State lawmakers speak to the media Wednesday at the statehouse following the revenue forecast release.
IBJ photo
State lawmakers have $1.5 billion more to work with than expected in the fiscal 2023-2025 budget, according to revenue figures released by the Indiana State Budget Agency on Wednesday. But it’s unclear whether that money will be used for public health, expanding Indiana’s school voucher program or some other priority of the Republican supermajority.
Despite earlier predictions of a mild recession for the first quarter of 2023, state fiscal analysts say Indiana’s economy is performing better than expected this year as inflation slowed, consumer spending remained high and home sales rebounded slightly.
Projections show that Indiana is expected to collect more than $1.5 billion in revenue over the next two years than was predicted in the December forecast, opening up more funding as state lawmakers negotiate a two-year budget in the final days of the legislative session. Fiscal years in Indiana begin on July 1 and end on June 30 of the following year.
Revenue figures released by the Indiana State Budget Agency on Wednesday show sales tax revenues were 0.6% higher than predicted in the December 2022 forecast, while income tax revenues were 2.2% above projections and corporate income tax rates exceeded estimates by 6.3%.
State general fund revenue in fiscal year 2023 is expected to be 1.9% higher than December estimates, 2.7% higher in 2024 and 2.5% higher in 2025.
The updated projections were presented to the State Budget Committee on Wednesday.
“It just shows the investments we’ve made in the past are paying off and putting us in a strong position,” Sen. Ryan Mishler, R-Mishawaka, chair of the Senate Appropriations Committee, told reporters following the hearing. “However, the rate of growth is slow.”
Mishler declined to say exactly how the $1.5 billion windfall would be allocated, though he said that Senate Bill 1, a mental health funding bill, will likely get a boost.
House Republicans, meanwhile, will continue to push for accelerated income tax reductions, an expansion of Indiana’s school voucher program and additional investments in economic incentive packages.
“Our strong fiscal forecast is a direct result of Indiana’s conservative leadership continuing to make fiscal responsibility a top priority,” House Speaker Todd Huston, R-Fishers, said in written remarks Wednesday. “As the session clock winds down, I look forward to working with our Senate colleagues and the governor to finalize the state’s next two-year state budget, and I’m confident we’ll once again deliver results for taxpayers.”
Democrats, meanwhile, are expected to push for more funding for K-12 education, public health spending and property tax relief.
“Our goal as the Democratic caucus is to make sure we’re part of this equation,” said Rep. Greg Porter, an Indianapolis Democrat and the ranking minority member on the House Ways and Means Committee.
Rep. Ed Delaney, D-Indianapolis, expressed doubts about allocating additional funding to the Indiana Economic Development Corp., including another $500 million to the READI program—or Regional Economic Acceleration and Development Initiative—that is part of both the House and Senate budget proposals.
“Indiana won the railroad wars in the 19th century and the automobile manufacturing wars in the 20th century,” Delaney said. “We’re kidding ourselves if we think Gov. Holcomb’s READI program is going to win any modern economic war in the 21st century when economic giants like Texas and New York are able to pour billions of dollars into courting companies to relocate to their states.”
The House and Senate budgets also include $150 million for an IEDC site acquisition fund. The Senate budget offers $600 million over the biennium for a deal-closing fund, while the House proposal offers $500 million.
Lawmakers face an April 29 deadline to pass a budget.
Long-term outlook
Changes to Indiana’s economic outlook largely mirror those of the U.S. economy.
Resilient consumer spending has been the overriding feature of recent strength of the national economy, said Tom Jackson, principal economist at New York-based S&P Global Inflation, who presented the economic forecast to the State Budget Committee.
Inflation did not curb demand by as much as expected in late 2022 and early 2023, he said, and payroll gains have been supported by an increase in the labor force participation rate, which is higher than it was in early 2020.
But Jackson cautioned that stronger short-term growth adds risk for slower growth in 2024 and 2025.
“An economy that remains stronger for longer than previously anticipated risks leaving inflation uncomfortably and persistently above the Fed’s 2% objective,” Jackson said.
This story is by Peter Blanchard of the Indianapolis Business Journal.
