State lawmakers tasked with crafting Indiana's next two-year spending plan likely won't have much new money to spend and may even struggle to cover the increasing costs of existing government programs and services, including education and Medicaid.
The revenue forecast presented to the State Budget Committee Tuesday estimates Indiana will collect just $800 million in additional General Fund tax receipts between January 2025 and June 2027.
The bulk of the extra money will come in over the next 18 months, with 4.5% year-over-year revenue growth projected for the current 2025 budget year, 3.3% growth during the 2026 budget year, but just 0.3% additional revenue, or $71.4 million, in 2027.
That's a far cry from the state's multibillion dollar annual revenue growth in prior years that enabled Indiana to boost spending on key priorities and pay cash for major infrastructure projects, such as the $1.2 billion Northwest Indiana Correctional Facility in LaPorte County.
Lawmakers were told the anticipated slowdown is due in part to the continued "soft landing" of the post-pandemic economy, along with the expected impact of forthcoming federal tariffs and mass deportation in a state known for making, importing and exporting manufactured products.
At the same time, Indiana is projected to need $232.7 million in additional Medicaid spending over the next six months, and $753.1 million more over the subsequent two years — effectively claiming all the estimated new state revenue.
State Sen. Ryan Mishler, R-Mishawaka, chairman of the Senate Appropriations Committee, nevertheless remains "cautiously optimistic" about Indiana's financial standing.
"While revenues are estimated to be stronger than anticipated, Indiana continues to experience expenditure pressures. The Medicaid program remains our largest revenue issue in the upcoming budget session, and I am very concerned about Medicaid's unmanageable rate of growth," Mishler said.
"In addition to Medicaid, we also have many inflationary expenditure pressures on our state budget that are increasing the cost of running Indiana's state government. As revenue begins to return to more historic levels and the pandemic stimulus funding ends, we need to ensure ongoing expenditures are not outpacing ongoing revenues."
That will depend in part on Republican Gov.-elect Mike Braun, who is scheduled to present his state spending plan for the July 1, 2025, through June 30, 2027, period to the Republican-controlled General Assembly shortly after taking office Jan. 13.
Braun has pledged to take an "entrepreneurial" approach to streamlining state government and previously said it shouldn't be hard to find ways of cutting at least 5% of spending from Indiana's approximately $22 billion a year in General Fund appropriations.
Though those cuts may need to be even deeper to maintain a balanced state budget, depending on how the trade tariffs and other policies endorsed by Republican President-elect Donald Trump, and the retaliatory tariffs likely to be imposed by other countries, impact Indiana's manufacturing economy.
Tom Jackson, principal U.S. regional economist at S&P Global, said the economic forecast he crafted, which was incorporated into the state revenue forecast, contains only an initial assessment of the supply-tightening effects of higher tariffs, reduced immigration, and resulting increase in inflation — partly offset by the stimulative effects of tax cuts and deregulation.
"We've tried to come up with what we think is reasonable," Jackson said. "We can't not do anything."
Hoosier Democrats, meanwhile, are calling for the April revenue forecast update to be moved to March so lawmakers can get a quicker read on the economic impact of Trump's policies before they're required to finalize and adopt a two-year state spending plan.
"Unlike the hit Broadway musical and blockbuster movie 'Wicked,' Indiana's revenue expectations are no longer defying gravity," said state Rep. Greg Porter, D-Indianapolis, the top Democrat on the budget-writing House Ways and Means Committee.
"It's promising that our revenue is climbing, but there are storm clouds on the horizon. We need to constantly monitor our revenue, remain flexible and stay vigilant."
The four-month Indiana legislative session is set to begin Jan. 8.
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