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In what’s been an abnormally tight budget-crafting process, Senate fiscal leaders presented a conservative state budget plan Thursday morning that drops universal school choice and extraneous spending so it can fully fund ever-growing line items like Medicaid and child services.
The $46.8 billion balanced budget—meaning spending does not exceed revenue—was more difficult to achieve this year than most due to the state’s growing Medicaid costs and slowing revenue growth.
Medicaid costs in 2027 are expected to be more than double what they were in 2020, growing from 15% of the current budget to around 22% of the next one.
And lawmakers will have less revenue to build the 2026-27 budget, complicating decisions of where to spend and what to cut. Growth in state revenue and sales taxes is expected to slow or backtrack after significant growth during the pandemic.
“When I’m screaming about Medicaid, please listen,” budget writer Sen. Ryan Mishler, R-Mishawaka, said during his Thursday presentation. “That’s the problem we’re having right there: Medicaid growth.”
Still, the budget plan would have a surplus of $716 million in 2026 and $245 million in 2027, which would pad the state’s reserves to over $3 billion.
The Senate Appropriations Committee passed the budget bill, House Bill 1001, by a 10-3 vote largely along party lines.
The budget will now move to the Senate floor where it could be amended further. Lawmakers typically continue making changes to the budget up until the last day of the legislative session, which will conclude at the end of the month.
Here’s where the budget currently stands:
In: Full funding of Medicaid, Child Services, Correction
Nearly all of the new revenue the state will bring in over the next two years would be dedicated to funding Medicaid, the Department of Child Services and the Department of Correction, Senate leaders said. Each of those line items has grown significantly in recent years, but cuts are difficult, since the growth is based on usage.
In the Senate’s budget, Medicaid is appropriated $10 billion. Lawmakers increased the budget for the Child Services by $174 million each year, and Correction by $120 million per year.
Out: Universal school vouchers
Senate budget writers removed funding to expand the state’s school choice voucher program to all Hoosier families regardless of income.
“We just didn’t have the ability,” Mishler said. “That’s $170 million that we’d have to add in to cover those students.”
Gov. Mike Braun and several top Republicans have made it a priority to build an education funding model where “the money follows the child.”
Braun sought to expand the voucher program to include high-income families currently left out. Most Hoosier families can already obtain a voucher to attend a private school, but families with an income. over $220,000 do not qualify.
House Republicans would increase K-12 public education funding by $870 million to a total of $18.9 billion over the next two years.
Out: Braun tax cuts
Several of Braun’s proposed tax cuts—income tax exemptions, removal of state income tax on tips, a few tax holidays and a retirement income tax reduction—were not included, mirroring the House’s version.
His administration estimated his proposed cuts would provide $265 million in state tax relief in 2026 and $431 million in 2027.
A sales tax exemption for feminine hygiene products and adult diapers was included in the House budget, but not the Senate’s version.
In: Tighter eligibility for a child care
A state child care program would still have a waitlist under the Senate’s budget, but it would further restrict eligibility in an effort to reduce program enrollment and waitlist numbers.
The Child Care Development Fund offers child care expense support for families making under 150% of the federal poverty level and under 85% of the state’s median income, based on family size. The Senate’s proposal would add a work or training requirement for these families.
Late last year, the Family and Social Services Administration announced waitlists for the Child Care Development Fund and On My Way Pre-K, which provide vouchers for low-income families to access child care and preschool. The programs serve about 80,000 kids, but the number of applications is growing annually, according to The Indianapolis Star.
Out: University capital project funding
One of the areas where lawmakers plan to cut spending is the state’s support for its seven public universities’ capital projects. Most schools would instead see funding dedicated to deferred maintenance projects, but the allotments are far below each university’s requests.
Indiana University would receive $44 million over the biennium for maintenance, while Purdue University would receive $37.2 million and Ivy Tech Community College would receive $9 million.
In addition to those funds, IU and Purdue would see an extra $9.8 million and $4.2 million, respectively, specifically for regional campus deferred maintenance.
Out: Economic development funding
While Braun reworks how the state approaches economic development, both the Senate and House plans would significantly pull back on economic development funds to persuade companies to make capital investments in the state.
The largest cut is to an account used to incentivize and secure economic development deals. The state’s 2024-25 biennial budget provided the Indiana Economic Development Corp. with a $500 million deal-closing fund that could be used for incentives or infrastructure for key business deals. Neither Braun’s nor the House’s budgets include money for that fund.
The Senate budget also retains a Braun-proposed workforce tax credit that would incentivize Indiana employers to pay for additional staff training that leads to increased wages. Under the credit, a business could claim a $5,000 credit per employee and up to $50,000 total for a maximum of 10 employees.
The House budget allots $1.75 million each year to the soon-to-be-created Office of Entrepreneurship and Innovation.
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