INDIANAPOLIS – A token income tax cut highlights the Senate Republican budget unveiled Thursday, along with a commitment to future road projects and $330 million in new money for Indiana’s schools.
We are planning for the future, said Sen. Luke Kenley, R-Noblesville, the architect of the two-year spending plan.
The latest version of the biennial budget sets up a final negotiation between House and Senate Republicans and Gov. Mike Pence in the remaining days of the session, which ends April 29.
One of the key arguments will be over tax cuts.
Pence campaigned on a pledge to cut the individual income tax cut by 10 percent over two years, dropping the individual rate from 3.4 percent to 3.06 percent.
Instead, Kenley crafted a budget that includes reducing the individual income tax rate from 3.4 percent to 3.3 percent beginning Jan. 1, 2015.
The budget also would completely repeal the state inheritance tax this year, replacing a nine-year phase-out currently in place.
Those two moves would provide about $300 million a year in tax relief for Hoosiers.
In comparison, the House version of the budget included no income tax cut and accelerated the elimination of the inheritance tax slightly.
A separate bill drops the state financial institutions tax, saving taxpayers $19 million annually.
Kenley said he thinks the Senate budget gives Pence overall about $500 million in tax cuts, though not exclusively from the income tax. That estimate also includes money saved in a corporate tax cut that legislators passed in 2011.
As a framework for final negotiations, Pence focused on the fact that the Senate budget included some amount of permanent income tax relief. He continues to believe a tax cut for all Hoosiers is best for the economy.
I believe that we are getting on the same page, but let me be clear. There are still details and differences about levels of spending and priorities, Pence said. This latest version of the budget does signal that there is a pathway to creating a successful budget that will meet our administration’s objectives.
Sen. Lindel Hume, D-Princeton, criticized the tax cut, saying, If it weren’t so serious, it would be a joke.
He compared all the additional needs in public safety and education with an income tax reduction that would save individual Hoosiers only a few dollars.
We seriously need that money to fund this state, he said.
Overall, the Senate budget would spend $29.5 billion over the two years and has reserves at the end of fiscal year 2015 of $1.5 billion.
But Kenley also set up separate health care and transportation accounts to start saving for significant road projects and a possible expansion of state-provided health care insurance for more of Indiana’s poor.
Although budget reserves trigger a taxpayer refund by state law when they reach a certain level, money placed in the new health care and transportation accounts doesn’t count toward that total.
The health care account includes money that would otherwise be spent on the state’s Healthy Indiana Plan insurance program, which is set to end this year. Kenley said the state will likely have future health care obligations, and he wanted to create a separate savings account for that possibility.
He also set aside $400 million into a road funding account to be used for the extension of Interstate 69 as well as widening Interstates 70 and 65 to six lanes across the state. He said the state has to start saving for those projects and this account could be used as a revenue stream in the future.
In addition, the Senate budget would set aside an additional $112 million a year for the Department of Transportation and $101 million a year for local roads.
Local governments will receive the increased distribution only if they have a local wheel/excise tax. Only 47 counties currently impose this tax.
Kenley also diverted about $100 million in reserves for pension relief.
In education funding, Indiana’s schools would see a 2 percent increase in funding the first year and a 1 percent increase in funding the second year under the plan.
Locally, Fort Wayne Community Schools would see a 1.8 percent increase initially and then a slight dip in the second year. Southwest Allen County Schools would receive less than a 1 percent increase in each year.
East Allen County Schools would go up 2.6 percent in the first year and less than 1 percent in the second. Northwest Allen County Schools would increase 2.3 percent the first year and less than 1 percent in the second.
The largest factor in the school funding formula is enrollment gain or loss.
House Ways and Means Chairman Tim Brown, R-Crawfordsville, said large portions of the House and Senate budget are similar. One of the differences: the House budget included $300 million in an education reserve fund that Kenley eliminated.
We made a public policy decision to take the general fund over and said we would have money set aside for a recession, he said. A recession happened. We used it. We need to replenish it.
Brown said he thought the Senate budget might not be sustainable in the future and said it was close to the line of being balanced.