INDIANAPOLIS | State revenue is projected to grow an average of 2.55 percent a year during the two-year budget period that begins July 1, giving state lawmakers and Republican Gov.-elect Mike Pence choices they and Republican Gov. Mitch Daniels didn't have during recent lean budget years.
According to the bipartisan state revenue forecast issued Monday, Indiana is expected to take in $14.34 billion in the current 2013 budget year, which ends June 30. Revenue is slated to grow to $14.66 billion during the 2014 budget year, and to $15.09 billion in 2015.
What to do with the projected $750 million in new revenue will be the focus of many lawmakers when the Republican-controlled General Assembly convenes Jan. 7.
Pence has proposed cutting the state's 3.4 percent income tax rate to 3.23 percent in 2014, reducing state revenue by $261 million, and to 3.06 percent in 2015, reducing revenue by $534 million -- a total cut of $795 million.
State Sen. Karen Tallian, D-Ogden Dunes, said Pence's plan, if enacted, would prevent Indiana from investing in education, roads and every other state service.
"It's going to take away all the growth that we're forecasting, and it's going to leave us in the hole," Tallian said.
Pence claims his plan will work by limiting state spending and using rebuilt state reserves that in 2013 will go toward paying an automatic taxpayer refund.
"This revenue forecast is ... consistent with the growth we projected this summer and will allow us to recommend a budget that lives within our means, maintains reserves, funds our priorities and provides tax relief for every Hoosier," Pence said.
State Sen. Luke Kenley, R-Noblesville, chairman of the Senate Appropriations Committee, said he expects "a lively discussion" on budget priorities, but cautioned the forecast is just an estimate and said Hoosiers should wait for the revised April forecast before getting too excited.
"There's going to be a push to spend a lot of money on things that maybe haven't been spent in recent years, and there's going to be other pushes that say, 'Look, we started down the path toward a leaner, smaller government -- we need to keep going down that path,'" Kenley said. "I think it's going to be a big test for the Legislature to decide where they want to go."
Complicating that discussion will be the impact of changes to Indiana's Medicaid program required under the federal Affordable Care Act, also known as Obamacare.
Robert Damler, an actuary with the state-contracted firm Milliman, told lawmakers Monday that 92,000 Hoosiers eligible but not enrolled in Medicaid will sign up for the state-federal health insurance program once they're required by law in 2014 to have health insurance.
The additional Medicaid enrollees and other Obamacare-related changes are expected to increase the state's Medicaid expenses from $1.65 billion this year to $1.92 billion in 2014 and $2.10 billion in 2015, a $450 million increase over two years.
That estimate doesn't include the costs of an optional expanded Medicaid program that would provide health insurance to approximately 25 percent of Hoosiers, many of whom don't receive or can't afford coverage through their employers
Tallian said Indiana would be foolish not to expand Medicaid eligibility since the federal government pays the entire cost for the first two years, 90 percent of the cost after 2020, and it will free hospitals from the expense of treating patients without insurance.
"That's probably $4 billion in health care money coming in to the state of Indiana," Tallian said. "I don't understand how anybody can turn that down."