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Gov. Mike Braun and top legislative leaders announced Wednesday they plan to triple the state’s cigarette tax to nearly $3 per pack and increase taxes on other tobacco products, raising about $810 million in additional revenue over the next two years.
The announcement comes a week after a new revenue forecast projected the state would have $2 billion less over the next two fiscal years than they expected when they wrote the spending plans that passed the House and Senate earlier this session.
Indiana’s current cigarette tax is 99.5 cents per pack, which is the 39th lowest tax rate among the states and hasn’t been increased since 2007. The proposal will raise that by $2.
To further close the gap between projected revenue and earlier version of the budget, leaders also said Wednesday they would reduce planned spending for public health, higher education and government agencies.
“We’re reducing government spending while funding our most critical priorities and providing tax relief for Hoosiers,” said House Speaker Todd Huston, pointing to continuing income tax cuts. “We’re in a good position to weather some potentially lean times because of our commitment to financial responsibility.”
Senate Pro Tem Rodric Bray said that similar to projected local government budget decreases under a property tax measure already signed into law, state government will also operate under a slim budget.
“We have asked local governments … to spend within their means and tighten their belts,” said the Martinsville Republican. “We’re doing exactly the same thing here.”
Long-sought universal school choice vouchers will become reality in the second budget year at a cost of roughly $93 million.
Currently, Indiana’s vouchers are available to Hoosier earning 400% of the amount required for a student to qualify for the free or reduced-price lunch program, or roughly $220,000. An estimated 3.5% of families don’t qualify under the current eligibility guidelines.
Without the voucher expansion, K-12 will get $861 million dollars over the next two years, or a 2% increase annually when excluding curricular materials.
Braun tied projected final woes to national economic uncertainty of the previous four years, though much of the market volatility has occurred since President Donald Trump took office in January.
“Sooner or later, those chickens come home to roost,” he said.
Braun said he was “the loudest voice” on the federal deficit during his term in Congress, which overlapped with Trump’s first term and President Joe Biden.
Budget details
Sen. Ryan Mishler, R-Mishawaka, said the cigarette tax increase will offset increases to Medicaid.
Tax increases are considered one of the most effective ways to curb cigarette use, which does contribute to the state’s overall poor health metrics and Medicaid expenses.
Bray called it “a really good policy” to discourage smoking, even if the expected tax revenue decreases over time.
“That’s a good thing, because we think it means we have fewer smokers,” Bray said.
Additionally, three agencies—the Department of Correction, the Department of Child Services and the Family and Social Services Administration—will have a combined augmentation fund pool of $300 million to cover unexpected expenses. Outside of K-12 funding, which makes up 47% of the budget, those three agencies get the largest amount of state dollars.
“It just gives flexibility during challenging times,” said Mishler, noting that the fund will be distributed at the governor’s discretion.
The Indiana Economic Development Corp. had its budget reduced between 25-30%, coming on the heels of news from Indiana Legislative Insight that the Governor’s Office plans a major audit of the agency.
Most agencies and departments—including the offices of statewide elected officials and the Commission for Higher Education—also saw a 5% reduction in their appropriation.
But a two-year-old program to supplement local public health departments took a 60% cut, with funding falling from $100 million each year to $40 million.
Bray noted that much of those funds—roughly 45%—distributed to counties and some municipalities last year hadn’t been spent.
“I think they’re still trying to build up and roll out their programs,” said Bray, emphasizing a desire to continue funding the program into the future.
Democratic pushback
Details of the final budget compromise were revealed to Democrats at the same press conference and leaders of the respective caucuses said more time would be needed to analyze the full document.
“As this budget is digested over the next 24 hours, we’re going to have much more to consider. We’ve got to weigh just how public education and the needs of our children are being met. We have to weigh if Medicaid needs … and the elderly, the working Hoosiers, (and) everyday people, if those are being met,” said Sen. David Niezgodski of South Bend.
Sen. Andrea Hunley, a former principal, criticized the voucher expansion for benefitting the “wealthiest families in the state,” noting that impoverished families wouldn’t see as much promised relief under the earlier property tax plan.
“Families with home values that are assessed at under $150,000 actually are going to see an increase in their property tax bills,” the Indianapolis Democrat said. “Then at the same time, we’re going to be giving greater breaks to our wealthiest families. … It’s just not a prudent time to look at voucher expansion.”
Hunley also questioned the commitment to reducing Medicaid expenses when Republicans cut public health funding.
“We know that everyone’s got to make sacrifices this session but, again, it’s going to be on the back of the Hoosiers that need the support the most,” Hunley said.
Rep. Greg Porter pointed to an event last week with Trump cabinet official Robert F. Kennedy Jr. and Dr. Mehmet Oz, who leads the Centers for Medicare and Medicaid Services. Both appeared alongside Braun to announce a flurry of health-related executive orders.
“Now we’re down to $40 million [annually]. Is that making Indiana healthy again?” Porter asked, borrowing a phrase coined by the trio. “I think it’s making us extremely vulnerable when it comes to health care.”
Though Porter praised the inclusion of the cigarette tax increase and the IEDC scrutiny, the Indianapolis Democrat said he didn’t support the spending plan until he learned more about K-12 funding and other provisions.
“I don’t think it’s a budget, at this point, that we can completely embrace.”
The Indiana Capital Chronicle is an independent, not-for-profit news organization that covers state government, policy and elections.
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