State leaders say potential federal funding cuts unlikely to cause special session

U.S. Capitol Building in Washington, D.C. (Adobe Stock)

While the Trump administration considers billions in sprawling cuts across the federal government, state leaders must contend with uncertainty about how those actions could affect state programs related to Medicaid, education, public health and more—all while they work to finish the next two-year budget by an April 30 deadline.

House Speaker Todd Huston, R-Fishers, said lawmakers are being fiscally cautious in the few weeks they have left to craft the budget, knowing several changes being considered at the federal level could have big impacts in Indiana.

“We’ve always been really good stewards and positioned Indiana well and preparing for both sunny days and rainy days,” Huston said. “We’re going to make sure that we do that again this year, knowing that there is a certain level of uncertainty.”

Senate President Pro Tempore Rodric Bray, R-Martinsville, said legislative leaders are trying to build flexibility into their budget just in case it’s needed.

“We’re trying to read the tea leaves, but that’s really difficult to do,” he said. “We’re going to try and craft a budget that gets us through these two years and weathers the storms that might come our direction.”

State lawmakers are already facing tough decisions, thanks in part to Medicaid costs that have ballooned over the last few years and slower growth in tax receipts. The House has passed a budget plan, and the Senate is expected to release its version of the state budget next week.

Federal dollars account for more than 40% of Indiana’s total state sending. The Indiana Legislature allocates about $22 billion a year from state tax receipts. The federal government contributed about $23 billion in 2024, mostly through Medicaid and education. Indiana is one of the most federal funds-reliant states in the country, according to the Center on Budget and Policy Priorities.

Potential federal cuts could be expansive and impact grants and programs across state government. Medicaid alone, one of the largest state and federal expenses, could be impacted by $880 billion in cost-cutting through 2034.

Regardless of legislative efforts to pass a budget that is flexible, some observers say federal cuts could require the governor to call lawmakers back for a special session to reconcile funding disparities. Elected leaders, however, said they didn’t think that would be necessary.

Gov. Mike Braun told IBJ and another reporter last week that he didn’t expect any major funding changes necessitating a special session. He said Congress tends to punt issues that become difficult.

“Don’t hold your breath on things changing drastically,” he said.

Huston said that if a major change happens after lawmakers adjourn, state leaders would evaluate whether a special session is specifically needed. Some of the cuts, he said, would be over a long timeline so states might have time to adjust.

House Minority Leader Phil GiaQuinta, D-Fort Wayne, said it’s difficult to plan for potentially drastic federal changes but thought a special session is unlikely.

Still, public finance expert Robert Kravchuk told IBJ that every state, regardless of its financial situation, will likely be scrambling to catch up with changes.

“Frankly, I don’t know how you prepare for this,” Kravchuk said. “This is what we refer to in the academic world as a ‘regime of policy uncertainty.’ It’s very disruptive. You just don’t really know which direction you’re going to go in.”

What state leaders can do in the meantime, he said, is to stay on top of their budgets and work with their congressional delegation to learn about what might be coming. When crafting a budget, he said budget writers might need to cut services people have become accustomed to or postponing spending.

Earlier this year, House Democrats introduced a package of amendments meant to shift some state spending in areas such as school vouchers, to compensate for potential federal cuts. But those proposals were largely rejected.