Indiana Gov. Eric Holcomb’s budget proposal for the next two years calls for increases to funding for K-12, higher education and broadband internet.
The $35.2 billion budget, which Office of Management Director Cris Johnston and Budget Director Zac Jackson presented to the State Budget Committee on Wednesday morning, also restores the state’s reserve balance to $2.3 billion each year.
That’s something budget officials were uncertain would be possible to do so quickly after the state saw a deficit of nearly $900 million in fiscal year 2020 and had to dip into its reserves, dropping the fund level to $1.4 billion.
According to the budget proposal shared Wednesday, the state is expecting to have a surplus of nearly $30 million in fiscal 2022 and $243 million in fiscal year 2023.
Holcomb, a Republican, plans to target some of the new money toward K-12 education and is suggesting a 2% increase for fiscal year 2022 and an additional 1% increase in fiscal year 2023. That would mean about $377 million in new dollars going toward K-12 over the biennium.
Some Democrats have argued this should be even higher, since the governor’s Teacher Pay Commission recently concluded that $600 million would be needed to address the pay shortfall for Indiana educators.
But Johnston said the administration is still reviewing the recommendations from the commission, and Indiana schools will be receiving $800 million in federal funding from the latest pandemic relief package that Congress passed in December, which should help free up other money in school budgets.
For higher education institutions, which Holcomb asked to take a 7% cut in fiscal year 2021 to adjust for revenue shortfalls caused by the COVID-19 pandemic, funding would be restored in the new budget, plus an additional 1% each year.
The budget also includes an additional $100 million for Holcomb’s Next Level Broadband Grant Program, which the administration established in 2018 with $100 million in one-time dollars from an increase in the toll road fees for heavy vehicles. The program is designed to expand access to high-speed internet to rural areas of the state. To date, more than $79 million has been awarded for broadband infrastructure that will connect 21,900 homes and commercial locations in 41 counties.
And the budget includes $50 million for the new swine barn at the Indiana State Fairgrounds—a project that has been discussed since July 2019, when Holcomb initially suggested using surplus dollars to pay for it. But state lawmakers removed the swine barn from the list of projects to be funded with those surplus dollars during the legislative session last year.
The project involves demolishing most of the existing open-air structure and replacing it with a new 170,000-square-foot, climate-controlled facility that would be called the Fall Creek Pavilion.
State agencies, meanwhile, were initially asked to take a 15% cut for the next two years. But Jackson said about 90% to 95% of agencies were able to either not see any decrease in funding or have a less than 15% drop in funding.
The Indiana Department of Child Services is one agency that would receive less funding in governor’s budget, with appropriations dropping by about 5%, but Jackson said that’s because the agency’s case load has decreased from about 28,000 to 20,000.
“I mean, frankly, we’re managing a lot fewer cases and so in this instance right-sizing meant they didn’t need as much money,” Jackson said.
One item that is not in the budget as of now is money for body cameras for Indiana State Police—something Holcomb has said is a priority. Jackson said it’s not accounted for yet because officials don’t have a cost estimate. Once state police have a cost estimate, the budget could be updated to reflect that.
Indiana House Republicans have proposed creating a grant program for local law enforcement agencies to purchase body cameras, but funding for that is also not in the budget.
The governor is also proposing to create a $280 million capital projects reserves fund with dollars available in fiscal year 2023. This fund could be used for future projects, such as a new location for the Indiana School for the Deaf and Indiana School for the Blind and Visually Impaired.
In the current fiscal year, which runs through June 30, Holcomb plans to use more than $700 million in one-time dollars to pay off certain obligations and outstanding debt.
The extra revenue is coming from nearly $900 million in income tax payments that were deferred from 2020 to 2021 and $440 million in CARES Act money that the state has been able to use to reimburse itself for public health and safety payroll.
State budget officials also said that savings from state agencies were also better than expected. In May, the governor asked state agencies to take a 15% budget cut for 2021.
Holcomb has proposed using $302 million to retire debt from several capital projects, including the remaining bonds for the Interstate 69 project.
And he is suggesting using $400 million to pay down a teacher pension obligation. Holcomb initially suggested in his State of the State address last January that the state use $250 million to pay down this obligation in the 2022-2023 budget.
The new recommendation announced Wednesday increases the amount of the teacher pension obligation being paid off and bumps up the timeline to fiscal year 2021. The move is expected to save $69 million annually.
State Rep. Greg Porter, D-Indianapolis, said he doesn’t think paying off debt and pension obligations is the best way for the state to be using $702 million right now.
“I’m just trying to figure out why they want to pay for everything in cash,” Porter said.
Instead, Porter said, that money should be going toward programs to help Hoosiers impacted by the pandemic.
“Take care of essential workers and people that are on the front line that are dealing with this pandemic and dealing with evictions and rental assistance and utilities. Take care of the human infrastructure,” Porter said. “We have a missed opportunity to take care of individuals that reside in our state.”
Johnston said the administration did not consider spending the money on pandemic relief programs, because officials believe the federal funding has been adequate to address those needs and they don’t want people to expect those programs to continue once federal funding runs out.
“It is a balancing act to not create an expectation that we’re going to build this into the budget every year,” Johnston said.
Even with the additional one-time spending in 2021, Holcomb’s administration expects to end the year with a surplus of $107.3 million and build reserves back up to $2.27 billion.
In fiscal year 2022, the state’s reserves would be $2.29 billion, and in fiscal year 2023, reserves would be $2.27 billion, under Holcomb’s proposal.