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Indiana fiscal leaders learned Wednesday they’ll need to build the state’s next biennial budget with $2 billion less than they expected when lawmakers convened their 2025 session, further constricting what’s already been a tight budget-crafting process.
An updated revenue forecast presented to the Budget Committee projected the state’s revenue will flatline from 2025 to 2027.
For the current fiscal year, the state is also expected to bring in $400 million less than anticipated, meaning the total decrease over the next three years is $2.4 billion.
The backslide means lawmakers will need to make budget cuts during the two weeks left of the legislative session. The Senate passed a $46.8 billion budget on Tuesday.
“I was here during the recession—the ’08-’09 budget. This one scares me a lot more,” Senate budget writer Ryan Mishler, R-Mishawaka, told reporters Wednesday afternoon. “The number is a lot higher. And back then, if you remember, we had federal money to backfill it. We don’t have any federal money to backfill it. This is all on us.”
The projection, presented by the Revenue Forecast Technical Committee, says the state is expected to collect less in sales, individual income and corporate income taxes than lawmakers thought in December when they first started to put together a budget plan. Those are the taxes that generate the bulk of the state’s general fund revenue.
Lawmakers told reporters the updated revenue estimates were much lower than expected. Mishler said he had guessed over the weekend that revenue would be as much as $1 billion less than the last estimates released in December and was surprised to be so far off. Sen. David Niezgodski of South Bend said Democrats had tried to plan for less revenue as they prepared their budget amendments, but the forecast was even worse than they expected.
In explaining the drastic change since the December 2024 forecast, the committee’s report pointed to an economic outlook by S&P Global Market Intelligence that cited fluctuations in the stock market as well as tariffs and federal funding cuts and layoffs, all of which have been hallmark policies of President Donald Trump’s administration.
The report also warned that jobs and wages will likely grow at a slower rate due to the economy’s overall outlook. It estimated the state’s unemployment rate will rise from 4.3% to nearly 5% by mid-2027.
In a written statement, Gov. Mike Braun blamed the poor revenue forecast on former President Joe Biden’s policies, although many experts considered the economy to be healthy by the end of his presidency. Braun said he is working with lawmakers to pass a balanced budget that maintains the state’s reserves and funds education and other services.
“There will be some tough times ahead, but the America First economic policies we are pursuing here and in Washington will unleash an economic boom,” he said.
After the Senate approved the budget earlier this week, members of the House dissented to changes, sending it into conference committee. Lawmakers typically continue making changes to the budget up until the last day of the legislative session. The Legislature must pass a budget by April 29 or face a special session to finish it.
Mishler and House budget writer Rep. Jeff Thompson, R-Lizton, agreed that “everything is on the table” to balance the budget, which means spending does not exceed revenue. They said spending on K-12 education, which is the largest state expenditure, would be one of the last items they want to touch.
But a Braun budget priority to establish universal school vouchers—a provision the Senate cut from its budget proposal—may be tougher to fit into the budget. Mishler previously estimated it would cost about $170 million to expand the program to families at all income levels.
“We’re gonna have to make tough decisions and then make some cuts,” Mishler said. “If anybody has the audacity to come and ask us for more money, more than likely we’ll just take them out.”
Several revenue-generating proposals didn’t receive much play this session. That includes higher taxes on cigarettes and alcohol, marijuana legalization and an expansion of online gaming. Though leaders previously said they don’t legislate policy for revenue purposes, Mishler told reporters that leaders have talked about those money-makers as possibilities for making up for the revenue downturn.
The Indiana Chamber of Commerce and the Indy Chamber have heavily advocated for raising the cigarette tax from $1 to $2 per pack. In a statement Wednesday after the forecast, Indiana Chamber CEO Vanessa Green Sinders said the state must “consider new sources of revenue to ease financial constraints.”
A marijuana legalization lobbyist group called Safe and Regulated Indiana said the forecast was “an unfortunate reminder” that the state is missing out on revenue from taxes collected on cannabis sales.
As a potential recession looms, Mishler said it’s possible the revenue numbers could get worse, which he said reinforces the need for the state to maintain healthy reserves. The state currently has $2.7 billion in its savings accounts.
When asked if the projected drop in revenue will lead to cuts in state services, Mishler said he state officials will be motivated to dive deeper into their spending to find efficiencies.
One silver lining in the forecast was that the growth in Medicaid spending is projected to slow, Mishler said.
Medicaid costs, which have grown to nearly a quarter of the state’s budgeted spending, are expected to remain close the December projection, which estimated they would increase by more than $1 billion from 2024 to 2027.
Medicaid rolls have not returned to pre-pandemic enrollment after ballooning when eligibility was expanded. In December 2024, lawmakers learned the state’s budget was about $985 million short due to unexpected increases in spending and a financial management oversight.
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