Elkhart unveiled its proposed 2026 budget this week while city leaders say a state law change will shrink local revenue and force difficult choices in coming years.
Mayor Rod Roberson and his chief of staff, Megan Erwin, told reporters the changes in Senate Enrolled Act 1 will alter both property-tax calculations beginning in 2026 and the way local income tax is collected starting in 2028, reducing the money the city can count on for services.
“Our growth is dependent on how Elkhart moves through this this period of time with SEA1 but also how we grow as a community as a whole,” Roberson said.
The city proposes about $119 million in expenses for 2026, down from roughly $125.8 million last year, a decrease of about $6.8 million. To stretch limited dollars, the administration has suspended planned cost-of-living and merit increases for city employees next year, Roberson said.
Erwin, who has been working with the city controller and outside financial advisers, outlined how SEA 1 will hit local revenues. The law phases out the current homestead deduction structure and replaces it with a percentage-based calculation and a credit that could reduce property bills. But Irwin warned that rising home values could offset any credit owners receive, limiting the law’s relief for homeowners and reducing revenue for local governments.
Erwin also said the bill will change income-tax distribution in 2028. Today, Elkhart receives a share of countywide income-tax collections. Under SEA 1, cities must adopt their own income tax and collect only from residents within their corporate limits. That means a much smaller tax base for the city: Elkhart accounts for roughly 25% of county income-tax collections, about $34 million under current rules, Erwin said. Consultants from Baker Tilly have estimated the city could collect about $15 million under the new structure, a shortfall of roughly $19 million even if the city levies the maximum rate the law allows.
“That is fueling our concern,” Roberson said, adding that the state Department of Revenue and lawmakers approved the legislation without city-level data and are still working to compile accurate income figures by municipality.
Roberson said the city will use reserves and steer spending toward projects that attract new residents and investment, a strategy he described as “growing our way out of it.” He urged the public to understand the timeline: property-tax changes start Jan. 1, 2026, income-tax changes take effect in 2028, and councils must act in advance to set local rates or make other decisions.
“We really would like to ensure that our residents aren’t burdened by additional fees. We want to make sure that we can actually grow our way out of it,” he said.
Roberson emphasized that the City Council will play a central role in determining how to balance services as revenues shrink. Council members will review the budget in committee hearings and must approve any decisions about local income tax, new fees or major spending shifts.
The administration plans to prioritize residential development and projects that can generate property and income growth. The city’s Aspire plan includes several downtown and near-neighborhood projects intended to increase housing density and bring residents into parts of the city that already have water, sewer and roads, Roberson said.
Major capital projects with outside partners, including the Hively Avenue overpass and a River District parking structure paired with about 70 residential units, remain in the pipeline. Roberson said the city preserved capital reserves to cover its share of partnered projects and expects to proceed once grant and federal funding become available.
Still, the administration acknowledged the strain created when construction and raw-material costs rise as revenues tighten. “When those prices increase…that means that those materials are a shortfall and utilize it in order to get what we need to get done,” Roberson said.
Roberson said the city is not planning to impose new food-and-beverage taxes or roll out resident trash fees in 2026. Officials have negotiated a new trash contract and will monitor whether moving part of that cost to residents becomes necessary in the future. A separate legislative change tied to road funding could require communities to adopt a wheel tax to qualify for certain state matching grants; that change would affect 2027 funding cycles and Elkhart officials say they will wait for final language before taking action.
The proposed 2026 budget will go through public hearings this week and through committee review before the council takes it up for second and third readings. Roberson said the city will continue to press state lawmakers for clearer data and possible fixes while planning under the assumption that SEA 1 will remain law until changed.
For now, the city is tightening its operating budget, preserving capital reserves for partnered projects and focusing on strategies to increase population and taxable value, all intended to blunt the law’s predicted impact.
