The House approved an amended version of the two-year state budget this week on a party-line vote. The House Republicans’ budget appropriates approximately $43.3B for fiscal years 2024-2025. For comparison, Governor Holcomb’s proposed budget appropriated $42.9B for the biennium. Both versions of the budget anticipate healthy reserves at or above 10-12%. The Governor’s budget projected a structural surplus of $1.109B while the House version of the budget projects $1.045B for the biennium. Fiscal years for state government begin July 1 and end June 30 of the following year.
Taxes
The updated budget accelerates planned cuts to the individual income tax rate. The legislation cuts the rate to 3% in 2024 instead of the conditional 2026 in current law. A further reduction to 2.9% is planned for 2026 rather than 2029 as is in current law. The House majority estimates that accelerating the rate cuts will save Hoosiers $470M over the biennium. The budget plan also includes tweaks to individual tax deductions and credits with an estimated savings of $155M. Related to transportation, the budget plan extends to 2029 the indexing of the motor vehicle fuel tax and dedicates all motor vehicle fuel use tax revenues to fund transportation infrastructure.
K-12 and Higher Education
House Republicans went beyond the Governor’s recommendation for an 8% increase ($1.157B over the biennium) in K-12 education funding, opting instead for a 10.7% increase ($1.57B over the biennium). The amended bill maintains the Governor’s proposal to eliminate textbook fees, estimated to cost $121M additional per year. The House majority also includes a significant expansion of choice scholarships, also known as vouchers, by expanding eligibility to those earning up to 400% of the amount required to qualify for the free or reduced lunch program. The expanded eligibility means that a family of four with annual household income of $205K would qualify for the choice scholarship program. Additionally, the bill eliminates the required pathways for eligibility to receive a choice scholarship.
The House majority takes a different approach to funding for higher education, shelving the outcomes-based performance model proposed by the Indiana Commission for Higher Education. State institutions of higher education will see larger base appropriations with zero dollars committed to the outcomes-based performance model in FY24 and only one-third of what the Governor proposed for FY24 in FY25. The outcomes-based performance model was presented to the Commission for Higher Education in late 2022 and is intended to couple funding increases with improvement across a number of metrics.
Public Health
House Republicans and the Governor are far apart on increased spending to address poor public health. The budget amendment provides for $225M to create partnerships between state and local governments and health care providers to improve core public health services. The local government partner must match at least 25% of the state investment and provide a plan to be reviewed by the Department of Health to participate. The bill also enables a local unit to adopt a local option income tax for public health services not to exceed 0.01%. This leaves a lot of room for negotiation with the Governor and the Senate still has an opportunity to present their ideas on how to address public health.
Economic Development
The budget amendment includes another round of the Regional Economic Acceleration and Development Initiative (READI) set at $500M. Additionally, the budget eliminates the $300M per year appropriation for the cash performance grant program administered by the Indiana Economic Development Corporation (IEDC) and instead appropriates $500M for a deal closing fund. Surprisingly, the House majority has opted to appropriate funds in the current fiscal year for these initiatives and a number of capital projects including $481M for higher education institutions. The Governor’s budget proposal did not include any of these capital investments.
The House plan also alters two provisions supported by the Indiana Chamber. The amendment removes language that would have provided for refundability of the research expense credit. Further, a section in the Governor’s budget that would allow IEDC, subject to approval by the Budget Committee, to exceed the $300M aggregate amount of tax credits administered by the corporation has been altered. The aggregate amount of credits has been reduced to $250M, however, the ability to exceed that amount remains. The $150M site acquisition revolving fund for IEDC remains in the proposed budget.
Housing
Provides $75M in funding for the Residential Housing Infrastructure Assistance Program (HB 1005) which creates a revolving loan fund administered by the Indiana Finance Authority. Proponents of HB 1005 were advocating for far more than what is appropriated in the budget. Representative Miller stated during House the Ways and Means Committee hearing that 30-40% of funding requests for READI had some housing component and he believed the need was between $150-$200M.
Updates and Next Steps
The House considered floor amendments to the budget bill on Wednesday with most amendments coming from Democrats. An amendment from Rep. Jeff Thompson (R-Lizton), chair of the House Ways and Means Committee, made minor changes to the minority teacher scholarship fund and was approved by a voice vote. A pair of amendments offered by Democrats were approved by the House. One augments the appropriation for domestic violence prevention by $3M, going from $5M to $8M. A second amendment provides that state dollars appropriated for community corrections programs cannot be transferred to other funds and do not revert to the state general fund at the end of the fiscal year.
Perhaps the most controversial amendment considered by the House was a motion offered by freshman Rep. Lorissa Sweet (R-Wabash), which prohibits state funding for the Kinsey Institute for Research in Sex, Gender, and Reproduction. The Kinsey Instituted is based on the Indiana University campus in Bloomington. The amendment was adopted on a largely party-line vote with 53 Republicans voting in favor and all Democrats plus seven Republicans voting against the motion.
The House version of the budget was adopted Thursday along party lines. House Bill 1001 has been referred to the Senate, which will amend the bill to include that chamber’s spending priorities for the coming biennium.
