Legislative leaders brace for mild recession ahead of budget-writing session
Arika HerronState agencies may want to prepare for disappointment ahead of the upcoming legislative session where lawmakers are set to start writing the state’s next two-year budget.
An updated revenue forecast released Thursday shows that legislative leaders won’t have enough money coming in to meet demand for new dollars. While tax revenues will drop slightly after several boom years fueled by pandemic-related stimulus spending, fiscal analysts are predicting a return to normal growth rates near 3% in 2024 and 2025.
That means the state will have roughly $600 million new dollars to spend each year — less than the more than $700 million in new requests that state agencies made over the last several days of budget hearings, said Sen. Ryan Mishler. Mishler, a Republican from Bremen, is the Senate’s top budget writer and a member of the state’s budget committee, which met this week.
“I think we need to be very cautious as we move forward,” he said.
Those requests also don’t include any additional spending on K-12 or higher education, new spending requests from fellow lawmakers or increased Medicaid expenditures. Mishler warned that lawmakers will have to make some tough decisions as they begin crafting the budget. They will receive one final revenue forecast before the budget is finished in April.
A tight budget also spells trouble for an increase in public health spending requested by Gov. Eric Holcomb’s administration. Mishler thinks lawmakers will “do something” to increase public health spending but not meet the original $240 million request.
The revenue forecast comes on the heals of a $1.2 billion tax cut the legislature approved in March. That bill eliminated utility taxes and included a phased-in income tax cut so long as revenue growth reaches 2% annually, which it's expected to at this point.
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Cris Johnston, director of the office of budget and management, said that the state is establishing a new economic normal post-pandemic. Johnston said Holcomb’s budget priorities will include the commission’s recommendations, in addition to education, workforce and economic development.
“I think this gives us the opportunity to consider all of those policy items and funding all of those,” Johnston said.
Rep. Greg Porter, a Democrat from Indianapolis and the ranking minority member on the House Ways and Means Committee, said he would push for fully funding the health commission recommendations and criticized the elimination of the state’s utility receipts tax earlier this year in the tax cut, which he called a corporate giveaway in a statement released after the budget committee’s meeting.
“High-wage employers have signaled they will leave Indiana for greener pastures if we don't invest in our people through public health and education,” Porter said.
The state’s economic forecast was also updated, Thursday. While experts are still projecting a mild recession, they’ve backed off earlier predictions of a more severe downturn. Analysts predict that the recession will start in the first quarter of the year before bouncing back later in the year. While still high, inflation has slowed recently, improving the economic outlook. While inflation is down, high prices are still driving up the cost of previously planned capital projects. Mishler said current construction projects are running about $1 billion over budget. The state is expected to have about $4 billion in reserves.
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Lawmakers will begin work on the two-year budget when the legislative session convenes Jan. 9.
Call IndyStar state politics and government reporter Arika Herron at 317-201-5620 or email her at Arika.Herron@indystar.com. Follow her on Twitter: @ArikaHerron.