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Lawmakers must incorporate an extra $1.5 billion into the biennial budget following Wednesday’s forecast. (Whitney Downard/Indiana Capital Chronicle)

By Whitney Downard

Indiana Capital Chronicle

April 19, 2023

The General Assembly will have another $1.5 billion under the latest forecast to incorporate in the two-year budget before session ends in just ten days.

“Indiana is doing great, investments are showing the fruits of our labor,” said Rep. Jeff Thompson (above, center right), R-Lizton. “It gives more flexibility and we’ll find a spot to land.”

Sen. Ryan Mishler (above, center left), R-Mishawaka, urged caution – noting continued increases projected under Medicaid as the rate of economic growth slows from the record-breaking pace of recent years.

“We’re just fortunate to be in (this) position,” Mishler said. “I’d rather be in that position than some of the other states that don’t have those opportunities.”

Several other states have reported far gloomier revenue forecasts for the coming years, including a $24 billion budget deficit in California and a $900 million deficit in Alaska.

The bulk of the updated revenue in Indiana comes from better-than-expected tax collections, specifically corporate tax returns.

The last-minute influx of money bears several similarities to the extra $2 billion lawmakers learned about in an April forecast during the final days of the budget-writing session in 2021. In that year, legislators resisted increasing education funding to bolster teacher salaries until the very last version of the budget.

What could change with the new forecast?

In particular, Mishler said that Senate Bill 1 was guaranteed to see an increase in funding to shore up the comprehensive mental health crisis system under 988. Whether that would include a line item or a monthly phone fee remains unclear.

“We’ll talk after this meeting about the cigarette tax, 988 (phone fees). Different things have been thrown out but this does add another option,” Mishler said. Federal law allows states to impose up to a $1 fee on cell phone bills to fund 988, which mirrors the current $1 fee Indiana charges for 911 call centers. The system hinges on three components: someone to call, someone to respond and somewhere to go.

In recent days, House Republicans and Senate Democrats have also proposed increasing the cigarette tax and dedicating those funds to improving Indiana’s lagging health metrics.

But Senate Bill 4, which allocates more funding to local public health departments, likely won’t be as lucky.

“That’s more than just the funding; I think you have a lot of members who have some issues with the bill itself,” Mishler said. “That’ll be a tougher one, probably, to increase the funding.”

Committee hearings on the latter bill stretched for hours and included misinformation on vaccines, COVID-19 and more. Indiana’s public health spending is some of the lowest in the nation but opponents maintained that the bill would erode local control.

Weren’t the House and Senate versions pretty different?

But where the two budget architects will meet in the final budget hasn’t yet been determined – and the $1.5 billion adds a new wrinkle to the negotiations.

Thompson and his caucus included an expansive increase in funding for vouchers combined with accelerated income tax cuts while senators prioritized paying down debt obligations and padding the state’s reserves.

With the support of House Speaker Todd Huston, a longtime proponent of expanding vouchers, the House budget included $1.1 billion to subsidize private education for families making up to $220,000 annually. Senators, on the other hand, kept the cap at $154,000 for a family of four.

The House opted to roll funding for textbooks and extracurricular materials into K-12 tuition support while Mishler and his caucus created a new line item.

“(Vouchers are) always an ongoing discussion… you ask the same question every year and it’s the same as it has been in the past,” Mishler said. “The number one (outstanding) is always education issues.”

The two versions of the budget also diverged when it came to reserve funding. The House had just over $1 billion in reserves, split across several accounts, while the Senate tripled that to $3.2 billion.

However, the Medicaid forecast, also updated on Wednesday, also had some increases – partially due to the “Great Unwinding” of continuous Medicaid coverage. That pandemic-era provision barred state governments from dropping anyone from coverage but also enhanced the federal payment.

In a typical year, the federal government covers 65% of Medicaid costs but under the public emergency and continuous coverage they covered 71.2% of costs – meaning Indiana will lose that extra funding.

Additionally, an analysis of Medicaid reimbursement rates, as called for repeatedly by members of the General Assembly this year, will require more monies and increasing ongoing obligations. Health care providers maintain that they must overcharge commercial insurance payers to make up for the shortfall from government insurance coverage.

Another issue yet to be decided: potential property tax relief, as proposed by Thompson in various measures.

“We’ve got some ideas but we’ll find out in the next couple of days,” Thompson said.

 

Across the aisle, Rep. Ed DeLaney, D-Indianapolis, said the windfall should be directed in ways that could help Hooisers but shared his doubt that Republicans would act. Early this week, Democrats noted that neither spending plan for education kept up with inflation.

“After today’s positive forecast, I expect we’ll see a renewed effort by House Republicans to enact a vast expansion of private school vouchers, accounting tricks to tuck away this surplus and limited interest in providing homeowners with meaningful property tax relief. Put plainly, there’s no long-term strategy on the part of Republican lawmakers,” DeLaney said in a statement.

Rather than pouring continued funds into economic development in a bid to compete with the “powerhouses” of Texas and New York when attracting businesses, DeLaney proposed shifting the attention to education.

“Let’s get back to doing what Indiana does best – supporting our great colleges, universities and schools. We can lower tuition, help families and limit student debt,” DeLaney said.

Legislators must finish drafting the budget before April 29, when they are due to sine die. Following the forecast, members will continue to finalize details behind closed doors before introducing the final version and approving it next week.

Indiana Capital Chronicle is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Indiana Capital Chronicle maintains editorial independence. Contact Editor Niki Kelly for questions: info@indianacapitalchronicle.com.

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