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Showdown shaping up on state budget 

All graphics included with this story are courtesy of the Indiana Office of Management and Budget and the Indiana Fiscal Policy Institute. Notes: "K-12 Education" includes the Pre-1996 Teachers' Pension Fund (as well as Post-1996 Teachers' Pension contributions that are the responsibility of local school corporations); "Medicaid" only reflects Medicaid Assistance (not Medicaid Administration); "Health / Social Services" includes FSSA (except Medicaid Assistance), DCS, and ISDH; "Pensions" includes the Public Safety Pension Fund, as well as the State Police, Judges, Prosecutors, and Legislators Pension Funds.
  • All graphics included with this story are courtesy of the Indiana Office of Management and Budget and the Indiana Fiscal Policy Institute. Notes: "K-12 Education" includes the Pre-1996 Teachers' Pension Fund (as well as Post-1996 Teachers' Pension contributions that are the responsibility of local school corporations); "Medicaid" only reflects Medicaid Assistance (not Medicaid Administration); "Health / Social Services" includes FSSA (except Medicaid Assistance), DCS, and ISDH; "Pensions" includes the Public Safety Pension Fund, as well as the State Police, Judges, Prosecutors, and Legislators Pension Funds.


By Olivia Covington The Statehouse File

Indiana House Speaker Brian Bosma said his chamber is likely to increase funding for education — including $7 million a year for a pilot pre-kindergarten program — in the new two-year state budget it will advance in the next month.

click to enlarge House Speaker Brian Bosma, courtesy of The Statehouse File.
  • House Speaker Brian Bosma, courtesy of The Statehouse File.

The program would allow about 1,000 students from low-income families that meet the same eligibility requirements as the state's current private school voucher system to access scholarships to pay for pre-kindergarten.

That program, plus extra funding for K-12 and higher education as well as transportation, could jeopardize Gov. Mike Pence's proposal to reduce Indiana's income tax rate from 3.4 percent to 3.06 percent.

New governor, new budget

Pence's budget director – Chris Atkins – presented the governor's $29 billion, two-year spending plan to the State Budget Committee on Tuesday. It boosts funding for schools slightly, adds new money for Medicaid, and redirects money now earmarked for state pensions to road construction.

click to enlarge Indiana Gov. Mike Pence - BY REBECCA TOWNSEND

The most controversial aspect of Pence's budget is his proposed 10 percent income tax cut, which legislative leaders say the state may not be able to afford.

Pence said that the tax cut, which equates to about $521 million per year, would help create jobs in addition to providing relief for Indiana families.

Pence also said his budget would fully fund the projections for new Medicaid costs. However, an expansion of Medicaid – which is part of the federal Affordable Care Action – is not included.

"My bias going forward is any expansion of Medicaid would have to be fiscally responsible, and it would also have to permit Indiana to expand in a way that reflected recent innovation in health care, namely our Healthy Indiana Plan," he said.

Pence did not say whether he was for or against the expansion.

The House leader's take

Bosma said the House's pre-kindergarten program would be a start — the state's first step toward funding pre-kindergarten for about 81,000 3- and 4-year-olds who could be eligible.

"Hopefully this places (students) in a better position to be prepared when they reach kindergarten and first grade. After completing the 20-year step of making funding available for every kindergarten student, the next step is to reach down into the pre-kindergarten arena," Bosma said.

Bosma also said he is confident that the General Assembly needs to pay more attention to investments in education and transportation.

The speaker said he thinks education should receive a greater funding increase than the 1 percent increases Pence has proposed for the next two years.

He said he doesn't think the House's budget will include Pence's plan to fund transportation through the state surplus because the $347 million Pence's budget is projected to infuse into infrastructure spending over two years is not enough.

Bosma also said that he is skeptical about Gov. Mike Pence's plan to cut state income taxes by 10 percent. He said he thinks it will be "difficult to invest in critical needs" without the $742 million over two years that the tax cuts would pull from the state's available revenues.

"The key here is sustainability," Bosma said.

Pence said he would make his case for the income tax cut in Tuesday's State of the State address.

"I truly believe that (a tax cut) in addition to the additional investments we were able to include on education and transportation makes this a very balanced proposal, and it will meet the needs of Indiana today, and it will meet the needs of Indiana going forward, and I believe with the tax cut in the center of it, it will get the Indiana economy going forward again," Pence said.

Figures include both forecasted and unforecasted revenues; Figures for FY05-08 are normalized for property tax reform; FY06 figures include $228.8M from Tax Amnesty program.
  • Figures include both forecasted and unforecasted revenues; Figures for FY05-08 are normalized for property tax reform; FY06 figures include $228.8M from Tax Amnesty program.

A word from the minority

House Minority Leader Scott Pelath, D-Michigan City, emphasized his party's budget priorities when he addressed his House colleagues on the opening day of the 2013 session.

"Now it is time to live up to our commitments to the overwhelming majority of kids who attend traditional public schools and their parents," Pelath said. "Restore the budgeted — and promised — investments in classrooms throughout Indiana.

"Embrace the longstanding recognition that a child for whom it is a struggle to even get to school in the morning needs extra help. And bolster investments with taxpayer value like full-day kindergarten and early childhood learning.These are investments in the next generation that will pay dividends for all of us in the long run."

Pelath also noted that if the General Assembly is wont to cut taxes, it should target its cuts to boost the middle class.

"Cutting rates on folks earning less than $50,000 or $100,000 is less neglectful of revenue," he said."So if tax cuts are in order, focus them on the workers who create the profits in our state.Otherwise, remember that our middle class is being squeezed everywhere, and the costs of health care, education, and safely getting to work stress all families."

Additional analysis

Last summer, the Indiana Fiscal Policy Institute issued its report "Indiana's Fiscal Condition: A Different Set of Policy Choices," which outlined the differences between the state's finances when Gov. Mitch Daniels took office (baseline expenses exceeding revenue by more than $820 million with an ever-widening chasm on the horizon) and the situation Pence inherits where revenue exceeds expenditures by more than $500 million and the state sits on reserve funds in excess of $2.1 billion.

The report, authored by IFPI President John Ketzenberger, noted that Daniels responded to the dramatic drops in state revenue associated with the recession by reducing the state's workforce back to 1970s-era levels, curbing health and human services spending and cutting education expenditures (which account for about two-thirds of every dollar the state spends) by more than $450 million.


Figures for FY05-08 are normalized for property tax reform - Figures are net of payment delays (FY05-FY08)
  • Figures for FY05-08 are normalized for property tax reformFigures are net of payment delays (FY05-FY08)

"Instead of repairing problems, the new policymakers will have to decide whether to spend down reserves," Ketzenberger wrote. "This task can be more difficult because there is pent-up demand among many constituents for new or additional spending and it is harder for policymakers to say no to them when there are reserve funds."

He predicted education and Medicaid is likely to dominate the budget discussion as it pertains to expenditures this session. As per revenue, Ketzenberger encouraged lawmakers to make tax-policy decisions "in concert with long-term spending and economic development strategies." He added, "Policymakers must resist the urge to cut taxes simply for the sake of cutting taxes."

Olivia Covington is a reporter for TheStatehouseFile.com, a news service powered by Franklin College journalism students and faculty. Rebecca Townsend contributed to this report.

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