State tax revenue projected to grow, but new money will barely cover increased costs

State fiscal leaders heard some good and bad news about the state budget Monday morning in a highly anticipated revenue forecast that predicted tax receipts for the next two years.

The good news: The forecast shows predicted increases for the general fund—essentially the state's main checking account—of $442.8 million in fiscal year 2020 and $386 million in fiscal year 2021, annual increases of 2.7 percent and 2.3 percent, respectively.

That’s higher than what state lawmakers had been expecting. House Speaker Brian Bosma had previously estimated the state would have $300 million in new annual revenue.

Estimated revenues for fiscal year 2019 are also 1.1 percent higher than a previous forecast.

“I think the good news out of this budget forecast today is that the economy is going strong. That's why you saw the increases,” House Ways and Means Co-Chairman Todd Huston said. “It is very, very encouraging.”

The bad news: The new dollars twill barely cover the increased budget the Indiana Department of Child Services has requested and projected increases in Medicaid expenses.

DCS has asked for an additional $286 million per year from the general fund, to bring its total budget to $965 million per year for the next two fiscal years.

A Medicaid forecast also released Monday morning to the bipartisan State Budget Committee showed the state would need an additional $121.5 million in fiscal year 2020 and $123.1 million in fiscal year 2021. Medicaid is an entitlement, meaning the state does not have full control of the amount it spends on the program.

The combined budget requests for DCS and Medicaid total $407.5 million in fiscal year 2020 and $409 million in fiscal year 2021.

That would leave just $35.3 million in new money in fiscal year 2020 to spend on other state services—assuming other expenses remain relatively flat. But in the 2021 fiscal year, the projected DCS and Medicaid costs would exceed the projected increase in revenue by $23.1 million.

Senate Appropriations Chairman Ryan Mishler suggested DCS may need to find ways to be more efficient and reduce the amount the department is requesting.

“I’m not saying everybody is going to get what they ask for,” Mishler said.

The budget forecast isn’t good news for advocates of an increase in K-12 funding, something that Gov. Eric Holcomb and other Republican leaders have said they’d like to see in the budget.

“Even though the forecast is strong, we’re still going to have a very tough time with the budget, based on DCS and the Medicaid forecast,” Mishler said.

The Indiana General Assembly convenes in January to begin drafting the next two-year budget.