Indiana Communities Redefine Growth Amid Budget Constraints

This article originally appeared in the Indianapolis Business Journal.

Across Indiana, local governments are leading through a period of profound transition. Fiscal constraints, workforce pressures, and housing shortages continue to test capacity, yet local leaders across the state remain determined to turn these challenges into progress.

The “State of Local Government in Indiana: 2025 Report,” KSM’s inaugural statewide study, captures this pivotal moment. Drawing on survey feedback from more than 100 local leaders representing towns, cities, and counties, the report reveals both the obstacles communities face and the creative strategies emerging to overcome them.

Indiana’s story is one of resilience. Even amid budget uncertainty and rising costs, leaders are finding new ways to strengthen fiscal health, foster economic vitality, and create thriving places to live and work. The report reveals what is driving this momentum and how Indiana communities are adapting their fiscal, economic, and quality-of-life strategies to build stronger futures for their communities.

Constraints That Shape Every Decision

Budget pressure is the most common challenge, cited by two-thirds of survey respondents. Small towns, in particular, struggle with limited administrative capacity and fewer revenue tools, leaving them dependent on state or federal funds. Larger jurisdictions may have broader tax bases, but they face escalating costs for services, infrastructure, and workforce needs.

The survey findings reveal how interconnected these pressures are. Housing supply and affordability continue to limit growth, with 51% of leaders citing availability and 45% citing affordability as significant concerns. When workers cannot find housing that fits their budgets, communities struggle to attract and retain talent, with mid-sized jurisdictions feeling the strain most acutely. At the same time, aging infrastructure remains a major investment need, especially in small and mid-sized communities with outdated systems.

These pressures are not isolated. They compound one another. When housing supply lags, workforce attraction falters. When infrastructure ages, business investment slows. And when budgets tighten, the ability to respond to all of these issues diminishes.

The Path Forward

Despite the challenges, local governments are shifting their focus from managing constraints to building for the future. Economic development ranked as the number one community priority for 2026, followed closely by infrastructure investment and operational efficiency. Together, these priorities – along with shifting funding structures – signal a transition from single-focus growth strategies toward diverse, interconnected local economies that balance fiscal, human, and physical capital.

[These priorities] signal a transition from single-focus growth strategies toward diverse, interconnected local economies that balance fiscal, human, and physical capital.

Sustainable growth depends on more than recruiting new employers or expanding industrial sites. Attracting new businesses remains critical but so does supporting small and local enterprises, which are the backbone of many communities. Investing in shovel-ready sites is important but so is investing in placemaking assets like parks, trails, dining, and cultural amenities that attract talent and sustain residents.

This shift reflects a broader understanding of what it takes to build strong and resilient local economies. Economic development now extends beyond business attraction to include housing, workforce stability, and quality of life. When workers can live where they work, when residents enjoy vibrant public spaces, and when businesses view thriving communities as partners in their success, growth becomes more sustainable.

Strengthening Financial Foundations

Achieving sustainable growth starts with fiscal sustainability. The “State of Local Government in Indiana: 2025 Report” finds that 86% of leaders are concerned about state funding changes, including those tied to Senate Enrolled Act 1, which restructures Indiana’s property tax system and significantly impacts local government revenues.

Some communities are beginning to diversify their revenue strategies and take a longer-term view of financial planning. Strategies include exploring local revenue tools, such as wheel tax or targeted local income tax adjustments, as well as building multi-year financial models that account for inflation, shifting state policy, and federal funding cliffs. Regional collaboration also presents opportunities to share resources and leverage collective buying power, enhancing efficiency and expanding impact.

Financial innovation is not just taxing more but thinking smarter. By diversifying revenue, local governments can reduce dependence on volatile external funding and gain the stability needed to invest in infrastructure, housing, and public health.

Quality of Life as an Economic Imperative

The report’s findings underscore a critical truth: Livability and economic growth are inseparable.

Only 29% of local leaders believe their community’s quality of life is a strong driver of business attraction. Yet the factors they identify as most important – healthcare access, childcare, affordable housing, and local dining – are the same elements that determine where people choose to live and work.

Leading With Purpose and Partnership

Building community resilience requires integration. Fiscal health, housing, infrastructure, and workforce development cannot be addressed in isolation.

Local governments can take meaningful steps to strengthen resilience by diversifying their revenue sources, investing in a diverse economy that supports both large employers and local entrepreneurs, and prioritizing livability as a driver of both economic and human capital.

Indiana’s local leaders demonstrate that progress comes not from resisting change but from navigating it with purpose. Their work demonstrates how success depends on aligning fiscal responsibility, economic diversity, and community well-being within a unified strategy for sustainable growth.

Ready To Build What’s Next?

Using data as a foundation, KSM’s government consulting team helps local leaders create strategies for sustainable growth. Complete the form below to start a conversation about how we can help your community take its next step forward.