Indiana ended the fiscal year with a record $6 billion in reserves. That puts Hoosiers on pace for a third state tax refund, even before lawmakers approve the second.
Budget forecasters were expecting growth of 3%. They got the triple. Personal and corporate income taxes were 15% higher than expected, pumping an additional $1.2 billion into the Treasury. Office of Management and Budget Director Cris Johnston said the windfall could reflect higher wages and a strong investment market that has prompted more Hoosiers to pay estimated taxes.
Governor Holcomb has already asked lawmakers to pass a billion-dollar tax refund, sending each taxpayer $225 as a buffer against soaring prices. Johnston says the administration has no plans to seek a bigger discount during the special legislative session that begins later this month. He says the same inflation that is putting pressure on consumers is also creating economic uncertainty that could undermine growth in the second year of the state budget. Johnston says administration analysts have concluded that the billion-dollar proposal is a “prudent” level that helps help taxpayers while keeping state finances on a sound footing.
The budget passed last year will wipe out much of the reserves, pouring two and a half billion dollars into the state’s unfunded liability for teacher pensions. Even with that payment and Holcomb’s reimbursement, the Legislative Services Agency’s forecast calls for a $4 billion surplus by the end of the two-year budget on June 30. That’s nearly double the level that would trigger another refund under Indiana’s automatic refund law.
The Hoosiers are already receiving an automatic $125 rebate in 2022 after the state posted a then-record $4 billion surplus last year.
While House Speaker Todd Huston (R-Fishers) says House Republicans intend to back Holcomb’s payback plan, other lawmakers from both parties are offering other ideas for the manna. Indianapolis Sen. Fady Qaddoura (D) called for an immediate investment of $2 billion in health and education spending, and an increase in the rebate to $400. Senate Speaker Pro Tem Rod Bray (R-Martinsville) said Senate Republicans are considering a set of special sessions to deliver inflation relief to Hoosiers in “several ways,” and confirms Republicans could seek to repay the state debt. And lawmakers from both parties have urged extending the refund to people who don’t file tax returns.
Johnston says reducing Indiana’s debt load is still an option, but says the state has already done so much that it may not make economic sense to pay down the remaining bonds. And he says extending reimbursement to non-filers could prove difficult, starting with the task of identifying who and how many there are.
Johnston says the administration isn’t considering any new spending in the special session, though Holcomb says his budget proposal in the January regular session will ask for more money for schools, public health and the welfare fund. READI regional development, as well as increases for state employees.