Indiana House Speaker Todd Huston

Republicans in both chambers appear to have reached a compromise on the state’s two-year budget, earmarking more than $1 billion for school vouchers while maintaining a commitment to pay down the state’s outstanding debt obligations.

It also accelerates tax cuts and provides additional funding to address the state’s mental health crisis.

“I’m super excited about the investments that we’ve made,” House Speaker Todd Huston, R-Fishers, said. “You go through ups and downs and lots of discussions but they all get to the best place.”

The deal reflects negotiations between the two caucuses, whose budget proposals differed significantly when it came to education priorities and reserves accounts. The final version hews closely to the initial House proposal under which roughly one-third of new K-12 funding went to voucher expansion – something senators initially rejected.

In terms of savings, the House held back just over $1 billion while senators more than tripled that number to $3.2 billion.

Both settled at $2.7 billion across reserve accounts – with an important caveat.

“Reserves over $3 billion … will go to pre-96,” Huston said, using the shorthand for the Pre-1996 Teacher’s Retirement Fund.

The budget eliminates the possibility of an automatic taxpayer refund in 2025.

No cigarette tax increase, 988 phone tax

The latest revenue forecast projected the state would collect an additional $1.5 billion in revenue, padding the state’s coffers and giving budget writers far more flexibility in their compromise.

Leaders kept true to their promise to increase funding for mental health, which grew from $35 million to $50 million annually with an additional $10 million for regional mental health facilities. But the commitment is lower than the $130 million annually that advocates sought.

“This is a good start and a big investment into that space in Indiana to start to address those needs,” Bray said.

However, leaders opted not to add a $1 monthly surcharge on cell phones as a form of dedicated funding for the service.

Earlier, bill author Sen. Mike Crider, R-Greenfield, admitted that large state reserves would make such a tax a hard sell, though it mirrors the $1 charge for 911.

Additionally, the compromise kept public health funding at its current level: $75 million in the first year followed by $150 million the next. That represents less than half of the original ask and roughly two-thirds of Gov. Eric Holcomb’s proposal.

The budget won’t include a cigarette tax, which House Republicans and Senate Democrats both proposed. Advocates said such a tax could be used to bolster public health funding, which is among the lowest in the nation.

Bray said with the $1.5 billion in projected revenue announced last week, legislators were reluctant to impose new taxes.

The press conference concluded before leadership could justify their increase for Real Alternatives, an anti-abortion program that will now receive $3 million the first year followed by $4 million the next – a compromise between the House’s $4 million and the Senate’s $3 million.

Sen. Ryan Mishler, R-Mishawaka, demurred when asked about a bonus 13th check or a cost-of-living adjustment (COLA) for teacher retirees. Rep. Jeff Thompson, R-Lizton, confirmed it wasn’t there but didn’t provide a reason.

“It’s just not there,” he said.

However, the budget included language for the Indiana Public Retirement System to study whether to include a 0.5% COLA annually moving forward.

Tax cuts coming in other areas

The Senate made a tax concession to House Republicans in the compromise, accelerating the projected income tax cuts but at a slightly slower pace than previously pushed.

Last session, both chambers agreed to cut Indiana’s individual income tax from 3.23% to 2.9% over seven years. The new proposal cuts that down to five years, or Jan. 1 of 2027. Acceleration of the rate reductions will save Hoosier taxpayers over $360M over the biennium, leaders said.

Democrats decried the income tax cut, with Rep. Gregory Porter saying it disproportionately benefited the wealthiest of Hoosiers.

“That’s what they do. They sped up the inheritance tax (cuts), they sped up corporation (tax cuts)… they speed things up thinking that it will pick up the economy,” Porter, D-Indianapolis, said. “And it just won’t. The only individuals who bill benefit from this are the wealthiest individuals, not those working men and women.”

Budget writers highlighted an estimated $70 million in additional tax cuts for Hoosiers, including an update to the Earned Income Tax Credit, an increased deduction for new parents and exemptions for active-duty military members.

Property tax relief remains undetermined, even as lawmakers prepare to sine die late Thursday. Whatever the General Assembly decides, relief for those Hoosiers who saw an average 18% increase won’t come until next year.

“We’ll make sure that we put guardrails on the amount of leverage people can expect,” Huston said. “The state of Indiana gets no money from property taxes. At the end of the day, it’s coming and going at a local level… we’re also imploring and asking our local elected leaders to show some restraint.”