State Property Tax Reform Efforts Continue Amid Local Fiscal Strains
Lawmakers seek property tax cuts but don’t always make up for the local revenue loss
Property taxes have become a lightning rod for state policymakers who are facing public frustration over rising home values, inflation, and housing affordability.
In the years following the COVID-19 pandemic, lawmakers have repeatedly pursued measures to cut property taxes—or even eliminate them. But such initiatives often bring new fiscal pressures. They can carry significant fiscal risks, particularly for local governments that depend on property taxes as a stable and predictable source of revenue.
Adding to the complex mix, state leaders face a difficult balancing act when trying to address the affordability of homes. During years of record revenue growth and surpluses, some used the extra cash to pay for property tax relief. But with budgets now becoming strained, policymakers have limited ability to backfill local revenue lost to property tax cuts. And as political and public pressure to address high housing costs persist, several states that enacted property tax cuts in 2025 left it up to local governments to make up the lost revenue.
Increasing local strain
Statewide property tax cuts in 2025 in Indiana, Ohio, and Wyoming are already straining local budgets.
Indiana passed sweeping legislation to give homeowners $1.2 billion in tax relief between 2026 and 2028 through an annual tax credit of up to $300 on property tax bills and caps on local income tax rates, among other provisions. But those savings come at a cost to local government coffers—an estimated $1.5 billion over the three-year period. Many localities now face budget shortfalls and are enacting budget cuts in response. Fueled by such concerns, Accelerate Indiana Municipalities (Aim), which represents the state’s cities and towns, is pushing the Legislature to consider several changes to the law during its 2026 session.
Meanwhile, counties and municipalities in Wyoming are also facing fallout from state legislation that cuts property taxes by 25% for up to $1 million of a home’s property value—without backfilling local governments for lost revenue. Public schools could be the hardest hit. They receive roughly 70% of all property tax revenue in Wyoming with the rest going to local governments. The impacts of these revenue losses are rippling through local government budgets, forcing cuts to libraries, city park maintenance, and hospitals.
But local officials may have more to be concerned about in the 2026 legislative session. Wyoming lawmakers plan to consider increasing the 2025 property tax cut to 50%, while also exploring a slate of property tax reforms that go as far as eliminating property taxes and replacing them with sales and use taxes, pending voter approval. Wyoming’s Legislative Service Office projects that local governments and schools would collectively lose $644 million per year in revenue if property taxes were eliminated, while the Department of Revenue estimates the proposed 2-percentage-point sales tax increase (to 6% from the current 4%) that is intended to offset the losses would bring in only around $475 million annually.
Last fall, lawmakers in Ohio overrode a veto by Governor Mike DeWine (R) and enacted restrictions on local property tax increases. Proponents said the law, which eliminated two types of levies used by school districts and other local entities to raise revenue, will reduce voter confusion around similarly named levies that they argue mislead voters about what they’re approving. But some school districts, libraries, and other local entities argue that the new limits will reduce local budget flexibility and lead to insufficient funding.
Ohio lawmakers also passed four bills that will collectively provide more than $2 billion in property tax relief, largely by capping property tax revenue growth, reconfiguring how school taxes are calculated, and allowing county budget commissions to reduce property tax levies considered “excessive” or “unnecessary.”
Senator Sandra O’Brien (R), chair of the chamber’s Local Government Committee and a former county auditor, has said the measures “are a chance to show Ohio taxpayers that we hear their pleas for property tax relief.” She has urged lawmakers to act amid growing pressure from grassroots organizers gathering signatures for a ballot measure to eliminate property taxes — an outcome she cautioned “would place Ohio at the edge of the abyss.”
Local entities are also contending with the potential impacts. School officials have sounded the alarm that these new laws could create serious cash flow issues and lead to teacher layoffs and service cuts. The Ohio Municipal League and Ohio Association of Professional Firefighters have warned that one law’s elimination of inside millage—the portion of property taxes that local governments can levy without voter approval—would likely lead to budget shortfalls that force service cuts, layoffs, and deferred maintenance.
The push to eliminate property taxes
In Florida, meanwhile, the effort to eliminate property taxes is being led by Governor Ron DeSantis (R), who pushed to end property taxes during the 2025 legislative session. Although lawmakers stopped short of doing so, they did establish a bipartisan committee to study the issue.
That committee has now approved a slate of property tax reform proposals—ranging from expanding homestead exemptions to eliminating nonschool homestead property taxes—that would go to voters in November if the proposals pass during the upcoming legislative session. Three measures are up for final consideration in the Florida House of Representatives, but none has companion legislation in the state Senate, putting their prospects for enactment this session in question.
Many of the bills have generated pushback from local leaders. Fire departments and emergency services are especially concerned because some proposals do not shield them from the impact of property tax cuts—unlike law enforcement and schools—leaving their budgets vulnerable.
Amid legislative uncertainty and concerns from local officials, property tax relief remains a priority for the Florida governor. His proposed budget includes $300 million to offset the effects of homestead property tax cuts for fiscally constrained counties. DeSantis has also said he would call a special session this year if lawmakers don’t put a constitutional amendment to eliminate property taxes on the November 2026 ballot during their regular session.
But outright elimination leaves a big gap, according to separate analyses by the right-leaning Tax Foundation and left-leaning Florida Policy Institute. Each concluded that lawmakers would have to at least double the state’s general sales tax rate to replace the lost local revenue. At the same time, because economic shifts tend to affect sales tax revenue more than property tax revenue, relying on sales taxes to support services currently funded by property taxes could leave those services more vulnerable to cuts and disruptions during economic downturns.
Some counties and municipalities are proactively shoring up other sources of revenue. Several local governments have increased service fees, which have tighter restrictions on how they can be spent than general tax revenues but can help offset rising costs and potential losses in property tax revenue.
Divergent paths to relief
Elsewhere, property tax relief for homeowners has come with local funding—for now. In Texas, voters last year approved a $10 billion property tax relief package that increases homestead and senior exemptions and boosts the business personal property tax exemption. The state plans to use mostly one-time surplus money to backfill school districts for the lost revenue through a process known as compression. But as Rice University’s John Diamond warned, the state has funded previous property tax reductions through surplus dollars, a one-time revenue source.
“When the surplus ends, you have to find another way to finance these reductions,” said Diamond, who directs the university’s Center for Tax and Budget Policy. He added that the homestead exemptions became guaranteed in the state’s constitution through voter approval, but compressions “can be taken away just like that.” And that could leave the door open to funding cuts for public education in tight budget years.
Texas Governor Greg Abbott (R) has since called for even deeper property tax changes, including elimination of school property taxes, reduced caps on home assessment increases, and increased limits on local government spending and taxing authority.
In North Dakota, lawmakers in 2025 more than tripled the state’s primary residence credit, limited annual local property tax increases to 3%, capped school tax hikes, and expanded relief for disabled veterans and renters. The $473 million package draws on earnings from the state’s Legacy Fund to backfill schools affected by the cap and establishes a model for future reductions as the fund grows. Governor Kelly Armstrong (R) said his long-term goal is to use the Legacy Fund, which was established in 2010 to set aside revenue from an oil extraction boom, to eventually eliminate property taxes for most homeowners.
Montana took a different approach—funding property tax relief for homeowners by increasing taxes on second homes, short-term rentals, and large commercial and industrial properties. The 2025 law establishes property tax tiers based on how a home’s value compares to the statewide median, creates a new commercial property tax structure, and imposes a flat 1.9% tax rate on second homes and short-term rentals.
Final thoughts
While some localities are already contending with the impacts of state property tax reforms, the debate is just heating up elsewhere. In Delaware, frustration with high property tax bills boiled over last summer after the state’s three counties conducted reassessments for the first time in decades. That led to a special session that resulted in a series of measures. More legislation is likely to come from a bipartisan special committee that’s conducting a comprehensive review of the state’s reassessment process.
Property tax relief efforts also could play out at the ballot box this year. In Nebraska, a group is planning a petition to eliminate property, income, and inheritance taxes. Michigan, Ohio, and Tennessee are also seeing efforts to place property tax reform initiatives on the 2026 ballot.
This rise in activity underscores the difficult trade-offs facing state policymakers. Reducing property tax burdens may offer short-term relief to homeowners. But without sustainable replacements or backfill mechanisms, such measures can put some critical services at risk and threaten the financial stability of local governments. As state legislative sessions progress and potential ballot initiative efforts ramp up, the question is no longer whether property taxes will change, but how much those changes will impact the fiscal foundation of local governments.
Riley Judd works on The Pew Charitable Trusts’ Fiscal 50 project.
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