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Facing a worse-than-expected fiscal forecast, the Indiana Legislature approved a pared-down $46.2 billion state budget bill early Friday morning that will triple the state’s cigarette tax and cut funding for a wide swath of entities and programs.
The House and Senate approved the biennial budget bill along party lines, 66-27 in the House and 39-11 in the Senate. Only one Democrat, Sen. David Niezgodski, voted for the bill in the Senate and no Democrats voted for it in the House. Two Republicans voted against the legislation in each chamber—Reps. Craig Haggard and Michelle Davis and Sens. Jean Leising and Michael Young.
Democrats drew opposition to a number of issues, including expanding private school vouchers, last-minute changes to the Indiana University board of trustees and cuts to public health funding.
Gov. Mike Braun is expected to sign the bill sometime over the next week. The budget will go into effect at the start of the next fiscal year on July 1.
“Despite the challenges posed by economic uncertainty, we embraced an entrepreneurial spirit, tightened the belts of state government, and passed a responsible biennial budget that will keep Indiana among the top states in the nation to raise a family and start a business,” Braun said in a written statement.
Before the session began in January, state leaders knew they would need to craft a much tighter 2026-27 biennial state budget than usual. State tax revenue is slowing after pandemic-era spikes, and inflated Medicaid rolls are costing the state hundreds of millions of dollars more each year.
That tight budget got even tighter when an updated revenue forecast released last week projected the state would have about $2 billion less over the next two fiscal years than lawmakers expected when they wrote the spending plans that passed the House and Senate earlier this session.
“This budget lives within our means,” House budget writer Jeff Thompson, R-Lizton, said Thursday night. “It’s a budget that takes care of our priorities.”
Braun joined legislative leaders to unveil the heavily amended budget language Wednesday afternoon. Despite challenges, leaders said they found a solution that provides a balanced budget and offers funding increases to K-12 education.
“Even with a surprise shortfall in revenue, we made sure we protected K-12,” House Speaker Todd Huston, R-Fishers, said.
One major new expense lawmakers fit in is the expansion of the state’s school choice voucher program to all Hoosier families regardless of income. All Hoosier students would be able to take advantage of the vouchers beginning the 2026-27 school year.
To alleviate the number of cuts needed to balance the budget, leaders elected to raise the state’s cigarette and tobacco taxes. Altogether, the tax hike is expected to raise about $810 million in additional revenue over the next two years.
The cigarette tax would grow from 99.5 cents per pack to nearly $3. Tobacco products would see a similar increase.
Local health departments, higher education and economic development saw the largest budget cuts. The budget also eliminates about $7.4 million of funding for Indiana Public Broadcasting, which supports affiliates of PBS and NPR.
Budget writers also slipped in language allowing Braun to select all nine members of the Indiana University board of trustees. It removes the ability for the university’s alumni to elect three of the board’s members.
The state will also put less into reserves than in previous budget versions. Over the next two years, the budget is estimated to add about $713 million to the state’s estimated $2.7 billion in savings.
“As you know, we’ve had some surprises in the past few months—or, I should say, year or so—and to have those healthy reserves is really key,” Thompson said.
Democrats said they were frustrated with the number of items put into the budget within the final hours of the session without public comment.
“I’ve been around for a while,” Rep. Greg Porter, D-Indianapolis, told reporters, “and I think this is the most items that [have] been in the budget that we have not discussed.”
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