24-05-2025
A challenging future: Schools feel pressure in finances after passage of budget, property tax bills
Indiana K-12 public education fared better than many state-funded departments and agencies in the new biennial budget, with 2% increases each year in tuition support.
But property tax reform will pose difficulties for schools as they have fewer dollars for operations, which impacts areas including facility maintenance, transportation and utilities.
MET 110823 VCSC BUS REYNOLDS
Second-grader Leelynn Reynolds, 8, crosses 19th Street in order to board his bus on Nov. 9, 2023, in front of Greenwood Manor. Property tax reform will pose difficulties for schools as they have fewer dollars for operations, which affects areas including facility maintenance, transportation and utilities.
From an overall budget perspective, 'It is going to be a challenging two years and maybe longer depending on the economy and global economic conditions,' said Terry Spradlin, executive director of the Indiana School Boards Association.
Scott Bowling, executive director of the Indiana Association of School Business Officials, agrees.
'We appreciate the fact that [legislators] did find a way to increase education funding, but there just wasn't enough money there to do a lot,' Bowling said.
Schools 'are really feeling pressure in both their major two revenue sources [state tuition support and local property tax revenue], and so that makes the environment very challenging for schools across the state,' Bowling said.
2% increases in tuition support
Both ISBA and IASBO directors say that given the challenging fiscal environment — with a projected $2.4 billion shortfall in projected revenue — K-12 public education fared well, all things considered.
'We're appreciative of the fact the Legislature prioritized education, because so many other things in the state budget were cut,' Bowling said. 'We were given an increase. It is a small increase, but at least an increase.'
According to Spradlin, 'We were able to avoid the cuts other state programs faced. For us, that's good news … It's below inflation slightly, but it keeps us in the game of not having to make severe cuts in our education fund.'
It will be more challenging to continue to increase teacher pay at an accelerated pace, 'but we could maybe hold the line on staffing without significant RIFs [reduction in force] and cuts to program,' Spradlin said.
The state provides funding for educational programming and instructional expenses, which includes teacher compensation.
The 2% increase each year is above and beyond the curricular materials appropriation of $160 million now being rolled into the funding formula, Spradlin said.
On average statewide, the per-pupil student foundation funding amount is increasing from $6,681 this year to $6,967 in fiscal year 2026 and $7,071 in fiscal year 2027.
Districts that have stable or growing enrollment will receive more money in tuition support, while districts seeing significant enrollment loss 'absolutely will lose money,' he said.
Those with a small decline might still see increased revenues because of the increase in the per pupil amount.
In separate legislation, Senate Enrolled Act 146 increases the minimum teacher salary to $45,000, up from the current $40,000. It also requires a school corporation to spend 65% of state tuition support on teacher compensation, up from current law, which requires 62%.
For some districts, it will prove challenging to meet those targets in the short term, Spradlin said.
Spradlin also noted the Legislature chose to eliminate income requirements for the private school voucher program, or CHOICE scholarships, which takes effect in summer 2026.
MET 111621 THS ROOF HAWORTH FILE (copy)
Former Vigo County School Corp. Rob Haworth describes some of the problems affecting the roof at Terre Haute South High School during a tour of the facility on Nov. 16, 2021. With funds from the state about to decrease, Indiana school districts will be facing challenges, including facility funding.
Once that takes effect, 'every family qualifies,' he said.
The expansion is expected to cost the state around $93 million, Chalkbeat Indiana reported. The state's voucher program cost around $439 million in 2023-24.
The Indiana State Teachers Association acknowledged the Legislature faced difficult decisions in finalizing the state budget.
'Despite the challenging fiscal environment, they upheld their commitment to protect K-12 education funding, even as many other state programs and agencies saw reductions,' ISTA said in a statement after the session had ended.
'While these investments do not fully keep pace with inflation or address the full scope of Indiana's teacher shortage, they represent a reasonable choice given current economic conditions,' according to the ISTA statement.
ISTA remains concerned about the expansion of private school vouchers to the wealthiest families, particularly as public schools continue serving the vast majority of Hoosier students.
Property taxes: A 'substantial impact'
With property tax relief/reform in Senate Enrolled Act 1, 'we're talking about substantial change,' Spradlin said.
'We absolutely will have to tighten our belts to respond, and it will reduce and restrict the fiscal tools in our tool box in how we manage our operations fund and debt service funds,' he said.
District operation-fund budgets support student transportation, capital expenditures and building maintenance. It is funded through property taxes.
For years, because of property tax caps implemented in 2008-09, districts have been tightening their belts, Spradlin said.
In that time, districts have lost about $3.5 billion because of tax caps; the figure represents the difference between the funds they would have collected and the amount they actually received.
Now, SEA 1 will make things even more challenging, particularly in having adequate resources to maintain school facilities, Spradlin said.
On average statewide, districts already spend 76% of their operations fund on transportation, utilities and insurance, he said. When technology and personnel are included, 'very little has been available in the operations-fund budget for facility maintenance and management, renovation or new construction,' Spradlin said.
In response, districts have been relying more on debt — including general obligation bond issues — to maintain facilities.
MET 080923 VCSC BUSES ELDRIDGE
School bus mechanic and driver Adam Eldridge starts one of the buses at the Vigo County School Corp.'s transportation facility on Aug. 9, 2023. Property tax reform will pose difficulties for schools as they have fewer dollars for operations, which affects areas including facility maintenance, transportation and utilities.
The legislation also places additional controls that will impact debt service, including use of short-term general obligation bonds and referendums.
'We'll have far fewer tools to use to manage our budgets and to maintain our facilities,' Spradlin said.
In the Vigo County School Corp., it's projected the property tax legislation means the district will receive $7 million less than originally anticipated over a three-year period, although it still is projected to receive an increase each year, including a $2.3 million increase in 2026.
The property tax bill is 345 pages, and some school officials say they're still awaiting a final analysis from finance experts on exactly what it will mean for their districts.
According to IASBO's Bowling, 'The effects of this are going to be very different depending on your school district … What I've been telling our members is that we are under a completely new system at this point, and we anticipate further changes down the road.'
The bottom line, he said, is that school districts 'won't be able to generate as much money from property taxes.'
According to Vigo County School Corp. Superintendent Chris Himsel, with the changes in SEA 1, 'It's going to make it more difficult for us to figure out how to maintain our facilities and provide transportation services.'
'It's going to force us to make some very difficult decisions regarding those entities. We're going to have to figure out how to become more efficient with how we provide the services because the money is what the money is, and we have to figure out how to live within our means,' Himsel said.
Phil Harrison, superintendent of Southwest Parke Community School Corp. said they are still waiting for analysis from their financial experts to fully explain the fiscal impact of SEA 1.
Projections show property tax revenue will be between $285,000 to $350,000 less than anticipated. 'It's going to create some real challenges. And that's just on the operations side,' Harrison said. Some of those costs are out of the district's control, including utilities and insurance.
Statewide, SEA 1 is projected to cost districts more than $740 million in property tax revenue over the next three years, based on what schools would receive under the current law.
Educators, legislators, weigh in
Himsel said that as far as the budget bill and state education funding, 'It looks like the projections are we're going to have less money and we have to figure out how to do the best we can.'
Some of the variables won't be known until the fall, including student enrollment, which impacts funding.
Total VCSC state funding is projected at $115.9 million the first year, up 0.7%, and $115.4 million the second year, down 0.4%. But those figures include funding for curricular material costs, including textbooks.
Chris Stitzle, Southwest Sullivan schools superintendent, said that when considering the state revenue forecast, 'I think overall we probably came out pretty good for K-12 education' in terms of state funding, compared to other areas of the budget that were cut, including higher education.
As far as property tax impact, 'That's certainly something we're going to have to plan for and it certainly will be an impact because things aren't really getting any cheaper,' Stitzle said.
Southwest Sullivan also could be impacted by a provision that calls for districts to share operations fund property tax revenue with charter schools starting in 2028. Sullivan County is home to the Dugger Union Community School Corp., a charter school.
Local legislators also weighed in on the 2025 session and school funding.
State Rep. Tonya Pfaff, D-Terre Haute, believes the property tax plan under SEA 1 gives little relief to the average Hoosier family but takes a big toll on local schools and services.
For the Vigo County School Corp., projections show it could mean $7 million less than anticipated in property tax dollars over the next three years — money that pays for things like school buses and building upkeep.
And in the latest budget bill, HEA 1001, increases for public schools in state funding don't keep up with inflation.
At the same time, the budget expands private school vouchers for all families, regardless of income.
'The bottom line is that these policies do not help working Hoosiers get ahead, and students will end up paying the price,' Pfaff said.
State Sen. Greg Goode, R-Terre Haute, who voted in support of SEA 1, said he did so 'knowing that most property tax payers will see some modest relief while most school corporations and units of government will see modest increases of funding. The bill is not perfect but we were able to land in a place of middle ground on fairness.'
He consistently hears from people their frustrations with year-over-year property tax increases, he said.
Goode anticipates the General Assembly will revisit the issue for continued fine tuning next session, 'and I will especially be pushing for greater scrutiny on assessments,' he said.
