INDIANAPOLIS – Lawmakers’ biggest task this session is to craft a $28 billion (or more) two-year budget, and the battles within the spending plan are already shaping up.
An initial revenue forecast showed legislators will have more than a billion dollars in new revenue to play with, but that doesn’t make the job easy.
All budgets have their special challenges, said Sen. Luke Kenley, R-Noblesville – the budget architect in that chamber. One of my biggest challenges is figuring how to temper expectations. We can’t give everything. It’s easier when you have no money than some money.
Kenley and other budget planners will have to contend with schools seeking cost-of-living increases; grapple with adequately funding health care for the poor and a multitude of agency budget requests.
And incoming Gov. Mike Pence wants a permanent income tax cut.
The legislative session kicks off Monday and lawmakers in the House and Senate have until April 30 to finish their work or risk a special session. Republicans control both chambers and there are dozens of newer members with little or no state budgeting experience.
The largest portion of the annual budget – about $6.5 billion – is dedicated to K-12 education. And that is where much of the conversation will be.
Kenley and other Republicans often point out that the percentage Indiana spends on education outstrips other states. But that was a direct result of legislators fully taking over operational funding as part of a major property tax reform, and raised Indiana’s sales tax to pay for the additional costs.
Other states rely on property taxes for base education funding.
Ed Feigenbaum, who runs the political newsletter Indiana Legislative Insight, said the legislature didn’t increase education funding with that change – just shifted who pays via what tax. And since then there also have been cuts in funding.
Education is the biggest chunk and there are people who feel we’ve given education short shrift for too long, he said. Districts want additional resources to deal with basic increased costs in services.
A 1 percent increase each year costs the state about $65 million. And that doesn’t mean every district receives 1 percent more money to spend – it varies depending on enrollment increases or drops.
On the Democrat side we will be watching education spending, Rep. Phil GiaQuinta, D-Fort Wayne, said. It is a key priority for us.
House Ways and Means Chairman Tim Brown, R-Crawfordsville, said he would like to see school funding more directly tied to performance.
Kenley said he would like to see some overall school funding increase. But he also noted the legislature must come through with additional full-day kindergarten dollars. Lawmakers added more than $100 million to the program this year but only on a one-time basis.
He is less excited about a preschool program being pushed by House Republicans and House Speaker Brian Bosma.
Just 39 percent of Indiana 3- and 4-year-olds attend preschool, the seventh-lowest rate in the nation. Indiana also is the only state that doesn’t fund preschool.
Bosma said preschool is the next logical step and legislators will discuss ideas ranging from increased state oversight of preschools to a voucher program to give low-income families access to preschool.
I’m really having a hard time with that, Kenley said. I’m not sure we have full-day kindergarten properly funded at this point and that’s a brand-new program. So far, it seems like a feel-good subject with no details.
Brown also acknowledged that full-day kindergarten and preschool will likely compete.
Once past education, another huge chunk of the budget goes to Medicaid – a joint state and federal program providing health care for the poor and disabled.
In fiscal year 2012, the state spent $1.45 billion on the program and is scheduled to spend about $1.65 billion this year. Lawmakers had planned to spend more during both those years so there is a slight surplus currently built into the program.
Those numbers are scheduled to jump to about $1.9 billion in fiscal year 2014 and $2 billion in fiscal year 2015.
Some of the increase is general inflationary increases in health care services. Another portion of the jump is people who are already eligible for Medicaid but aren’t currently enrolled. Consultants predict many of these Hoosiers will enroll because of the individual mandate to have insurance set to go into effect nationally.
Those numbers don’t consider the possibility that some legislators want to expand Medicaid to cover more Hoosiers.
Initially this was a requirement under the federal health care act, but the U.S. Supreme Court struck that part of the law down, leaving it up to the states. The federal government will cover full costs of the expansion for two years after which the federal share would begin to decrease and state coffers would have to pay.
I think we’re still keeping an open mind on that, Brown said.
If there is no expansion, more than 300,000 Hoosiers would fall into a gap in which they make too much money to qualify for Medicaid but are too poor to qualify for federal subsidies on new health insurance exchanges.
Kenley is holding out for dramatic change on the federal level that would give states more freedom when it comes for Medicaid.
Feigenbaum said the uncertainty over the health care issues will take a lot of time during the session, and is partly why Bosma appointed physician Brown to head the House budget efforts.
The biggest budget fight, though, will likely be intra-party as Pence pushes a tax cut that his fellow Republicans – at least in leadership – are resisting.
The income tax reduction would be phased in over two years, eventually costing the state more than $500 million in tax revenue.
Brown said he hears more talk about how Indiana’s sales tax rate of 7 percent is not competitive for businesses than any grousing about the 3.4 percent income tax rate.
And Indiana tax revenues already tilt to sales tax, leading to concerns that an income tax cut would leave the state too reliant on one particular source of revenue.
Kenley said the legislature has already passed phased-in inheritance and corporate tax cuts, which make the income tax cut a harder sell still.
Feigenbaum also noted that gambling revenue continues to plummet – with recent admissions numbers coming in the lowest of any month since 1997.
Indiana also has an automatic taxpayer refund in place should the state surplus hit target levels. That happened this year and about $360 million is being returned to Hoosier taxpayers this year.
Maybe the automatic taxpayer refund should be used for a budget cycle or two to see if we truly have a surplus for a permanent cut. That gives us a way to test it, Kenley said.