Indiana’s state budget surplus could grow to nearly $5 billion by the middle of 2027 under new and much rosier tax revenue projections.
An updated report presented Thursday to the State Budget Committee forecast tax collections growing by 4.2% this fiscal year and by 2.7% the following year.
That would give the state about $2.4 billion more than officials expected when the new state budget was finalized in April — and revenue growth was anticipated at 0.8% and 0.1% for the two years of the spending plan.
But Republican state fiscal leaders showed no signs of any spending boosts for the tight budget that took effect July 1.
“It was a positive forecast and it was good news for our state,” House Ways and Means Committee Chair Jeff Thompson said. “But remember, we’re less than 25% through this biennial budget, so there’s some uncertainty still.”
The revenue growth would push the state’s cash reserves from what had been an expected $2.7 billion in mid-2027 — about 12% of annual state spending — to $5 billion, or about 22% of state spending. That is well above the 10-15% level that leaders usually aim for.
Democrats said the unexpected revenue should allow the state to restore spending cuts made after the Legislature was “spooked” by the dismal April forecast.
Rep. Greg Porter, the top Democrat on the Ways and Means Committee, said the state needed to make better use of the available funds rather than more tax cuts.
“The people who really need it, the special needs individuals, our children, seniors, they’re going to be left out in the cold,” Porter said.
Gov. Mike Braun touted the revenue forecast as “evidence that our focus on jobs and wages to grow the economy is working.”
“We are boosting Hoosier wages and lowering taxes,” Braun said in a statement. “While many other states are struggling to gain momentum, Indiana is thriving and Hoosiers are keeping more money in their pockets.”
Medicaid costs growing slower
New projections also show Indiana’s Medicaid program costs will grow slower than expected as the number of people it covers has dropped about 15% in the first year of Braun’s administration.
Medicaid officials are also planning a 10% cut in the payment rate for an autism therapy program that has drawn particular concern for its fast-growing expenses.
The state’s rising Medicaid expenditures have been a major worry of state budget officials for the past several years — and a new forecast of those costs released Thursday indicated some relief.
The previous forecast released in April had Medicaid costs jumping by 9.5% during the current state fiscal year and 7.7% next fiscal year, for a total increase of $1.2 billion over those two years.
The new projections have those growth rates slowing to 3.2% and 6.4% per fiscal year, totaling about $465 million less in state spending for the two-year period.
That cost slowdown comes as Indiana’s enrollment in the low-income health care coverage has dropped from about 2 million people at the beginning of this year to 1.7 million in November — a removal of about one in every seven people who were enrolled.
Family and Social Services Administration Secretary Mitch Roob, who oversees the Medicaid program, attributed much of the enrollment drop to the income verification letters now sent every three months that started in April.
But the state’s Medicaid expenses haven’t dropped by a similar rate because those who’ve not maintained their enrollment are healthy and not often seeking health care, Roob said.
“You have fewer patients, but you’re covering the sicker patients,” Roob told the Indiana Capital Chronicle ahead of Thursday’s State Budget Committee presentation.
Roob said the state agency doesn’t know yet how frequently those dropped from the Medicaid rolls by not responding to the income-verification letters eventually are re-enrolled.
“You’d probably need at least 18 months worth of data to discern that,” Roob said. “I think that’s an important question and it’s worth knowing, but we don’t know it yet.”
Payment cuts for autism therapy
Medicaid officials presented their plan to reduce payments for applied behavior analysis, or ABA, therapy that is often used to improve communication and learning skills in children and young adults with autism or other developmental disorders.
The plan is to reduce the state’s current ABA therapy payment rate of about $68 an hour to near what Medicaid officials say is the national average of $61 an hour.
The payment cut is planned to take effect in April for a program that has seen its use surge in recent years. More than 8,000 Hoosiers rely on Medicaid to pay for ABA therapy, with most of them between three and eight years of age.
Roob said Braun had told him to get ABA therapy costs to a “reasonable” spot.
“We think smack dab in the middle is reasonable,” Roob said. “We value ABA therapy, right? But we can’t afford ABA therapy for all in perpetuity.”
Indiana’s Medicaid program began covering ABA services in 2016, spending about $21 million over the following year.
Expenditures peaked at $611 million in 2023, and dropped slightly to $445 million in 2024, after former Gov. Eric Holcomb’s administration set lower reimbursement rates.
Indiana Capital Chronicle is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Indiana Capital Chronicle maintains editorial independence. Contact Editor Niki Kelly for questions: info@indianacapitalchronicle.com.
