Lawmakers slash state economic development funding by 25% in budget compromise

Funding for the Indiana Economic Development Corp. and its programs was slashed by 25% in what’s likely the final version of the state budget unveiled Wednesday evening.

The major drop in economic development funding is among a series of cuts made to the budget after lawmakers learned they’d have less to spend than they earlier anticipated. An updated revenue forecast released last week projected the state would have $2 billion less over the next two fiscal years than lawmakers expected when they wrote the spending plans that passed the House and Senate earlier this session.

At the same time, criticism of how the state conducts its economic development activities intensified this week after new reporting raised questions over the state’s relationship with a spun-off venture capital firm.

In the current 2024-25 state budget passed by legislators in 2023, funding for IEDC operating expenses and programs total $99.8 million. Plus, after an unexpected surge in projected revenue, lawmakers allotted the IEDC another $500 million to support closing deals with prospective companies.

However, the latest proposal for the 2026-27 budget totals $74 million, which cuts $19.3 million out of the already pared-down Senate-passed budget. Due to tight revenue projections, budget writers previously said not to expect any additional money for the deal-closing fund.

The budget proposal provides more funding for operations and business-promotion support, but cuts five funds and programs totaling $35 million.

“We still feel like we’re leaving Gov. [Mike] Braun and his team the proper tools, and we know they’ll use them well,” House Speaker Todd Huston told reporters. “I appreciate his leadership and looking at getting an audit done.”

The Governor’s Office said Thursday it is hiring an outside firm to produce an independent audit of the IEDC’s spending and accounts. 

And two weeks ago, Braun singled out the IEDC’s nonprofit arm while announcing an executive order focused on improving the transparency of state-affiliated nonprofits. The agency and its namesake foundation have filed missing transparency reports, which the Governor’s Office has said satisfied the order’s requirement. 

The actions stem from growing concerns over how the state conducts economic development activities, how much it spends on those endeavors and how transparent it is when conducting business.

Hannah News Service, which produces the Indiana Legislative Insight newsletter, published a sprawling account that raised questions about the IEDC’s relationship with Elevate Ventures, a nonprofit that serves as a venture capital firm for the state agency. The IEDC gives Elevate millions of dollars each year to invest in Indiana-related startups.

Policymakers from both sides of the aisle have said they are concerned about the allegations and support transparency measures of varying intensity.

“[IEDC officials] were not truthful, they were hiding, and now it’s all coming to roost,” Rep. Greg Porter, D-Indianapolis, told reporters. “So I’m glad that finally somebody is listening to us.”

The Legislature is expected to pass the budget bill by the end of the week. The Legislative session must end by Tuesday.

The details

Despite the overall funding cut in the latest plan, the IEDC’s operating budget would increase by about $3.2 million, from $9.5 million a year to $11.3 million.

Braun’s new small business and entrepreneurship office, which will eventually absorb some IEDC programming, would receive $1 million a year, instead of $1.75 million.

The state has been allocating $32.8 million a year to the 21st Century Research and Technology Fund, which is meant to support early-stage investors. Lawmakers cut the funding to $25 million a year.

Elevate Ventures, which has been under a microscope following the new allegations, receives funding for contracts and partnerships with the IEDC through the fund.

The bulk of the cuts come from cutting Manufacturing Readiness Grants, costing $20 million a year. The Skills Enhancement Fund ($5.75 million), Economic Development Fund ($947,000), direct flights fund ($5 million) and Industrial Development Grant Program ($4.85 million) were also scratched.

IEDC would see a $20 million increase to its business and promotion line item, which now totals $37 million.

Braun would also need to wait to create his Hoosier Workforce Investment Tax Credit, which was removed in this budget version. Under a $4 million cap, the tax credit would have incentivized businesses to provide worker training that leads to a wage increase.