Cigarette tax, higher ed cuts help cover $2B shortfall
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Gov. Mike Braun discussing the budget deal Wednesday, flanked by Republican leadership. Photo: Arika Herron/Axios
Republicans are making up Indiana's $2 billion budget shortfall by raising the cigarette tax and cutting spending on public health and higher education.
The big picture: Statehouse leaders managed to protect K-12 education spending, preserving planned 2% annual increases for public schools in the $46 million biennial budget.
- They also found the cash to move forward with the expansion of the state's private school voucher program to all Hoosier families, regardless of income — though that move won't happen until the 2026-27 school year.
Catch up quick: Lawmakers learned last week they'd need to cut a staggering $2 billion from their two-year spending plan — or find a way to close the gap with additional revenue.
- An updated revenue forecast showed they'd have just $170 million in new dollars to spend in 2026 and $30 million in 2027.
- That's not much, considering the state spends around $22 billion annually and its Medicaid expenses are projected to grow by more than $400 million in the first year and another $375 million in the second.
Between the lines: Gov. Mike Braun has tried to blame the poor forecast on former President Biden's policies but fiscal analysts who presented the outlook last week placed much of the blame on slower than expected growth in jobs and wages since the previous forecast in December, stock market declines and the effects of federal policies around tariffs, immigration and spending cuts.
By the numbers: Raising the cigarette tax by $2 per pack and the tax on other tobacco products by a proportional amount will generate approximately $800 million over the biennium and go toward the cost of Medicaid.
- Public colleges and universities are taking a big hit. Their general appropriation is getting cut by 5%, as is the funding they use to maintain their buildings.
- Public health funding, which was at $150 million this year, will be slashed to $40 million each of the next two years.
- The move to universal vouchers will cost an extra $94 million.
The intrigue: Legislators are using the budget shortfall to take aim at the Indiana Economic Development Corp., which has come under fire this week following a report from Hannah News Service that questioned the state agency's relationship with its venture capital firm.
- Leadership said IEDC's budget is getting cut by at least 25%.
Friction point: Republicans won't pause planned income tax reductions, something Democrats said would have generated an extra $272 million over the two years of the budget.
- "That's a commitment we wanted to make to Hoosiers," said House Speaker Todd Huston.
The other side: While Democrats applauded the increase in the cigarette tax — something their caucus had called on for years — they criticized cuts to public health spending and the lack of transparency in how the last-minute budget deal was written.
- Caucus leaders said they weren't consulted in budget writing or given an advanced copy before Republican leaders and Braun held a press conference Wednesday.
What's next: The Indiana General Assembly is expected to wrap up the 2025 legislative session Thursday evening, with a final vote on the budget.
Go deeper: How Indiana's budget will impact Marion County schools