Article
Property tax reform: Impacts on local government revenue, credit, and financial planning
July 7, 2026 · Authored by Rachael Westervelt
Recent discussions around property tax reforms in various states across the U.S. signal a potentially significant shift in the financial landscape for local governments. While proposed changes are largely aimed at improving taxpayer affordability, they could introduce new fiscal pressures that may affect local government credit quality, long-term financial sustainability, and service delivery.
For municipalities, counties, and school districts, the takeaway from rating agencies is clear: reduced revenue flexibility increases credit risk, making strong financial management practices more critical than ever.
On April 30, 2026, S&P Global Ratings released Credit FAQ: Is Property Tax Reform a Growing Concern for U.S. Local Government Credit Quality?, highlighting Florida, Georgia, Kansas, Michigan, Nebraska, and Texas as states with proposed reforms that could lead to implications for local government finances if enacted.
What this means for local governments:
- Evaluate exposure to potential changes in property tax revenues
- Update multi-year financial forecasts under different scenarios
- Assess reserve adequacy based on potential revenue volatility
- Identify alternative revenue sources or funding strategies
- Review debt and capital planning assumptions in light of policy changes
See sections below for additional detail by state.
Florida lawmakers have considered some of the most significant potential reforms, including proposals to eliminate or phase out non-school property taxes for homestead properties.
Potential implications:
- Potential for significant reduction in local government property tax revenues if homestead nonschool property taxes are eliminated or phased out
- Increased structural budget pressure for counties, municipalities, and special districts
- Potential for service delivery strain, particularly for public safety and infrastructure maintenance that could intensify budgetary imbalance
- Greater dependence on state funding or alternative revenue sources
- Reduced local fiscal flexibility during economic downturns or disaster recovery events
- No clearly defined replacement revenue source, increasing structural risk
Georgia’s enacted legislation (SB 33) limits property tax revenue growth by tying increases to inflation.
Potential implications:
- Property tax revenue growth may be limited to the rate of inflation
- Increased reliance on voter-approved 1% sales tax as a replacement revenue source
- Revenue volatility if replacement sales tax measures fail at the ballot box
- Potential widening disparity between fast-growth and slow-growth communities
- Increased budgeting uncertainty for local governments and school districts
- Potential pressure on operating margins if inflation exceeds revenue growth
- Credit impact depends on voter approval risk and revenue sufficiency of the replacement tax
S&P views the availability of an alternative revenue sources as a relative credit strength, but one that introduces uncertainty due to reliance on voter action and economic performance.
Kansas considered legislation that would have capped local budget growth, although it was ultimately vetoed.
Potential implications:
- Potential caps on local budget growth could constrain operational flexibility
- Risk of budgetary pressure without replacement revenue mechanisms
- Potential inability to keep pace with inflationary cost increases
- Pressure on staffing, compensation, and service levels
- Potential deterioration in financial resilience during economic downturns
- Possible negative implications for long-term credit quality
- S&P identifies this type of reform—without offsetting revenue mechanisms—as particularly likely to create budgetary pressure and lead to credit deterioration
Even without enactment, such proposals illustrate the growing focus on limiting tax growth and the resulting tension with local fiscal needs.
Michigan has not yet enacted broad reform, but several proposals under consideration could significantly alter local revenue frameworks, including eliminating or reducing personal property taxes, eliminating the state education tax (6 mills), and removing taxes tied to property transfers and reassessments (“pop-up tax”).
Potential implications:
- Risk of reduction in personal property tax revenues
- Potential elimination of the 6-mill state education tax could alter school funding dynamics
- Changes to transfer tax and taxable value reset mechanisms may reduce revenue growth
- Greater reliance on consumption-based taxes if service taxes are expanded
- Potential uneven impacts between commercial and residential-heavy tax bases
- Possible long-term constraints on local government financial flexibility
- Shift toward a service-based sales tax model
- Uncertainty around whether replacement revenues will be fully realized or grow consistently over time
For local governments, these proposals signal possible transition away from historically stable revenue sources toward more economically sensitive alternatives.
Following 2024 reforms that already limited levy growth, Nebraska is considering more comprehensive measures that could go as far as eliminating property taxes, income taxes, and inheritance taxes.
Potential implications:
- Potential elimination of property, income, and inheritance taxes would fundamentally reshape local and state revenue structures
- Significant uncertainty due to lack of clearly defined replacement revenues
- Potential material disruption to local government budgeting and financial planning
- Possible increased state control over local funding allocations
- Potential reductions in local government autonomy and revenue predictability
- Elevated long-term credit and operating risk for local governments
- Increased risk of structural imbalance and reduced financial predictability
If pursued, these reforms could represent one of the most significant shifts in local government financing nationally, with substantial implications for credit stability.
Texas has already enacted a $51 billion property tax relief plan and is considering further measures, including eliminating school property taxes for homeowners.
Potential implications:
- Potential elimination of school property taxes for homeowners could shift schools toward greater state funding dependence
- Increased exposure to state budget decisions and economic cycles
- Potential reduction in local control over education funding
- Possible constraints on school district financial flexibility and long-range planning
- Potential shifts in taxpayer burden toward other tax categories
- Heightened uncertainty around future school finance formulas and appropriations
While the state may backfill lost revenues, S&P notes that shifting funding responsibility away from local sources introduces policy and appropriation risk.
Common risks local governments should monitor
Across all states reviewed, S&P emphasizes a consistent credit theme: the greatest risk arises when property tax reforms reduce revenue flexibility without a reliable replacement source.
Common risks include:
- Structural budget gaps
- Reduced financial flexibility
- Increased dependence on voter approval or state funding
- Greater volatility in revenue streams
- Constraints on long-term planning
Financial planning considerations for local governments
As tax policy environments become less predictable, proactive financial management is critical. Local governments across these states should consider:
- Conducting multi-year revenue and expenditure forecasting
- Evaluating long-term structural budget gaps and mitigation strategies
- Identifying potential operational efficiencies and shared service opportunities
- Reviewing reserve and debt management policies
- Updating capital improvement and infrastructure funding plans
- Assessing asset management and lifecycle funding needs
- Planning for alternative revenue sources
- Educating elected officials and the public on project fiscal implications
- Strengthening financial policies and long-term fiscal sustainability practices
As governments evaluate these risks, structured financial planning tools can support more informed decision-making.
How Baker Tilly assists local governments with financial planning
Baker Tilly works with local governments to implement management tools and long-term planning strategies that may assist organizations in adapting to legislative changes while evaluating long-term financial planning considerations. The results achieved in this case may not be representative of the experience of other clients and there is no guarantee of future performance or success.
Our services include:
Fiscal sustainability plans (FSPs)
- Multi-year financial planning analysis
- Identification of structural gaps and mitigation strategies
- Provides a framework for long-term fiscal stability
Capital improvement plans (CIPs)
- Comprehensive evaluation of capital needs
- Prioritization aligned with affordability and funding capacity
- Integration with debt and long-term financial planning
Asset management plans (AMPs)
- Infrastructure and asset lifecycle planning
- Long-term funding alignment and lifecycle cost analysis
- Designed to improve transparency and planning discipline
Financial policy development
- Reserve, debt management, and investment policies aligned with best practices
- Support greater consistency accountability, and financial governance
- Improved support for long-term structural balance and financial planning
Property tax reform is poised to remain a key policy issue nationwide. For local governments, the ability to adapt through proactive planning and disciplined financial management will be a defining factor in maintaining fiscal stability and supporting strong credit profiles.
Baker Tilly’s public sector specialists work with municipalities, counties, and school corporations to support fiscal resilience through long-term financial planning, capital and asset management strategies, and policy development.
Contact our team to evaluate how proposed tax reforms may impact your revenue stability and long-term financial planning.
