Indiana lawmakers and Gov. Mike Pence drew closer to a budget compromise Thursday with the unveiling of a $30 billion Senate plan that cuts the state income tax by $150 million and establishes a new roads fund.
The Senate budget would keep much of the education spending House lawmakers wrote into the budget in February, but has sizable overhauls elsewhere — paying for an expansive statewide highway plan, curbing teacher pension debt and cutting a handful of taxes.
In adding at least a modest tax cut, Senate Republicans extended a hand to Pence, who has spent much of the last few months publicly and privately battling with House Republicans. Pence is pushing to cut the tax from 3.4 percent to 3.06 percent; the Senate budget lowers the tax to 3.3 percent.
"I am pleased with the latest version of the budget. I think we are getting on the same page but there are still details and differences in levels and priorities, and I believe those will be the subject of vigorous and respectful negotiations in the days to come," the governor said Thursday.
Senate Republicans proposed — on top of the personal income tax cut — decreasing the state's financial institutions tax by 2 percentage points and eliminating the inheritance tax, a measure already being slowly phased out.
"What we have is a mix of tax cuts, and I think we're more comfortable in the Senate with that broader package," said Senate President Pro Tem David Long, R-Fort Wayne.
Senate Democrats quickly pointed out that the income tax cut might sound large, but would work out to a savings of roughly a dollar a week for most residents.
"If it weren't so serious it would be a joke," said Sen. Lindel Hume, D-Princeton. "To have this reduction from 3.4 to 3.3 percent. I just feel most of the people in this state could care less about that dollar a week, we seriously need that money to fund this state."
Much of the budget debate this session has centered on how Indiana would use $2 billion in cash reserves and a roughly $500 million surplus. Pence submitted a budget in January that spent the vast majority of it on a 10-percent tax cut. But local leaders and school advocates pushed hard for the restoration of budget cuts that former Republican Gov. Mitch Daniels used to help build the state's coffers.
Senate Republicans' budget keeps a similar level of spending as laid out by House Republicans, but shifted spending in significant ways. Most noticeable: A plan that would put $200 million a year into a transportation fund dedicated to expanding Indiana's interstates.
IBJ reported Wednesday that Senate leaders were expected to push for more road-construction spending.
The money would be used to finance expansion of Interstate 65 and Interstate 70 to six lanes statewide and pay for another leg of the Interstate 69 extension. It would also pay for the Indiana Commerce Connector, an outer beltway which would stretch around central Indiana from Muncie to Martinsville.
There's no set timetable for when the lanes would be added or when work would begin on the commerce connector, Senate Appropriations Chairman Luke Kenley, R-Noblesville, said.
"If you don't make the commitment now, it will never happen," Kenley said.
The Senate plan also spends roughly $100 million more to pay down pension liabilities, including pension payments to teachers hired before 1996, a line item which could cost the state upward of $1 billion a year in a few years. Daniels dismissed the problem through his eight-year tenure, but lawmakers, including Kenley, pushed to invest more in the state's teacher pension stabilization fund.
The Senate also will require counties that don’t already have a wheel tax to adopt one before they can receive additional money. Most of Indiana’s urban and suburban counties charge a wheel tax.
The Appropriations Committee advanced the budget on a 9-4 party line vote Thursday. The budget now moves to the Senate and later will be hashed out in a conference committee with House negotiators.
House Ways and Means Chairman Tim Brown, R-Crawfordsville, said it was still too early to say exactly what the final product will look like, but it would be safe to bet on some tax cuts.
"I think very strongly there will, as this framework shows and our framework shows, there will be tax cuts. It's which tax cuts should be targeted and what's the impact" that must be decided, he said.