said in an exclusive Aug. 6 interview with IndyStar, noting that property taxes accounted for about a third of city revenues in 2025. "That's not the amount of growth that we ended up having."
Experts have warned that SB 1, which is forecast to reduce property tax growth by $1.4 billion statewide from 2026 to 2028, would force local governments to tighten their belts and could force hard decisions about whether to cut public services in the coming years. Starting next year, cities will start collecting less money as homeowners earn tax credits that lower their property tax bills by up to $300.
A state analysis shows that under the new law, the Indianapolis city-county and Marion County governments will miss out on about $11 million in expected property tax revenue growth in 2026. But Hanson said the actual loss is nearly $18 million after factoring in separate taxing districts that are split up in the analysis, including the police, fire and sanitation.
SB 1 was a component of the revenue shortfall, but not the only factor. New multi-year labor contracts that the city signed with public sector unions at the end of 2024, including the Fraternal Order of Police and the Indianapolis Professional Firefighters Union, have significantly increased its expenses.
The four-year contract with the FOP includes annual pay raises for officers across the board and boosted the starting salary for an Indianapolis Metropolitan Police Department officer to nearly $75,000 in 2025, according to the contract. A patrol officer with three years of service is set to earn nearly $88,000 in 2026. Hanson also said a state change that increased the pension rates paid to firefighters and police officers will cost the city more money.
In 2025 the city spent nearly $1 billion, or 60%, of its $1.65 billion budget on public safety and criminal justice services including the Indianapolis police and fire departments, the Marion County sheriff's and prosecutor's offices, and the Marion County courts.
Where exactly the 4% reductions show up in city services will become clearer during months of budget negotiations that formally begin at the Aug. 11 City-County Council meeting. Presentations by Hogsett and Hanson that night will kick off weeks of hearings at which each department presents its budget to council committees.
Hogsett's Chief of Staff Dan Parker told IndyStar that despite the cuts, no "significant" city programs will disappear next year and new investments will still be announced. The growth of the overall budget is expected to be in line with previous years, too, although city officials would not cite an exact amount. The $1.65 billion 2025 budget was about 6% higher than the 2024 budget.
"This wasn't an ax being taken to the budget," Parker said. "It was really more of a scalpel because we empowered the agencies to look at their budgets."
The city will also set up a new fund for the Department of Public Works that draws mainly on organic growth in local income tax revenues, with the goal of raising $50 million in new money to spend on roads by 2027, Parker said. Starting that year, the state will offer up to $50 million a year in matching grants to help Indianapolis repair its battered roads.
Parker said the new state program will make amends for a road-funding formula that disregards lane and traffic counts, sending the same amount of money to a two-lane road in a rural county and a six-lane road in Indianapolis. If the city earns the full matching grant, Indy would spend $100 million more each year on roads.
The city's 2025 budget for roads, bridges and greenways was about $200 million.
"The mayor's position was that Marion County residents were overpaying into a state system where they weren't getting their fair share," Parker said. "Well, with this bill we're now eligible to get our fair share, and so we want to make sure this budget lays the foundation to be able to get that $50 million and put even more dollars out into road construction."
