Indiana

Indiana officials expect tighter state budget picture

INDIANAPOLIS (AP) — Indiana officials predicted Thursday that an economic downturn will dramatically slow growth in state tax revenue, which has fueled a booming fiscal surplus over the past two years.

A report submitted to the State Budget Committee forecast that tax revenues will fall slightly over the next six months and then increase by about 3% over the next two years. That’s well below the 14.4% increase in state tax revenue over the last full fiscal year, and has Republican House leaders questioning how much spending on schools and other essential items can be increased.

Much of the four-month session of the Republican-dominated legislature, beginning in early January, will focus on drafting a new two-year state budget, with Republican Gov. Eric Holcomb’s proposals poised to include a large increase in funding for local public health programs, which is being emphasized by the COVID-19 pandemic and a plan to make government employee salaries more competitive.

“I think we have to be very careful as we move forward,” said Senate Appropriations Committee chair Ryan Mishler, a Republican from Bremen.

Tom Jackson, an economist at S&P Global based in New York, told the committee that a “mild recession” is expected in 2023 as inflation and higher interest rates discourage consumer spending.

According to Mishler, state agencies have already outlined increased funding requests that exceed the roughly $600 million growth in tax revenue projected for each of the next two years. The Holcomb government has yet to propose how much additional state money should go to K-12 schools, which received increases of about 4.5% per year for an additional $1 billion in the last budget approved in 2021.

Key spending items discussed by Holcomb or Republican Legislative leaders include $500 million for a new round of regional economic development grants and $300 million over the next two years for the goal of public health funding of Indiana County from its current 45th national ranking to the national average. State officials have also raised concerns about inflation, which is pushing the cost of many construction projects beyond what lawmakers have allowed them to be.

Big increases in tax revenues and a $3 billion infusion of federal COVID-19 relief funds helped the state’s cash reserves triple over the past two years to $6.1 billion by the end of June. But lawmakers have since approved a Republican plan for a $200 per taxpayer rebate costing about $1 billion, after passing a plan in March that would increase the individual income tax rate in small increments from 3.23% to 2% by 2029 .9% decreases.

Democrats pointed to another Republican-backed move that eliminated a utility tax they say was billed primarily to large industrial customers and amounts to an estimated $220 million annual drop in sales.

Democratic Rep. Greg Porter of Indianapolis said the utility tax cut alone has cost the state coffers about $90 million since it began July 1, and compared it to a $300 million target of increasing public health spending.

“If we hadn’t done that, we would have had at least half of the money that was being requested by (the state health department) to take care of Hoosiers and make sure the public health departments were taken care of at that point,” Porter said.

This story is by Tom Davies of The Associated Press.

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