Indiana’s budget basics

According to the National Association of State Budget Officers (NASBO), Indiana’s total expenditures in fiscal year (FY) 2020 were $38.7 billion, including general funds, other state funds, bonds, and federal funds. NASBO reported that total expenditures across all states in FY 2020 were $2.3 trillion, ranging from $4.7 billion in Wyoming to $337.7 billion in California.

Each state allocates spending and taxes differently among different levels of governments, and local governments often administer programs with state funds, so combined state and local government data show a more complete picture of individual benefits and contributions when comparing states.

Per the US Census Bureau, Indiana’s combined state and local direct general expenditures were $53.0 billion in FY 2017 (the most recent year census data were available), or $7,961 per capita. (Census data exclude “business-like” activities such as utilities and transfers between state and local governments.) National per capita direct general expenditures were $9,446.

Indiana’s largest spending areas per capita were public welfare ($2,094) and elementary and secondary education ($1,534). The Census Bureau includes most Medicaid spending in public welfare but also allocates some of it to public hospitals. Per capita spending is useful for state comparisons but is an incomplete metric because it doesn’t provide any information about a state’s demographics, policy decisions, administrative procedures, or residents’ choices.

Indiana’s combined state and local general revenues were $55.6 billion in FY 2017, or $8,343 per capita. National per capita general revenues were $9,592. Indiana uses all major state and local taxes. After federal transfers, Indiana’s largest sources of per capita revenue were charges ($1,630), such as state university tuition and highway tolls, and general sales taxes ($1,135).

Indiana’s politics

Governor Eric Holcomb, a Republican, was elected in 2016 with 51 percent of the vote. The next gubernatorial election is in 2020.

Republicans control both the House of Representatives (67 Republicans to 33 Democrats) and Senate (40 Republicans to 10 Democrats), with veto-proof majorities in both houses. Control of the governor’s mansion and each house of the legislature gives Republicans a trifecta in Indiana. All Indiana House seats are on the ballot in 2020 because representatives serve two-year terms. Senators serve four-year terms; roughly half the senatorial seats are on the ballot in 2020, and the other half will be up for election in 2022.

Indiana’s budget institutions, rules, and constraints

Indiana uses a biennial budget. The legislature is not required to pass a balanced budget, nor is the governor required to sign one, and deficits may be carried over into the following year. However, the state has budget rules that require lawmakers to balance revenues and expenditures. Indiana further limits spending growth through a statutory formula, but the spending cap may be overridden by a simple legislative majority. The state limits total authorized debt incurred by the state but not debt service.

(Note: Some states have informal budget institutions that constrain overall spending growth or a specific expenditure’s growth.)

Indiana’s recent fiscal debates

• After years of negotiation, Indiana and the federal government agreed on a modified Medicaid expansion in 2015. As in other states that have expanded Medicaid, more Indiana residents gained access to Medicaid coverage (through mostly federal funds), but unlike most of those states, Indiana also required new participants to pay a premium to access coverage. Then, in 2018, the state dropped the premiums in favor of work requirements. Federal courts have struck down such requirements in other states, and although advocates of work requirements in the state claim this program is different, residents recently filed a lawsuit against the state over it.
  
• The state passed legislation in 2014 to gradually reduce the state’s corporate income tax rate from 6.5 percent (in fiscal year 2017) to 4.9 percent (in fiscal year 2022). Currently, the state’s tax rate is 5.5 percent. When the rate reaches 4.9 percent, only four other states with a corporate income tax will have a lower corporate income tax rate than Indiana.
  
• In May 2019, Governor Holcomb signed a bill legalizing sports betting. The legislation levies a 9.5 percent tax on gambling revenue and allows betting both in casinos and online. However, the tax is not expected to generate significant money for the state, with: the Legislative Service Agency projects annual revenues between $3.4 million and $20.3 million.

Indiana’s current budget

Governor Eric Holcomb’s FY 2020–21 budget proposed spending increases in K–12 education, capital improvements (e.g., roads, state buildings, and fish hatcheries), and a range of tax credits aimed at encouraging economic development. The governor also emphasized, both in his budget and his 2019 state of the state address, maintaining at least 11 percent of state funds in reserve and instituting a plan for continued public savings. However, he also proposed using a $140 million surplus to pay off local pension liabilities.

The legislature passed its budget in April 2019. It included some of the governor’s proposed education spending increases, including funds to pay off local pension obligations, but it did not include increases in teacher pay (which is why teacher advocates disapproved of the budget). The final budget also included many of the governor’s infrastructure priorities and held 11 percent of funds in reserve.

Governor Holcomb gave his 2020 state of the state address in January 2020.

For more on Indiana’s budget, see

• the Indiana Office of Management and Budget,
  
• Indiana’s State Budget Agency, and
  
• the Indiana Transparency Portal.

Indiana’s economic trends

Indiana’s per capita income (per the Bureau of Economic Analysis) was $48,657 in 2019, ranking 36th among the states. It was below both the national average of $56,663 and the Great Lakes regional average of $52,870. The state’s median household income (five-year estimate) was $54,325 in 2018, ranking 35th among the states and below the national average of $60,293. Indiana’s poverty rate was 14.1 percent in 2018 (five-year estimate), equal to the national rate of 14.1 percent.

Although Indiana’s averages tell a story about the entire state, Indiana is composed of diverse localities. For example, the city of Gary’s median household income was $30,310, and its poverty rate was 33.5 percent; the city of Zionsville’s median household income was $132,409, and its poverty rate was 2.6 percent.

Indiana’s unemployment rate historically tracks the national average. (See how COVID-19 is affecting state employment and earnings data.)