Revenue forecast shows slowing growth
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Indiana lawmakers are about to enter a tough budget-writing session.
The big picture: Fiscal analysts shared an updated revenue forecast on Tuesday, predicting that growth will slow dramatically over the next two years as pandemic-era federal stimulus funding ends.
- Lawmakers will have approximately $730 million in new dollars to spend in the first year of the biennium, but only about $70 million in new dollars in the second.
Why it matters: Essentially flat growth in the second year of the budget will make it hard for the Indiana General Assembly to meet the needs of rising Medicaid costs while continuing to cut state income tax and achieve other priorities — such as expanding school choice and raising teacher pay.
What they're saying: "The Medicaid program remains our largest revenue issue in the upcoming budget session, and I am very concerned about Medicaid's unmanageable rate of growth," said Sen. Ryan Mishler, (R-Mishawaka), the Senate's lead budget writer.
- Mishler said he's also concerned about inflation outpacing revenue growth.
Between the lines: Uncertainty at the federal level is complicating matters for state budget analysts.
- President-elect Trump has called for higher tariffs and reduced immigration, which could increase inflation, though some of those negative effects could be offset by tax cuts and anticipated deregulation.
By the numbers: The state's general fund — made up primarily of sales, income and corporate taxes — is expected to grow by 3.3% in 2026, giving the state just more than $23 billion to spend.
- The year-over-year growth in 2027 is expected to fall to 0.3%.
What we're watching: Lawmakers will receive one more forecast update before finalizing the next two-year budget this spring.
- Rep. Greg Porter, D-Indianapolis, is calling on lawmakers to move that forecast discussion from April to March, giving themselves an extra month to assess any changes on the federal level before the legislative session wraps at the end of April.
What's next: The legislative session starts Jan. 8.