Indiana legislative preview: $1.2 billion extra will go fast

With a new governor taking office and newly-minted Republican supermajorities in the House and Senate, the Indiana General Assembly is convening a four-month session that must end by April 29. Their single "must" item during that period is writing a new two-year state budget worth around $29 billion.

According to the latest revenue forecasts, they'll have about $1.2 billion more to spend over that two-year period than in the past two years – so the question lawmakers will have to answer is how they should spend it.

That extra cash could be burned through quickly.

New Medicaid forecasts project as President Barack Obama's health care law comes online in 2014, even if Indiana opts not to pursue the expansion that law originally envisioned, individuals who are currently eligible but not signed up will seek benefits due to the mandate that all Americans have health insurance.

That reality — and the possibility the rates paid to health care providers who treat Medicaid recipients would need to be increased, due to the influx of new patients — could drive up state spending.

"Just on face value, that (extra $1.2 billion) appears to be very positive. However, the fact of the matter is, we have costs that we have to pay no matter what, just like any other business or household or individual," said state Rep. Suzanne Crouch, R-Evansville. "When you factor in the increase in the cost of services, and the increase in people who will be getting services through the Affordable Care Act, we aren't going to have that much money available for new spending."

Meanwhile, Republican Gov.-elect Mike Pence is pursuing a reduction in the state's income tax from 3.4 percent to 3.06 percent. He wants that phased in over two years, and if he gets what he wants, it could chip about $750 million out of that $1.2 billion.

The state is already reducing its corporate income tax from 8.5 percent to 6.5 percent and phasing out its inheritance tax over a nine-year period. House Speaker Brian Bosma, R-Indianapolis, has said he'd rather use the extra money to speed up the inheritance tax phase-out.

Bosma and Senate President Pro Tem David Long, R-Fort Wayne, have said they'd also like to boost what the state spends on K-12 education – an area that's seen few increases in recent years as lawmakers and outgoing Gov. Mitch Daniels tightened the state's fiscal belt to weather the recession.

And a host of other priorities – boosting transportation funding now that cash from the $3.85 billion "Major Moves" deal is spent or allocated, launching a state-funded pre-kindergarten program and more – are also on the horizon.

The first political question is how the Republican-dominated legislature will handle Pence's push for an income tax cut. Bosma has expressed skepticism, and Long has said he has reservations, as well.

"There's no denying the fact that legislative leaders have taken a real wait-and-see attitude" on Pence's plan, said John Ketzenberger, president of the Indiana Fiscal Policy Institute and a long-time General Assembly observer.

State Sen. Vaneta Becker, R-Evansville, said she'd rather see that $750 million or so spent elsewhere.

"I think if we have money, maybe we should be phasing out the inheritance tax quicker rather than cutting income tax. Historically, when [an income tax cut] happens, most people really don't realize they got the break," she said.

"It's something we can look at, but I think before we do that, we need to restore cuts for education as well as services for the developmentally disabled."

Southwestern Indiana's lawmakers say their priorities range from bolstering the state's child services agency to increasing funding for education – including for pre-kindergarten, which Indiana currently does not fund.

Becker said she will push to provide public pre-kindergarten funding through a $4 million pilot program. It would have the state provide grants similar to those it gives schools that offer full-day kindergarten.

"If we want our schools to compete and if we want our students to do better, then we have to be willing to put our money where our mouth is," Becker said.

She said this year's support of the Indiana Chamber of Commerce, businesses' powerful lobbying arm, "can help make a difference" in getting such a pre-kindergarten program approved."

"I think it would really go a long way to ensure that especially those students that are at risk get the kind of early childhood education that would benefit them. A child that comes to kindergarten behind never really catches up," Becker said.

Democratic state Rep. Gail Riecken of Evansville said she'll focus her time on a measure aimed at improving Indiana's Department of Child Services.

The plan calls for $9 million more per year to be spent so the agency can hire 130 new case managers and 26 new supervisors as it transitions from a state-run hotline back to local-level decision-making authority.

The idea emerged from a bipartisan committee that studied the agency's troubles over the summer. Riecken said she's looking for Republicans to co-author that bill and others, since the GOP dominates both chambers.

"You're going to find that folks are pretty committed to making sure that the system is improved, and that's going to take some money to improve that system," Riecken said.

Rep. Kevin Mahan, the Hartford City Republican who co-chaired the study committee, said giving the agency that funding "needs to rate very high" as a priority for lawmakers.

"We're talking about the safety of children. We're talking about some of the most vulnerable Hoosiers that we have in society. I certainly know I'll be doing my part to make sure that everyone knows how important this is," Mahan said in November.

Crouch said she hopes to help the Indiana University School of Medicine's Evansville branch establish a full four-year program for students working to become doctors, rather than its current two-year program that leads to those students shifting to other campuses to complete their studies.

"While that big funding need won't be for this biennium, it very well may be that we'll need to provide some seed money to get the project moving in terms of engineering or design," Crouch said.

"We have one of the largest hospital facilities in beds available to train and have graduates and have expanded residency programs. That is an issue that not only would benefit Southwest Indiana in the health field, but also economically."

Among the most tricky financial issues this year — one key to Southwestern Indiana, since the state still must fund the Bloomington-to-Indianapolis portion of the Interstate 69 extension — could be transportation.

With more drivers using fuel-efficient vehicles and inflation continuing over years, the state's 18-cents-a-gallon gasoline tax does not go as far as it once did. Congress, meanwhile, is tightening its fiscal belt, which likely means less federal funding for states. And the Major Moves lease cash has now dried up.

One possibility lawmakers have discussed is using gas tax revenues solely for infrastructure projects, rather than using it to also fund the Indiana State Police and the Indiana Bureau of Motor Vehicles. That could mean an extra $120 million or so for transportation – a temporary boost, although it would also mean shifting those $120 million in expenses onto the rest of the state's budget.

Ketzenberger said that could be a stop-gap solution while Pence convenes a blue ribbon panel he's announced that will study Indiana's infrastructure needs and the funding it would take to solve those needs. Then, lawmakers could address the problem with a more comprehensive solution in the coming years. Meanwhile, state Sen. Luke Kenley, the powerful Noblesville Republican who is the Senate Appropriations Committee chairman, has floated the idea of a surtax ranging from $20 to $50 on license plates, with the money all being directed to funding transportation.

Local lawmakers said the problem exists not just with the state but with municipal governments.

"There's just not the money there to improve the roads, even to maintain them. I haven't heard a lot of discussion other than there's a lot of frustration. That's going to be on the top burner. I'm just not sure how we're going to deal with it," Riecken said.

Outside the budget, lawmakers are certain to tackle a number of other issues.

One Southwestern Indiana lawmakers say they'll focus on is tackling the state's methamphetamine problem.

Becker said she'll author a measure that would launch a two-year pilot program allowing counties to require prescriptions for over-the-counter cold medications that contain pseudoephedrine, a key meth-making ingredient.

She said a two-year trial that includes an urban county such as Vanderburgh, which had the most meth busts in the state last year, and a rural county, ought to give lawmakers enough evidence to determine whether such a requirement would be worth expanding.

It's an initiative that Evansville Mayor Lloyd Winnecke has said he'll champion, as well.

"I think one reason it hasn't been addressed at all is because meth is not the drug of choice for Indianapolis. Cocaine is the drug of choice," Becker said.

"Some bills you file for educational purposes. We could get information if we had a rural county and an urban county look at this issue in depth and see what the results are for them. If we see a drop in those counties, then it would give us an idea and give us information for going to a full statewide prescription."

There are social issues that loom, as well. Lawmakers could vote on a constitutional ban on gay marriage or any similar legal status. If they do, and it passes, then voters would get the final say in a 2014 statewide referendum.

Other so-called social issues could emerge, too. State Sen. Dennis Kruse, R-Auburn, filed a measure that would allow school districts to require the daily recitation of the Lord's Prayer. But on Friday, even Kruse admitted that measure is going nowhere.

Gun laws will be a hot topic, as well. State Sen. Jim Tomes, R-Wadesville, has authored a measure that would allow Hoosiers to bring their lawfully-owned concealed firearms into many state government buildings.

Meanwhile, Indiana Attorney General Greg Zoeller says he's backing a bill introduced by state Sen. Pete Miller, R-Avon. It would set aside $10 million for matching grants for schools that want to hire law enforcement officers for safety purposes.

And the proposed coal-to-gas plant in Rockport could get another look, even though at this point it has cleared its state-level hurdles, as lawmakers express concern the 30-year fixed contract to have the state buy and then resell its synthetic natural gas might result in higher utility bills, at least early on.

"I don't think anybody wants a raw deal for the ratepayers," Riecken said. "I think Rockport has a shaky future."