​At the 12th annual Municipal Finance Conference in Washington, DC, government finance experts promoted the latest municipal spending research from stakeholders, regulators, and scholars. As usual, the conference provided attendees with unique insights into several trends impacting municipal finance, while also delivering an overarching message that the world of municipal finance will only grow more complex in the coming years. To combat these challenges, municipal leaders and finance professionals must take advantage of hard data and assume a proactive stance toward policy change, particularly in areas of climate change, infrastructure financing, debt, and financial reporting. 

Climate risk is often discussed on the national and global stages, but it is a threat that municipal leaders cannot afford to overlook. In some jurisdictions, municipal governments face no immediate financial risks from climate change, but their investors might. Studies indicate that a significant portion of America's bond investors have incurred secondary market losses on bonds from regions impacted by natural disasters. These losses force investors to make new calculations, which can impact funding for small governments throughout the country. Governments in localities exposed to heat stress can expect to incur premiums on bonds.

On the upside, many investors have embraced the "greenium" movement, meaning they may accept marginally lower rates of return on bonds that pay for environmentally-friendly initiatives and programs. Municipal governments making such investments should prioritize data-driven projects with third-party verification, which allow for lower costs for the issuer, making them more attractive.

The government staffing crisis has affected many sectors, including municipal finance departments. The issue has started to impact state and local budgets, as well as a municipality's credit quality. A reduced or eliminated financial department can have many effects on town governments, such as delayed financial reporting, credit rating withdrawals, and increased rates on municipal market borrowing.

Government leaders have tried to combat this trend by raising salaries, but the private sector has responded in kind, with both markets suffering from the same talent shortage. Rather than striving to expand financial department staffing back to pre-pandemic levels, municipal governments should attempt to rebalance staff workloads, taking a more efficient approach to town budgeting that conforms to each government's available resources. Various technologies can help municipal leaders refine their processes. Investments in strategic planning can also boost performance across the board, resulting in improved workplace morale and greater efficiency for governments with limited resources.

Remote work trends have impacted numerous industries throughout the United States, including local governments, forcing municipal leaders to make complicated choices about how to allocate resources. Transit funding represents a particularly challenging dilemma, with ridership in major metros in steep decline. Options include strategic rerouting and shifts to free transit systems for buses, but leaders cannot alter rail infrastructure so easily.

The remote work and transit issues align with the enduring discrepancies between downtown areas and suburbs. Hub-and-spoke rail systems typically stem from downtown areas, which hold more transit power and therefore demand more resources. The increase in remote workers, however, has shifted activity to outlying neighborhoods and surrounding suburbs. Municipal leaders must develop strategies to address this shift in power without hindering their attempts to reinvigorate downtown areas.

Finally, regressive tax trends have influenced municipal governments in many regions, including progressive states such as Massachusetts and New York. Research shows that high property taxes in these locations cancel out graduated income tax structures that generate municipal funding from wealthy residents. Regressive property taxes result in lower-income households overpaying and wealthy homeowners underpaying, issues municipal finance leaders can address through new modeling efforts, such as altering home valuation processes by emphasizing accurate micro-market data.

​According to the State of Indiana's 2024 Financial Report, provided by the Office of Indiana State Comptroller Elise Nieshalla, the state finished the fiscal year 2024 in good standing. Positive takeaways included increased general revenue collections and investments, a growing net position, and a AAA credit rating with all three independent credit rating agencies, thanks in part to the state's four lowest debt per capita figures in the United States. Looking ahead, Indiana leaders and citizens must prepare for financial activities in 2025 and beyond.

To begin, forecasters expect consumption growth to cool off throughout the US, including in Indiana. Consumption growth rates have remained strong since the end of the COVID-19 pandemic, with deprivation and scarcity driving up purchase rates across many segments of US consumers. Citizens have continued to make purchases despite inflation-driven prices, but experts do not expect growth rates to persist indefinitely.

Inflation rates have somewhat leveled off, allowing for a steady decline in consumption growth rather than a steep drop-off. This decrease should continue throughout 2025 before plateauing in 2026 and 2027.

Consumption and consumption growth rates are important factors in a state's financial outlook, as consumption accounts for two-thirds of the national economy, based on gross domestic product. Researchers break consumption down into three key categories: durable goods, nondurable goods, and services. Growth in the services sector will remain strong over the next few years, while durable goods growth should outpace nondurable goods by 2026.

Indiana policymakers and financial leaders must take growth rates into account, especially as the Federal Reserve moves forward with interest rate cuts to support job and wage growth and further mitigate inflation. Altogether, state and local governments should anticipate a general cooling off of the national economy. Indiana has enjoyed considerable job and income growth in recent years, but these economic factors will slow those figures, keeping them just beneath the national average in 2025 and beyond.

Over the last five or so years, the Indiana economy has more than made up for job losses in 2020 due to the pandemic, surpassing pre-pandemic employment levels. The state has reached the three-million-jobs mark, where it peaked in 2000, ranking No. 16 in the nation in 2024 at approximately 3.33 million jobs, more than Arizona and slightly behind Tennessee.

Pundits expect Indiana's employment growth rate to continue its slow but stable pattern over the next several years, averaging about 1 percent per quarter through 2026, just behind the national average of 1.03 percent.

That said, the state has an unemployment rate below the national average, including a significantly lower rate following the pandemic. Research indicates the gap will average roughly .4 percent through 2026, in favor of Indiana. However, state leaders cannot rest on these numbers, as employment patterns will shift over the next few years, including a transition away from manufacturing and into the services sector. Other industries should remain consistent, such as growth in the construction sector.

Finally, personal income growth in Indiana should hold steady at about 4 percent over the next few years. Indiana had trailed the national average for income growth by .5 percent between 2013 and 2019, but the trend reversed during the shutdown and restart periods of the pandemic. The deficit will reverse again throughout 2025 and 2026, despite stable growth. This trend reflects the state's overall financial outlook through 2026: fair and stable amid a national economic slowdown.

​State and town governments compose comprehensive annual financial reports (CAFRs) to demonstrate financial performance over the previous years. CAFRs generally include a financial section comprising various financial statements, documents, and summaries, and a statistical section that compares financial information with historical and trend data. Combined, the reports provide valuable information for stakeholders and the public.

According to the State of Indiana Annual Comprehensive Financial Report (ACFR), for example, the state generated $52.2 billion in total revenue in 2024, including $24.4 billion in state general revenue collections and investments, along with $23.1 billion in federal funding and grant revenues, and $4.4 billion in services and fees revenue. Total state expenses in 2024, meanwhile, closed at $51 billion.

State general revenue collections and investments increased by 2 percent between 2023 and 2024, thanks in part to 1.3 percent employment growth and a personal income increase of 5.1 percent. This increase included general fund revenue growing from $21.9 billion in 2023 to $24.7 billion in 2024.

Federal grant expenditures to Indiana spiked during the COVID-19 pandemic, growing from $14.3 billion in 2019 to $19.6 billion, $26.4 billion, and $23.7 billion in 2020, 2021, and 2022, respectively. They have slightly decreased in recent years, down to $22.8 billion in 2023 and $22.7 billion in 2024.

Indiana's gross state product (GSP) improved by nearly 3 percent in real value, compared to just a 1.3 percent increase the year prior. GSP serves as an all-encompassing gauge of the state's economic performance, providing policymakers and business leaders with a general assessment of the state's financial health and the future of its economy. The state bases many investment, tax policy, and financial strategy decisions on GSP.

The state received more positive news regarding Indiana's net position, a figure that represents the value of the state's assets relative to its liabilities. The state's net position has almost doubled from $16.5 billion in 2020 to $31.7 billion in 2024, including a $1.3 billion increase from the 2023 fiscal year.

Indiana continues to rank among the leading states in debt per capita, placing fourth overall in the United States. Citizens average just $186 per person, compared to $2,751 in Illinois, $1,095 in Kentucky, $880 in Michigan, and $804 in Ohio. The state's debt per capita aligns with disciplined spending, favorable tax policies, and a regulated business climate.

Unsurprisingly, Indiana ranks among the nation's 15 states with a AAA credit rating with each of the independent credit rating agencies: Moody's, Fitch, and Standard and Poor's (S&P) Global Rating Services. The AAA rating underscores the state's capacity to repay investors, enabling favorable interest rates on loans.

The state's total reserves finished the 2024 fiscal year at $2.6 billion, representing roughly 11 percent of Indiana's operating budget, a stable figure, per the 2024 S&P Global Ratings Report. The report also praised the state's low debt levels and sound institutional framework for budgeting and operations, as well as Indiana's disciplined spending and fiscal transparency. Furthermore, the government remains well-positioned with pensions funded at 81 percent and manageable liabilities.

​Municipal officials face many challenges when developing and maintaining budgets, especially finance leaders in small towns, who may manage several additional roles in local government. Preparing for the most common challenges in the budgeting process can help towns resolve issues and avoid budget crises.

Changing revenue landscapes represent a key challenge for many towns, cities, and districts. In the past, property taxes have served as the primary source of revenue for municipal governments. Increasingly, intangible assets have influenced town revenues, from financial instruments to digital goods. Town finance leaders must understand how to tax and optimize value using these intangible assets. Newer legislation has applied sales taxes to online sales, but these taxes cannot keep pace with the rapidly growing online service sector.

As towns search for solutions to shifts in the local revenue landscape, they should avoid relying too heavily on fines and fees, which can upset citizens. Instead, governments must embrace a more comprehensive shift in revenue strategy. Key steps toward effective budget strategies include carefully analyzing existing revenue sources, innovating new revenue streams for the modern economy, and testing different revenue streams using data-driven, multi-year models.

As mentioned, small-town finance leaders often fill multiple roles in local government. This underscores a larger challenge all small governments face: a lack of time and resources. The fewer resources a town has, the more finance professionals must stretch the town's budget. Town governments must automate whenever possible, as manual tasks such as data entry, spreadsheet consolidation, and budget reconciliations are poor uses of time, particularly given the error rate associated with manual entry compared to automated software.

Automated budgeting software is just one example of new technology that can drive positive change in local government. However, the rapid pace of technological change can also pose a unique challenge for small governments. Budget professionals who have spent multiple decades working in town governments may even remember processes and strategies from before the advent of the internet.

Transitioning budgets from paper to spreadsheets represents the first step in modernizing a municipal finance department. Adopting cloud-based software is another crucial step. Of course, these changes require town leaders to develop new skills and, more broadly, to demonstrate a willingness to change legacy systems and outdated strategies. Additional benefits of integrating modern technology and budgeting software include streamlined training processes and continuous updates that keep governments abreast of the latest technological advances.

Finally, while many municipal budget challenges may feel like they exist only in the office, town finance leaders cannot forget their fiduciary responsibility to the community. Over the years, average citizens have shown greater interest in municipal budgeting processes, partly due to technological advances. They demand more transparency than ever and expect direct communications from an accountable local government.

Unfortunately, studies suggest that about 50 percent of Americans hold a "less than favorable view" of the trustworthiness of their local government. A separate poll found that many government employees believe municipal budgeting processes do not effectively involve residents, address citizens' most pressing needs, or communicate budget decisions to the public. With this in mind, towns must invest in diligent record-keeping and reporting processes, or else they risk losing the trust and support of the community.

​In the United States, state and local governments spend nearly $4 trillion on direct general government expenditure, with roughly an even split between state spending and local government spending, which includes counties, cities, townships, and school districts. Local governments tend to spend more than state governments due to local municipalities operating programs funded with support from the state, in addition to pass-through grants provided by the federal government. Local government spending generally falls under one of seven categories.

Public welfare represents the largest area of spending for most local governments, accounting for more than 23 percent of spending. Public welfare is a somewhat complex spending category, as it includes "means-tested programs," according to the Census, such as Medicaid, but is distinct from health and hospital spending. Additional areas of public welfare spending range from Temporary Assistance for Needy Families to Supplementary Security Income.

Medicaid accounts for a significant portion of public welfare spending. Between 2008 and 2021, Medicaid spending, including the federal share, grew from 20 percent to 27 percent, even with some Medicaid spending counted as hospital expenditures. 

Elementary and secondary education represents a major source of spending for local governments, at 20.5 percent, and also provides a clear example of pass-through grant funding. The federal government disperses elementary and secondary education funds to state governments, who transfer funds to local governments. Local governments then spend federal dollars on specific education programs.

Spending on elementary and secondary education includes many categories, including the construction of public schools, maintenance, and daily operations, as well as other educational facilities and programs. Pre-kindergarten programs count towards elementary and secondary education spending, but higher education does not. The Urban Institute reports that state and local governments spend nearly $760 billion on elementary and secondary education, which represented the highest spending category between 1977 and 2014. Excluding federal transfers, it remains the largest expenditure item.

Local governments direct an additional 8.5 percent of spending to higher education. In 2024, state and local governments spent $11,683 per full-time equivalent student, representing a 0.8 percent increase above inflation.

Over 10 percent of local government spending supports health programs and hospital operations, or nearly $380 billion. Examples of health program expenditures include mental health and substance abuse programs, water and air quality regulation measures, and county health department inspections.

Infrastructure accounts for just under 6 percent of local government expenditures in the US. In recent years, national leaders have sought to invest more funds into infrastructure development, but research suggests that the country will fall $5.18 trillion short on necessary infrastructure spending by 2040, equating to a loss of millions of jobs and trillions of gross domestic product.

The average police force uses roughly 3.7 percent of the local government budget, while corrections facilities and programs account for an additional 2.4 percent of spending. About 1.4 percent of local government spending goes to local courts.

Housing and community development accounts for less than 2 percent of local government spending in the US, or about $65 billion. This category includes new construction and redevelopment projects, as well as government promotions and housing aid, such as rental assistance and community revitalization efforts.

In addition to these seven major expenditure categories, local governments must budget for many additional expenses. These additional expenditures include sanitation, fire protection, sewage, parks and recreation, air transportation, public buildings, and much more.

​According to the latest Census Bureau data, state and local governments spent $4.5 trillion on an array of critical expenditure items, such as public welfare, education, health services, and criminal justice. Local governments generate revenue to account for these expenditures through various channels.

Taxes account for the bulk of municipal revenue in the United States. According to the Tax Policy Center, local governments collect upwards of $609 billion in property taxes. Citizens and businesses pay a variety of taxes that local governments spend on critical services. At 15 percent, property taxes make up the majority of tax-generated revenue. Even if a person or family owns a home outright, meaning they do not pay a monthly mortgage, they must pay property taxes to the local government based on the value of the property.

Several additional factors influence a property tax bill, including the county, city, or state tax rate. For instance, Indiana ranks around the middle in terms of property tax rate. At an effective tax rate of 0.74 percent, homeowners pay $2,251 in property tax on a $303,400 home, though the median property value is $201,600. By comparison, New Jersey maintains the nation's highest effective tax rate at 2.23 percent, equating to $6,770 on a $303,400 home, which is well short of the state's median home value of $427,600. Hawaii has a tax rate of just 0.27 percent, though the median property cost is $808,200.

Property taxes are closely followed by individual income taxes, which constitute about 13 percent of local government revenue generation. Households pay income taxes as a percentage of their income, with percentages varying based on a person's tax bracket. Individuals in higher tax brackets generally pay a larger percentage of their income. State and local governments collect nearly $550 billion in revenue from individual income taxes.

General sales taxes and gross receipts taxes make up an additional 12 percent of local government revenue in the US. These taxes are distinct from selective sales taxes on items such as motor fuel and alcohol. Also known as a turnover tax, gross receipts taxes usually fall under the general sales tax category. Businesses pay gross receipt taxes based on gross sales over a certain period, rather than on individual retail transactions.

State and local governments collect close to $477 billion in revenue from general sales taxes and gross receipts taxes. General sales taxes provided less revenue than property taxes and roughly the same amount as individual income taxes. State and local governments collect an additional $213 billion from selective sales taxes, or five percent of general revenue. Fuel, alcohol, and tobacco products represent major contributors in this category.

Corporate income taxes account for about two percent of local government revenue generation. Other taxes combine for about three percent of local government revenue, including license taxes, estate taxes, and severance taxes.

While taxes comprise the majority of local government revenue generation, municipalities collect revenue from many additional sources. Intergovernmental transfers are particularly important at the local government level, constituting the single largest source of revenue generation at 37 percent.

Charges are also a major source of revenue for local governments. Common examples include parking and sewerage fees. These and other fees make up 16 percent of local government revenue. Miscellaneous revenue sources range from investment securities interest to property sales.

​According to the Indiana State Board of Accounts' Accounting and Financial Regulatory Reporting Manual, local government units and quasi-agencies must adhere to defined financial reporting requirements. An essential directive is that all funds "collected, received, obligated, and expended" for any purpose be accurately documented through detailed statements and accounts.

The State Board of Accounts' specific duties include formulating and approving statements and reports that enable the internal administration of various offices and comply with the rules of the Office of State Examiner. The Board also sets in place and enforces systemic changes to the reporting and accounting forms.

All public income sources must be publicly disseminated, along with amounts due and received from various sources. Documents such as vouchers, contracts, receipts, and obligations must be retained as they prove that transactions are valid.

Such responsibilities are codified under Indiana Code 5-11-1-4 (a), which holds that all municipalities, as well as "state and local governmental unit, entity, or instrumentalities," must deliver reports for each fiscal year across their full period. Verified and filed within 60 days of the fiscal year closing, the State Examiner ensures that such documents comply with Indiana rules and regulations.

There are two main categories of documentation: financial reporting and fund accounting. Governmental financial reporting serves as an accountability tool, helping state and local governments assess their financial health, compare actual outcomes with the adopted budget, and evaluate operational results. It also helps ensure compliance with finance-related laws and regulations. This, in turn, informs political, social, and economic decision making, such as whether to maintain programs as-is or work to improve program efficiency, effectiveness, and outcomes.

Fund Accounting, on the other hand, provides governmental entities with an easy and transparent way to monitor and report compliance with fiscal accounting objectives, such as fund restrictions (spending purposes) and budget (spending limits). Funds form the basis of this, with each fund and its operations treated as a separate accounting entity. This means that each fund furnishes a unique set of self-balancing accounts that span disbursements and receipts, as well as cash and investment balances.

Funds have various sources and purposes, depending on the specific entity and type. Some account for money held by a governmental entity on behalf of another organization. This arrangement is common with payroll withholding funds, where collected money is withheld from employees' pay. This money is ultimately remitted to the appropriate taxing authority and is therefore not available for discretionary use by the entity that maintains control of the assets and ensures proper accounting as a fiduciary.

Some funds are established and governed by state statute, which provides authorization that limits both their use and sources. In other cases, the governmental entity itself establishes and governs the fund, with an ordinance or resolution outlining the approved sources and uses of the money.

Maintaining compliance with various fund management and financial reporting requirements is both complex and time consuming. CPA firms, such as CL Coonrod & Company, provide Indiana local governmental units with assistance in managing their fiscal affairs in a compliant and efficient way, so they can accomplish their objectives and stay within budget. The aim is to prevent avoidable revenue losses and expenditure cuts and work with regulations in ways that enable and empower institutional mandates.

​Owning a home comes with financial responsibilities, and property taxes are among the most significant. Local governments collect these mandatory payments annually to help fund crucial public services and infrastructure, including schools, libraries, emergency services such as police, fire, and EMS, parks, public transportation, and road maintenance - services that directly impact daily life.

Despite their importance, many homeowners struggle to understand how property taxes are calculated. It’s not uncommon to feel like your tax bill is too high, especially when you don’t fully grasp the assessment process.

Local government assessors evaluate your home’s taxable value every one or two years. Since it’s impractical for them to visit every property, they rely on comparable sales data - recent selling prices of similar homes in your area - to estimate your home’s value. Factors like size, location, renovations, and additional features such as a fenced yard, swimming pool, or guesthouse all influence the valuation. Some jurisdictions apply the tax rate to the entire estimated value of the property, while others tax a percentage of that estimated value. The figure used to determine the amount of taxes due is known as the assessment. Once the assessed value is determined, it’s multiplied by the local tax rate to calculate your annual property tax bill. For example, if your home is assessed at $450,000 and the tax rate is 1 percent, you would owe $4,500 in property taxes for that year.

One way to avoid an unnecessarily high tax bill is to be mindful of home improvements. Upgrades like adding a pool, expanding a garage, or constructing an additional room can increase your property’s assessed value, raising your tax burden. Because property assessments aren’t conducted annually in many areas, timing your renovations to follow a county assessor’s visit can help delay an increase in your property taxes.

Applying for tax exemptions can also reduce what you pay. Many states and municipalities offer exemptions that lower property tax obligations for eligible homeowners. The homestead exemption, for instance, benefits those who use their home as their primary residence, potentially saving them thousands of dollars. Additional exemptions are often available for seniors, veterans, and individuals with disabilities. 

Some local governments also provide tax reductions for homeowners who make energy-efficient upgrades or participate in agricultural programs. However, these exemptions are not automatic. You’ll need to apply and provide documentation to prove eligibility.

Making timely property tax payments can work in your favor. Paying your bill early or in full by a specified deadline may qualify you for a discount. While these savings might seem small, they can add up over the years. More importantly, timely payments help you avoid late penalties, which can quickly accumulate. In Indianapolis, for example, failing to pay within 30 days after the due date results in a 10 percent penalty.

If paying the full amount at once is difficult, many local governments offer installment plans, allowing you to spread payments throughout the year instead of making a lump-sum payment. This can help ease financial strain and ensure your taxes are paid on time.

If you believe your home has been overvalued, you can challenge the assessment. Start by reviewing the assessor’s report to ensure details like square footage and home features are accurate. If you find errors, gather supporting evidence such as recent sales of comparable homes in your neighborhood or an independent appraisal to build your case. Filing an appeal usually involves submitting paperwork within a set time frame and may require attending a hearing. While not all appeals succeed, a successful reassessment can lead to substantial tax savings in the long run.