INDIANAPOLIS - Indiana lawmakers have approved a new state budget that includes slight funding increases for education, much more money for transportation and a portion of the income tax cut that Gov. Mike Pence sought.
The Republican-dominated House and Senate green-lighted the two-year, $30 billion spending plan in the wee Saturday morning hours as they wrapped up their four-month 2013 legislative session and adjourned for the year.
Its content was no surprise, nor was its exclusion of Democrats’ priorities such as launching a state-funded pre-kindergarten program and expanding Indiana’s Medicaid program under the federal health care law.
“We put together a budget that holds the line on spending funds our priorities, saves for the future and still puts more money back in Hoosiers' pockets,” Pence said in a statement.
Among the last-day developments in the budget, Republican lawmakers dropped a proposal to cut Indiana public employees’ retirement benefits.
The benefit cut was vaguely referenced in a previous draft of the spending plan approved by the Senate, but was only specifically spelled out in the version legislative leaders unveiled on Thursday – and the idea was short-lived.
The Indiana Public Retirement System currently allows retired teachers and state workers to receive monthly annuity payments – an option about 60 percent of retirees choose, but that the spending plan nearly blocked.
Senate Appropriations Chairman Luke Kenley was pushing a plan to require those who leave their jobs after 2013 to shift their money into private plans, which offer a 3 percent interest rate on those annuities – much less generous than the state’s 7.5 percent rate.
The state is “paying a richer benefit than they can afford. So we just put language in there that says they can’t do that,” said Kenley, R-Noblesville. “The purpose is to avoid creating any unfunded liabilities.”
However, supporters of the current system say the state can afford better benefits because it does not have to earn a profit. So Kenley’s plan was dropped.
House Speaker Brian Bosma, R-Indianapolis, said he asked – and Senate budget-writers agreed – that the retirement benefit cut be eliminated from the final budget so that the change could be publicly aired and debated.
“There wasn’t adequate discussion about it,” Bosma said. “I requested that that be removed from the final conference committee report so it could be discussed in a public meeting at a future date.”
Another last-minute change involved beefing up funding for the University of Southern Indiana. Its $42 million annual allotment will grow to $44 million.
The additional money for USI came after members of Southwest Indiana’s delegation insisted that it be added on Friday – or else they’d vote against the budget.
“This is a group effort,” said Rep. Suzanne Crouch, R-Evansville. “It’s extremely important to USI because they do not have the full-time faculty that other residential colleges do. They haven’t been able to give a raise the last two years. They have the No. 1 nursing program in the state and they have to turn kids away because they don’t have enough faculty.”
The budget publicly unveiled Thursday includes a package of tax cuts that House Democratic Leader Scott Pelath dubbed “pathetic” and “a sham.”
It would eliminate the state’s inheritance tax, saving those taxpayers about $150 million per year. It would lower Indiana’s financial institutions tax, saving banks about $20 million annually.
And it would give Pence a part of the item he made the focus of his first-year legislative agenda: a reduction in Indiana’s individual income tax rate.
The state’s 3.4 percent income tax rate would drop to 3.3 percent in 2015, and then 3.23 percent in 2017, under the Republican budget.
That’s a 4.7 percent cut phased in over four years – short of the 10 percent cut phased in over the next 14 months that Pence had advocated, but still enough for the governor to say it amounted to a “great victory” for Hoosier taxpayers.
The cut in 2015 would keep about $75 million in tax revenue from flowing into Indiana’s general fund in the last six months of the two-year budget period.
Pelath, Michigan City Democrat who is the House minority leader, said the cut is too small to make much of a difference for average Hoosiers and yet large enough to block public schools from getting more funding.
“I’m not sure how that stimulates the economy. You’re not even going to be able to buy a pop at the local filling station,” said Senate Minority Leader Tim Lanane, D-Anderson.
The budget increases the state’s funding for its most expensive item – K-12 education, which accounts for 55 percent of all state general fund spending. Schools would see an average 2 percent funding increase in the first year of
the budget and another 1 percent in its second year, plus $34 million for high-performing teachers.
It also bolsters funding for transportation by $215 million each year by directing the state’s gasoline tax revenue and 1 percent of its sales tax collections to go directly into state and local roads budgets.
Additionally, the spending plan sets aside $200 million per year for a new “Major Moves 2020” fund designed to pay for long-term highway projects, including the Bloomington-to-Indianapolis portions of the Interstate 69 extension.