Legislature may forsake Pence tax cut to favor education, transportation

House Speaker Brian Bosma, R-Indianapolis, said he expects his chamber's budget to direct more cash to K-12 education and public universities than the 1 percent increases Pence proposed, and that it is "certain" to include a "significantly larger investment" than the extra $347 million over two years that Pence's spending plan would pump into transportation.

As a result, Pence's proposal to lower Indiana's individual income tax rate from 3.4 percent to 3.06 percent could be partially or entirely squeezed out.

"It may be difficult to invest in all the critical needs that we have before us and still accept the governor's tax cut proposal," Bosma said. "That doesn't mean it's off the table."

Pence said Thursday that he plans to use his State of the State address next week to pitch his tax cut and the need to "hold the line" on spending. He said he has started meeting with all 150 members of the General Assembly to make his case.

The jousting comes as Indiana lawmakers work during their current four-month legislative session to craft a new two-year state budget expected to total about $29 billion.

Public elementary, middle and high schools, which account for about 55 percent of state spending, saw their spending frozen or, in some cases, decreased in recent years as Indiana weathered the recession.

According to fiscal forecasts, Indiana will take in about $1.2 billion more over the next two years than it did the last two. Those projections give lawmakers new flexibility and schools an opening to ask for more money.

Pence's budget — which his budget director, Chris Atkins, unveiled Tuesday in a State Budget Committee meeting — increases K-12 education funding by 1 percent, or $63 million each year. It includes an additional $64 million in the second year, which would be split among top-performing schools.

The tax cut he is proposing would reduce state revenue by $742 million over the two-year budget period, Atkins told lawmakers.

Without that money, Bosma said, extra cash for schools and both state and local governments' transportation needs would be hard to come by.

"That is where the tax cut difficulty comes," Bosma said. "If you're going to make these investments, we have funds available to do it on an ongoing basis, and you have to weigh that against not only the sustainability but the effectiveness of a small income tax cut — a small income tax cut per person that has a big impact, of course, on the state budget."

Pence's first State of the State address is set for Tuesday, and his administration will present his budget proposal to the House Ways and Means Committee next week. That committee is expected to advance its own budget proposal by Feb. 19.