Budget preparation goes on even as administration change nears
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Regardless of who wins the race in November, Indiana will have a new governor leading the state. One of their first duties after being sworn into office in January will be to help pass a budget that will guide the actions of state agencies for the next two years—from school funding and Medicaid, to property taxes and infrastructure investments.
Though Election Day is still over 50 days away, much of the budget work is already underway. Indiana and its State Budget Agency start thinking about the budget as early as May, when SBA’s director shares instructions with state agencies for crafting a two-year budget.
Some candidates make their own preparations prior to election, including U.S. Sen. Mike Braun. Braun, a Republican, recently told reporters he was already discussing transition how-tos with both former Gov. Mike Pence and sitting Gov. Eric Holcomb.
Republicans have held the office of governor since Mitch Daniels’ election in 2005. Braun mentioned all three men when detailing his approach to crafting the next two-year budget.
The campaign team of Jennifer McCormick, the Democratic gubernatorial nominee, noted that McCormick has previously experienced the state’s budget process firsthand when she led the state’s Department of Education. McCormick, as a Republican, was the state’s last elected Superintendent of Education and left the office in 2021.
Drafting a budget can be even trickier for certain agencies that are led by elected officials. Only the Attorney General’s Office is on the same election timeline as the governor, meaning that priorities within the agency may also shift depending on who wins in November.
But whatever priorities candidates might have will need to get the approval of the General Assembly. Lawmakers have the final say on any budget and will hold their own hearings in 2025. Additionally, each chamber will present their own priorities that build upon the initial budget submitted by the governor.
Instructions to agencies
Joseph Habig, SBA’s acting director, highlighted the state’s “enviable fiscal position” in a May letter to agencies, including its AAA credit rating, shrinking debt obligations and low income tax rates. Like many states during the pandemic, federal cash infusions combined with unanticipated high sales tax returns buoyed the state’s finances—bringing so much cash into the state’s coffers that it triggered not one, but two automatic taxpayer returns.
But revenues appear to have returned to normal, meaning that agencies will need to be more conscious of their budget asks. Additionally, the state’s reserves will be at a post-pandemic low and leave less wiggle room.
“At the same time, the costs of the State’s major programs have increased and are being sustained by persistent inflation. Providing good government service at a great value requires heightened attention on how to efficiently use the resources of which we are entrusted,” Habig wrote.
Habig noted that the budget groundwork agencies prepare would be crucial to the new governor and General Assembly when it comes to finalizing the budget. Agencies were told to use their appropriations from the 2025 Fiscal Year as their “base” budget for both FY 2026 and FY 2027. Indiana’s fiscal years end on June 30 and start on July 1 each year.
Agencies believing that they need additional funding—or even if they are shifting funding around—should submit an offsetting change package to SBA that is considered on a case-by-case basis.
“Please note that all proposed change packages are considered part of the deliberative process and will be ranked with other proposals in the context of the revenue forecast and the Governor’s priorities,” Habig wrote.
Agencies were told to submit their budget proposals through the budget development system Hyperion on Aug. 26, 2024, a few days before the statutory deadline on Sept. 1.
Additional guidance to agencies directs them to summarize their plans to utilize resources in order to “provide the best services to taxpayers at the lowest cost possible.”
This Agency Overview document, which also details major accomplishments and challenges, is then passed along to the governor and lawmakers on budget committees.
After these proposals are submitted, SBA reviews and formulates recommendations during September and October, as detailed on SBA’s website.
Here, the process diverges. In a non-election year, the sitting governor may make adjustments and approve the requests before they’re sent to the State Budget Committee, which is made up of lawmakers and SBA’s director.
But during an election year, Habig told the Indiana Capital Chronicle that state law requires that the agency have budget information and estimates on requested appropriations ready to present to the governor-elect within six days of Election Day.
“We anticipate that after the election, the Governor-elect and transition staff will be very engaged in budget discussions. The information SBA collects in late summer and reviews in fall will be shared with a Governor-elect in November and December so priorities can be compared to current requests,” Habig said.
Agencies don’t present their budget before the State Budget Committee until after the election, typically in early December. This timing allows the governor-elect to weigh in, Habig said, though presentations will likely stay close to that “base” budget request. However, all of this comes before stakeholders receive an updated revenue forecast, which is finalized and publicized in mid-December.
“A new Governor is inaugurated on the second Monday of January per the Constitution and must no later than the third Monday of January present their recommended budget,” Habig added.
Following that final version of the governor’s budget, the House will first review, amend and hold their own hearings—followed by their counterparts in the Senate. The budget is frequently one of the last bills to cross the finish line and sees many amendments during the three-to-four-month process.
Next steps for Braun, McCormick
Still, the next year will come with changes that will likely impact the budget. Braun, for example, has said he plans to identify more “efficiencies” within state government to tighten spending. Some of the groundwork was laid by Daniels, another politician with a business background.
Braun said he, in contrast to Pence and Holcomb, also has a business background that can more effectively identify areas where cost-saving measures could be implemented.
“This is a big, sprawling business,” Braun said, noting that the state spent $22 billion annually in its last budget. “That ranks it, probably, in the top ten (corporations) in our state and (Pence) had issues there, because he … had never run a business before. Neither had Eric (Holcomb).”
In contrast, Braun is one of the wealthiest senators and operates Jasper-based Meyer Distributing.
“Most governors don’t come from the lane of running a small business and building it into a regional and national company,” Braun said.
That meant both leaders relied on the “next layer of management,” Braun said. His next layer would be staffed with “very entrepreneurial individuals,” and a Braun administration would closely look at each agency.
“I’m already getting clues from legislators on which agencies need attention,” Braun said, naming FSSA and the Department of Child Services as examples.
McCormick has run on the premise of “commonsense” government, advocating for a return to “balance” by restoring reproductive rights and defending public education.
Previously an educator, McCormick has called for a review of tax dollars spent on vouchers, which are primarily used by wealthier Hoosiers who eschew public schools—while Braun advocates for expanding “school choice.” McCormick’s campaign team, in an email, said it has tapped a “bipartisan” and “competent” transition team that can’t be publicly named due to their current positions.
“This is a competitive race, and one Jennifer McCormick can win. Hoosiers are ready for restoring reproductive rights and freedoms, defending public education, and creating good-paying, high-wage jobs. They want common sense and balance returned to their state government, and a McCormick-Goodin administration will deliver on Day 1,” said Kelly Wittman, who serves on the campaign.
Former State Rep. Terry Goodin is McCormick’s running mate.
The Indiana Capital Chronicle is an independent, not-for-profit news organization that covers state government, policy and elections.