by: Whitney Downard
Indiana Capital Chronicle
In a sharp turnaround from the flush financial fortunes of the last budget cycle, Indiana’s projected revenue for the next budget cycle fell by $2 billion according to new forecast data released last Wednesday.
The current budget cycle for the 2025 fiscal year is also short by an estimated $400 million, though closing that gap will likely rely on reserves.
Indiana’s tax revenue is still growing but not at the rate anticipated.
The December forecast data included roughly $800 million in new revenue for the state over the next two years, though nearly all of that came in the first year. Now even that marginal growth is gone.
Much of the loss can be attributed to economic uncertainty, including worries about the impact of tariffs in the country’s most manufacturing-intensive state.
“When the U.S. gets a cold, Indiana gets pneumonia,” said Rep. Greg Porter, D-Indianapolis. “We’re a manufacturing state and (with) the tariffs and other issues out there in the federal government… this really affects our bottom line.”
According to an analysis from Axios Indianapolis, Indiana is the third-most reliant state when it comes to China, which imported $6.1 billion in Hoosier goods in 2023. More than half of that was in pharmaceuticals and medicines followed by oilseeds and grains from Hoosier farmers.
According to chief budget architects Republican Sen. Ryan Mishler and Rep. Jeff Thompson, “everything is on the table” when it comes to potential cuts.
“We just have a lot of tough decisions to make and we have to be disciplined,” said Mishler, R-Mishawaka. “K-12 education is the last thing we want to do anything with so I would prefer to put everything else in front of that.”
When it came to increasing so-called sin taxes— whether on gaming, cigarettes or alcohol, Thompson didn’t rule it out.
“All of those things have to be discussed,” said the Lizton Republican.
However both legislators were mute on the subject of legalizing marijuana with a heavy tax to buoy up the budget.
With a goal to finish the 2025 legislative session this week, lawmakers don’t have much time to identify potential cuts — though the two Republicans anticipated long nights ahead to meet that preferred deadline.
“We are extremely concerned for Hoosiers across the state, because the same underlying conditions that are impacting the state budget are impacting Hoosiers,” said Sen. Fady Qaddoura, D-Indianapolis. “From the price of goods and services to the challenges of those who rely on retirement funds to small businesses relying on their products that they ship.”
Qaddoura noted that Senate Democrats had pushed to incorporate sin taxes into the budget earlier in the week, adding that a $2 cigarette tax increase would bring in an estimated $800 million.
Moments after release of the downgraded forecast, the Indiana Chamber of Commerce called for the General Assembly to pull the trigger on that tax.
Democrats pointed to potential areas for savings, including pushing back anticipated income tax cuts and clawing back money from the Indiana Economic Development Corporation.
Qaddoura went even further, targeting the use of vouchers by wealthy families to attend private schools.
“I think if we’re looking at K-12 cuts, we definitely need to look at reversing the voucher program back to the 2021 level to be sure that the ultra-wealthy are not benefiting while we’re cutting … funding for K-12 education across the state,” he said.
Potentially the biggest bill in the 2025 session altered property taxes with an explicit goal to give two-thirds of homeowners relief, at a loss for local units of governments and school corporations.
Thompson said that effort, which has been signed into law by the Governor, doesn’t need to be revisited in light of the news about the state’s finances.
“I can tell you right now that the Indiana projected revenue is probably less than most locals. We’re probably in a tougher spot than they are,” Thompson said.
In a small spot of positive news, Mishler noted that the growth of Medicaid appeared to be slowing.
Medicaid rolls were just over 1% lower than previously estimated, a difference of less than 30,000 Hoosiers. More than 2 million residents rely on the program for their health care coverage.
But much of the program can’t be cut— meaning that the state will likely remain committed to spending roughly $10 billion over the next two years.
“We’re trying to make some changes to try to help us in the Medicaid space,” said Mishler, pointing to his efforts under Senate Bill 2.
Under Mishler’s bill, most able-bodied working-age adults would be required to work at least 20 hours a week to keep their benefits.