Indiana expects about a $2.4 billion bounce in revenue through 2023, joining the parade of states with healthier-than-expected revenue projections, which along with new COVID-19 pandemic-related federal relief is fueling debate on spending priorities.
Indiana raised its current year, fiscal 2021 general fund tax revenue projection by 2.6%, or $463 million to about $18.2 billion compared to its last revenue forecast in December. The fiscal 2022 estimate rose 5%, or $862 million to $18.1 billion compared to what the state believed in December, and 6.2%, or $1.1 billion to $18.8 billion for fiscal 2023.
Individual and corporate income taxes and sales taxes all will rise at stronger clips than anticipated late last year while gaming taxes will remain in negative territory until fiscal 2023, according to the report presented by the Indiana Budget Agency to the state budget committee Thursday.
“Our next two-year budget will place Indiana in the enviable position to make long-term, wise and historic investments,” Gov. Eric Holcomb said in a statement, naming schools, market-driven workforce development programs, law enforcement, and “transformational” infrastructure projects as beneficiaries.
The state also will aim to “pay off debt, and pay cash for once-in-a-lifetime state facilities assets,” Holcomb said.
The rosier revenue projections accompany the $3.1 billion the state expects to receive in direct relief from the American Rescue Plan signed last month by President Biden.
The improved fiscal forecast comes with the state budget deadline looming this month. Final versions adopted then go to a conference committee for debate along with the administration.
Holcomb, a Republican who enjoys GOP majorities in the legislature, earlier this year unveiled a fiscal 2022 and 2023 biennial budget with focused on what he called “fiscal discipline.” It calls for the restoration of reserves and the one-time use of $1.13 billion of funds with a goal of maintaining the state’s triple-A ratings and promoting recovery.
The budget would spend $17.5 billion in fiscal 2022 and $17.8 billion in fiscal 2023, up 2.8% in the first year and 1.7% in the second year.
About $300 million would go to pay down existing debt including $110 million of bonds for prisons and hospitals and the $192 million of remaining bonds issued for the Interstate 69 highway expansion project. The state entered into a public-private partnership for the project but ended up taking over it after the developer ran into cost disputes and financial woes.
Another $400 million would be funneled to the teachers’ retirement fund to prefund existing obligations in an effort to reach a 100% funded ratio in 2037. The prefunding would achieve $528 million in total savings.
The state’s budget reserves that are made up of a rainy day fund and various general fund and other account balances would be restored to pre-pandemic levels of about $2.3 billion. They ended fiscal 2020 at $1.4 billion.
The state suffered a more than 20% drop in tax revenues between March and June of last year.
The governor’s budget raises education funding by $377 million. It restores cuts made earlier in the pandemic to higher education and raises funding by 1% in the first and then second year.
The House Republicans’ version that passed in February closely resembles the governor’s proposal but would raise the cigarette tax to $1.50 from 99.5 cents and taxes electronic cigarette liquids. The Senate passed a plan earlier this month without the cigarette hike.
Both House and Senate versions rebuild state reserves. The House version provides a $378 million education boost while the Senate provides $408 million. They are mixed in incorporating other pieces of Holcomb’s plan such as paying down the teacher’s pension plan and state debt.
The Senate budget also begins to incorporate the $3 billion of ARP funds by outlining how about $900 million should be spent with a portion going toward infrastructure.
With the new revenue forecast in hand, Democrats are pressing for more generous funding for education and a teachers’ raise. Republican leaders called education funding a priority as a final budget package is reached but said that restraint is needed.
“We will continue to make smart, strategic investments, and keep our commitment to fiscal prudence and limited government as we conclude the budget process,” House Speaker Todd Huston, R-Fishers, said in a statement.