It was supposed to be a day about good fiscal news.
Indiana officials gathered at the Statehouse on Wednesday to release the state’s Annual Comprehensive Financial Report for fiscal year 2026 — a AAA credit rating, a roughly $1.6 billion annual surplus, restored Medicaid reserves, and a governor arguing the state is some $2 billion better off than anyone expected.
Instead, the day turned into a fight over minority- and women-owned business contracting.
Tucked into the same briefing was Gov. Mike Braun’s announcement that Indiana will unwind the race- and sex-conscious provisions of its 43-year-old contracting program — a move made possible by an opinion Attorney General Todd Rokita issued the day before, concluding those provisions are unconstitutional and that the governor may stop administering them without waiting on a court or the General Assembly.
By late afternoon, House Democrats were accusing Braun of behaving like an “imperial governor,” and the surplus numbers had become a secondary story.
Rokita’s opinion, issued Tuesday as Official Opinion 2026-3 at the request of Indiana Department of Administration Commissioner Brandon Clifton, runs 43 pages. It concludes that every race- and sex-conscious feature of the Diversity Business Enterprises Program — the numerical spending goals, the certification of firms as minority or women’s business enterprises, and the technical assistance IDOA provides to those firms — violates the Equal Protection Clause of the Fourteenth Amendment.
The program, first established in 1983, requires IDOA to set annual participation goals derived from a statistical utilization study conducted every five years. Contractors bidding on state work subject to a goal must submit a subcontractor plan showing how they will meet 100 percent of it or apply for a waiver by documenting good-faith efforts. Bids can be rejected. Contractors who fall short during performance can face withheld payments, cancellation, or debarment from state procurement for up to three years.
Rokita argues that structure fails strict scrutiny at every step. Under the U.S. Supreme Court’s 2023 decision in Students for Fair Admissions v. Harvard, race-based government action survives only where it remedies specific, identified instances of past discrimination that violated the Constitution or a statute. The DBE program, he writes, rests almost entirely on the state’s 2020 disparity study, which aggregates data statewide, across many public and private decisionmakers, and across three broad industry categories — a level of generality he says cannot establish that the state itself intentionally discriminated.
He also uses the state’s own numbers against the program’s design. The 2020 study assigned Hispanic-owned businesses a disparity index of 20 and Native American-owned businesses an index of 4, while Black-owned businesses registered 98 and Asian-owned businesses above 200 — the latter indicating those firms received more state procurement dollars than their market availability would predict. Yet the statute directs IDOA to set a single uniform goal covering all of them.
Beyond the equal protection analysis, the opinion lays out a theory of “executive declination” drawn largely from federal Office of Legal Counsel opinions. Rokita argues the governor may refuse to implement a statute where it is clearly unconstitutional and where the constitutional defect is one that ordinary judicial or legislative correction is unlikely to reach.
Both conditions are met here, Rokita writes, because his office has been unable to identify a single lawsuit challenging the statute in more than 40 years, and because the General Assembly has amended the DBE statute four times since SFFA was decided — including replacing “chairman” with “chairperson” — without touching its race- and sex-based provisions.
In a footnote, Rokita adds that he would decline to defend the MBE and WBE provisions if the state were sued over them.
The opinion preserves the DBE statute’s preferences for veteran-owned businesses, which carry a flat 3 percent statutory goal, were enacted separately in 2020, and rely on a different certification system. The five-year disparity study, which Rokita concedes is not itself unconstitutional, does not survive, because it depends on MBE and WBE data that would no longer be collected.
Rokita also blessed, in general terms, a replacement built around veteran status, small business status, and Indiana domicile — cautioning in a footnote that IDOA should not use those categories as proxies for race.
The rollout
At Wednesday’s briefing, Secretary of Management and Budget and Chief Operating Officer Lisa Hershman said the administration is developing a broader small business program aimed at being “more inclusive,” one that would allow many current diversity-program participants to compete as prime contractors rather than only as subcontractors. Existing contracts will be honored, she said, to avoid disruption.
Braun framed the shift as compliance with the Supreme Court. Indiana is moving to a standard of “merit, excellence, innovation,” he said, and away from systems that “pick winners and losers.” He said existing contracts will not be affected and that the change was necessary to avoid “unintended consequences.” He also said “discrimination [and] bigotry will not be tolerated” in Indiana.
The contracting news landed inside a briefing otherwise devoted to the state’s balance sheet. The comptroller called the ACFR the “material evidence” of Indiana’s financial health. Hershman said the administration has held growth of state government to 1 percent, down from 3.9 percent in fiscal 2025, by “budgeting with prudence, not optimism,” and said the state has evolved from “balancing a checkbook to managing an investment portfolio” — pointing to a $200 million childcare commitment.
State Budget Director Chad Ranney reported general fund revenue grew nearly 7 percent to just over $24 billion, producing a roughly $1.6 billion annual surplus and combined balances approaching $4 billion, with about $470 million restored to Medicaid reserves. Ranney said the governor’s gas tax suspension does not touch those figures because fuel taxes are dedicated to road funds. Hershman said reimbursements to local governments will run through the State Board of Finance, with initial payments expected in early August.
Braun, speaking separately, said efficiency measures and an internal reorganization of roughly 70 agencies and 30,000 employees have left the state about $2 billion better off than expected. He cited unemployment falling from 4.4 percent to 3.3 percent and GDP growth he said is twice Illinois’ and Ohio’s and six times Michigan’s.
Pressed on Lt. Gov. Micah Beckwith’s comments about banning the Muslim call to prayer and his support for a rally backing mass deportations, Braun declined to endorse or condemn the specifics, urging public officials to “think before you say it.”
The response
House Democrats used the same day to attack both halves of the message.
Democrats put the overall surplus at roughly $6 billion — “20-25% more than what we really need” to run state government, one lawmaker said — and noted forecasters were warning of more than $1 billion in shortfalls a year ago. With layoffs at Indianapolis Public Schools, Muncie and in Hamilton County, they said the State Board of Finance could move money to tuition support and the Child Care and Development Fund now, without waiting for the next budget session.
On contracting, one Democratic legislator, an attorney, argued there are no legal preferences in the statute at all, only participation goals, and pointed to the attorney general’s own acknowledgment that no business has sued over the program in nearly 40 years.
He accused Braun of acting as an “imperial governor” by declining to enforce a law the legislature passed and the courts have never reviewed, and warned that the precedent raises the question of which other statutes a governor might choose not to honor.
Democrats also faulted the timing, coming during the Indiana Black Expo Summer Celebration, calling it a signal to minority- and women-owned firms that “you don’t matter.” Community and business leaders, they said, would “fight back.”
