According to the Indiana Fiscal Policy Institute’s (IFPI) latest close-out brief, the State of Indiana wrapped up Fiscal Year 2025 with $2.5 billion in reserves and a $336.9 million surplus. That’s the headline. But dig deeper, and IFPI highlights a few important trends worth watching.

For starters, the fiscal year ended far better than expected. Back in April, the state was bracing for a $400 million revenue shortfall. Instead, actual revenues came in $170.6 million above the revised forecast—reaching $22.2 billion in total, a modest increase from FY 2024’s $21.9 billion.

Sales taxes, as usual, did the heavy lifting, generating over $10.6 billion (48% of total revenue). Income taxes—individual and corporate—came in at $9.5 billion (42.9%). That’s a solid showing considering Indiana has been phasing down its individual income tax rate since 2023, now sitting at 3.00% with plans to continue dropping it to 2.80% by 2032, assuming certain fiscal targets are met.

Still, IFPI notes that while the state met expectations, the overall surplus actually shrank from last year’s $421.4 million. And one fund in particular is flashing red: the Medicaid Contingency & Reserve Fund was drawn down to just $41.6 million—its lowest level since FY 2020—after a $139.4 million transfer was needed to cover reconciliation costs. With Medicaid spending on the rise, this could become a pressure point in future budgets.

On reserves, the state remains on solid footing. The $2.5 billion reserve represents about 11% of annual revenues—right in the recommended 10–15% range endorsed by budget watchdogs like the National Association of State Budget Officers. That includes:

  • General Fund: $676.5 million

  • Rainy Day Fund: $1.08 billion

  • State Tuition Reserve: $706.7 million

  • Medicaid Reserve: $41.6 million

One other detail the IFPI points out: the role of reversions. Agencies are expected to hold back a percentage of their budget—traditionally 2%, but bumped to 5% in the next two years. Those reversions quietly bolster the state’s bottom line and are an important but often overlooked piece of Indiana’s fiscal discipline.

In sum, IFPI concludes that while the state’s financial position remains strong, the outlook is not without risk. Revenue growth is flat, inflation pressures persist, and Medicaid liabilities are rising. That means Indiana’s “fiscally conservative” brand might soon be tested by the realities of modern public finance.