Gov. Mike Braun detailed his first budget proposal Thursday, prioritizing small education increases and covering Medicaid while demanding big savings from agencies and cuts to a public health program.
The former school board member also had tough words for schools that might see a fiscal hit from property tax cuts he is pushing.
He specifically challenged his eight cabinet secretaries to identify 5% savings — “on average” — across the agencies they oversee in order to pay for priorities like education spending, universal vouchers and tax reform.
However, Braun didn’t have specific examples of savings, instead saying that curbing health care costs and the implementation of new technology could help. He didn’t rule out implementing another 5% cut in the next biennial budget — set to be drafted in 2027.
“There’s going to be some low-hanging fruit in there, but there’s nothing that’s not going to be looked at,” Braun said. “We’re just at the beginning of it.”But Rep. Greg Porter said he found common ground after learning more details Thursday afternoon, including a vow to eliminate the waitlist for child care subsidies and phasing out certain funding streams for the Indiana Economic Development Corp.
But Porter had issues with other parts of Braun’s budget, including education dollars diverted to expanding vouchers. And he expressed concerns about potential changes to how the federal government doles out dollars to states.
“I know that this is the first bite of the budget apple and we’ve got three more bites,” said the Indianapolis Democrat, who prefers Fuji apples. “Let us not be fooled: This is not it. We have a long way to go.”
The House will draft its own version of the budget followed by the Senate. The two sides will negotiate a final version in April.
Property taxes and schools
Senators have made Braun’s property tax reform their first priority this year following double-digit assessment growth in recent years — which hurt thousands of Hoosiers but hit those with low or fixed incomes the hardest.
The current property tax reform bill would amend the state’s homestead deduction, cap property tax growth at 2% for some Hoosiers and limit when schools can put funding referenda up for a vote. A fiscal note estimates local governments would lose $1.1 billion in the first year followed by at least $1.5 billion in the third year. Schools will take the largest hit in the first year at $536 million.
Senate Majority Leader Rodric Bray (R-Martinsville) told reporters on Thursday that the hit from property tax reform under Senate Bill 1 is a “work in progress.”
“I think our members have started to receive some comments from some local government folks who are concerned about what impact it might have. And so we’re going to take all that into consideration.”
Critics earlier panned Braun’s property tax proposal for the hit to local units of government without a replacement from state funds. Braun said that a third of counties had been “responsible” while other jurisdictions “are going to scramble.”
“Once we figure out what that reset is going to be, I would hope we minimally end up with a lid on what’s going to happen going forward so we never have that (growth) occur again,” Braun said.
School spending, more than half of the state’s $46 billion two-year budget, would get a 2% increase each year under Braun’s budget but will likely see income from property taxes shrink. When asked how those schools would cope, Braun said the school districts should save some of the incoming dollars in rainy day funds.
“The ones that poorly managed how they spent and overtaxed in the process are who we’re going to get back down to Mother Earth,” Braun said.
Other budget priorities for Braun include increasing public safety grants for school corporations, increasing teacher pay to a minimum of $45,000 and establishing back-to-school tax holidays.
But Democrats didn’t agree with Braun’s characterization of school deficits due to “mismanagement,” instead saying that state funding hasn’t kept up with inflation.
“The reason that the locals use property taxes to fund schools is because of the failure of the Indiana General Assembly to fully fund public education in the state,” said Sen. Fady Qaddoura, of Indianapolis, pointing to data from economist Mike Hicks.
“To claim on one side that schools are failing to manage their budgets while not funding 1 million students in traditional public schools … is not a bold strategic move,” Qaddoura summarized.
Other budget points
Much of the modest projected revenue growth over the next two years will be consumed by rising Medicaid costs, which Braun committed to “fully funding.”
Braun’s plan would have agencies collectively cutting state costs by $700 million over the next two years — or $540 million in the first year followed by $180 million in the next year.
Additionally, tax relief to Hoosiers — in the form of halting taxes on tips and retirement income as well as expanded tax deductions — would cut into state and local government budgets by a collective $696 million.
Braun would also trim $50 million each year from a recently enacted public health initiative —another blow to local governments that have used the funds to tackle dismal infant and maternal mortality rates alongside anti-tobacco efforts.
However, budget leaders under Braun stressed that such cuts didn’t mean job losses at state agencies, but rather through items like contracting and purchasing.
“We believe that by putting more money in Hoosiers’ pockets, we seek to spur continued economic job growth and help reduce the inflationary pressures brought about by national economic conditions,” said Lisa Hershman, the new secretary of the Office of Management and Budget.