State Revenue Forecast Anticipates Mild Recession, Recovery in 2023

The State Budget Committee received presentations this week outlining economic trends and how those trends will impact state revenues over the next two years. The state revenue forecast will inform lawmakers as they set spending priorities and craft a budget for the next biennium. In the weeks leading up to the end of the legislative session, the predictions will be updated with more fiscal and economic data.

The forecast expects a mild recession in 2023 beginning in the first quarter with an anticipated recovery starting in the third quarter. Subsequently, total general fund revenues for fiscal year 2023 (July 1, 2022 to June 30, 2023) are expected to lag FY2022 actual revenues by $543.5 million or 2.6%. Economic indicators have been confounding, but a mild recession of limited duration will complicate fiscal management in the back half of FY2023 and potentially into the next biennium.

The forecast FY2024-25 is more positive with an expected $1.2 billion in additional revenue. Fiscal leaders in the Indiana House and Senate have remarked that as they meet with stakeholders, the requests for new state dollars have exceeded $2 billion for the next biennium. The fiscal predictions released to the budget committee indicate many of those priorities will be unattainable.

During the August special session, the Legislature enacted SEA 2, which obligates the first $1 billion of excess reserves to the Pension Stabilization Fund. The revenue predictions seem to cast doubt on the likelihood of that happening. Fiscal leaders will have their plates full negotiating other priorities such as increased public health spending, a second round of READI grants and increased pay for state employees. They will need to carefully balance the need for these investments with the constraints of the state’s financial situation.

Overall, the economic forecast for Indiana has highlighted the challenges that the state will face in the coming years. It will be up to lawmakers and fiscal leaders to find a way to address these challenges and ensure the long-term stability and growth of the state’s economy.

David Ober is the Indiana Chamber’s vice president of taxation and public finance. Ober, a native of Noble County, started with the Chamber in June 2022 and is a former state legislator and commissioner for the Indiana Utility Regulatory Commission.