by Whitney Downard, Indiana Capital Chronicle
January 6, 2025
Lawmakers will convene Wednesday to begin drafting the state’s next two-year budget, determining how to spend approximately $44 billion dollars to fund government services such as schools, health insurance programs and infrastructure as well as tackling other fiscal issues.
A December revenue forecast predicted that most of the state’s modest growth would be consumed by increased Medicaid expenditures, limiting the number of new programs or expansions lawmakers can adopt in the next budget cycle. High-ranking Republican leaders have urged their colleagues to keep expectations — and budget requests — low, an adjustment after back-to-back years of unprecedented growth and blockbuster spending.
“Everything the state does right now is more expensive than it was last year. Everything is exorbitantly more expensive,” Senate Majority Leader Rodric Bray said last month, pointing to inflation as one driver of costs.
As in years past, roughly half of the state’s budget will go to K-12 education. The second-largest budget item will be Medicaid, which Bray, a Republican from Martinsville, said took up roughly 19% of the budget during the 2023 session, or 3% more than the previous cycle.
Outside of those two big expenses, the General Assembly has several looming decisions to make in the coming days that will determine the state’s trajectory beyond the two-year budget cycle.
“We’re going to have to really tighten up our belts and see where we are,” said Rep. Greg Porter, D-Indianapolis. “Because I believe whatever we do in this budget, in the next two years, will really move us in the next 10 to 20 years.”
Property Taxes
A key pillar of incoming Gov. Mike Braun’s campaign platform and first-year agenda include providing property tax relief to Hoosier homeowners, vowing to limit future growth and reset bills to 2021 levels.
Local units of governments flagged the plan for diverting funds from their coffers without any state assistance and lawmakers have struggled to adopt sweeping reforms, instead targeting small tweaks while property tax bills surged.
Still, lawmakers continue to field calls for reform, which overshadowed a Republican plan to further slash the state’s record-low income tax. A two-year task force dedicated to reviewing and reforming the state’s tax system ended with only vague recommendations, as detailed by chair Sen. Travis Holdman.
“To even come up with one bill to address one small issue, it would have taken us months and months to come up with a solution,” Holdman said. “I think we will land somewhere in the middle between what (Gov.-elect) Braun wants and what the legislature has in mind and what our constituents are telling us.”
The Markle Republican noted that any cuts to property taxes, which take away local funds for public safety and infrastructure, could be backfilled with local income taxes — potentially negating any attempts to lower bills. Additionally, lifting the tax burden on one population, such as homeowners, could shift the burden to others, such as farmers or businesses.
“So we’re looking at what we can do to not make any drastic changes and to ease into that. It’s going to take us some time to get there,” said Holdman.
Regardless, the upcoming legislative session won’t be able to alter any property owner’s 2025 tax bill — which has already been calculated by local governments.
Holdman said he intends to still file a bill to lower income taxes if revenues pick up — while another senator will file to eliminate the state’s tax floor on business personal property taxes, a long-standing goal of corporate lobbying organizations.
South Bend Democrat Sen. David Niezgodski said he intended to push for legislation expanding the tax credit for disabled veterans and increasing the credit available to renters from $2,000 to $3,000.
Raising revenue
In the last budget session, legislators opted to nix two separate taxes dedicated to health priorities: increasing the existing tax on cigarettes and implementing a monthly telephone fee to pay for behavioral health services.
Proponents say increasing cigarette taxes may bring some revenue but, more importantly, discourages Hoosiers from smoking — which drags down Indiana’s already low public health metrics. Critics note that any increased dollars will diminish as more Hoosiers quit smoking.
Behavioral Health Commission wraps up two-year study with $50M ask
Rep. Craig Snow said the state would also reap benefits in government programs, like Medicaid, if enrollees quit smoking.
“It’s been proven that there’s a direct correlation to the cost of Medicaid … as far as (tobacco) use,” said Snow, a Republican from Warsaw.
The House has passed such an effort multiple times, only for it to be defeated across the Statehouse in the Senate. Holdman, speaking generally, said he didn’t see new taxes being incorporated into the next budget.
“… I just don’t think, from the majority standpoint, there’s any appetite to increase taxes. We just need to tighten our belt,” Holdman said.
The second telephone fee would specifically support 988 services and associated behavioral health programs, such as in-patient mental health services and crisis stabilization units. Prior to the new forecast, behavioral health commissioners asked for an additional state investment to support such services — which would be covered by the $90 million raised through the phone surcharge.
They also estimated that a $1 increase on a 20-pack of cigarettes could bring in an additional $132.6 million annually.
Public health
Another health priority on the docket for 2025: funding for Health First Indiana, which distributed state dollars to local public health departments to tackle certain health metrics — including smoking cessation programs as well as infant and maternal health.
Prior to the influx of funds, Indiana had one of the lowest-ranking state investments in public health. In the first year, 86 counties divided up $75 million. By the second year, all 92 counties had joined the program and split the $150 million fund.
“It’s an issue that I like talking about because this is a huge, generational-type bill,” Sen. Ed Charbonneau said. “… it’s a paradigm shift. Because it’s the first time in many years here that we have focused on prevention.”
Charbonneau, one of the bill’s authors, said the idea had encountered a lot of skepticism from local politicians and colleagues. He credited former Sen. Luke Kenley with getting the bill passed, though stakeholders still worried that only a handful of counties would join the effort.
Proponents slashed their budget request in the hopes that the program would be able to prove itself and get more funding in the future, a shaky proposition going into 2025.
“I’ve encouraged all of the legislators that I can to go talk to the people in the county, talk to them about how it’s going,” said Charbonneau, R-Valparaiso. “… I have not had a person come back yet with a negative outlook on the bill.”
Even in a tight budget year, Charbonneau said that taking funds away from the program would be “devastating” and that those dollars needed to be protected.
Bray, who leads Charbonneau’s caucus, acted on his advice to consult with local departments and said his local public health leaders had “an awful lot of energy and enthusiasm.”
Such actions could improve the overall health of Hoosiers and eventually save the state money, he said. As with many agenda items for 2025, such savings inevitably circled back to Medicaid costs.
“I think that (it)’s going to have a positive result over the next few years as they really focus on things that are going to move the needle for the health of Hoosiers. And that will impact our Medicaid costs,” Bray said. “Without a doubt, a healthier workforce — a healthier population — is going to be better and less pressure on Medicaid.”
Lawmakers are scheduled to convene for the 2025 legislative session in Indianapolis on Jan. 8.
