UPDATE: Braun outlines cost-cutting goals for state agencies, plans to up spending in key areas

Gov. Mike Braun speaks to reporters Jan. 16 in his office at the Statehouse. (Cate Charron / IBJ Photo)

Indiana Gov. Mike Braun said Thursday that his administration wants state agencies to identify 5% in savings, on average, compared with the current budget to help pay for new priorities in the next two-year budget.

Overall, Braun told reporters he expected 2% overall spending growth in fiscal year 2026 and 1.7% growth in 2027, with new funding priorities including education, tax reform and public safety investments.

He spoke to reporters hours before his administration presented its first budget proposal to the State Budget Committee. The plans include $700 million in state expenditure cuts, full Medicaid funding, an expected voucher expansion and $400 million added to the rainy-day fund.

“Through targeted cost reductions and fiscal discipline, we’re able to make these investments while maintaining a structural surplus each year and modestly growing our reserves to protect our state against any unforeseen fiscal pressures,” Braun’s Secretary of Management and Budget Lisa Hershman told the committee.

Braun and the Legislature will craft the 2026-27 budget over the next few months. Both chambers must pass the budget before the end of April or face a special session to finish it. Braun will then need to sign off on the budget before enactment.

Economic forecasts predicted in December that revenue will likely be flat in 2027. At present, 2026 is expected to see a 3% increase in revenue and a 0.3% increase the following year. Altogether, the state is projected to have an additional $803 million in revenue to work with.

Government expenditure cuts

In their presentation to the budget committee, OMB officials said Braun’s cost-cutting directive would result in a savings of $700 million, including $540 million in spending and $180 million in administrative reductions. 

In an executive order signed Wednesday, Braun gave the Office of Management and Budget the ability to develop incentives for agencies that achieve cost savings without degrading constituent service. The order said performance-based funding adjustments could be given if targets are met. 

The order also allows the office to enact hiring freezes for nonessential roles, pause pay raises and bonuses for agencies found to be overspending and consolidate programs. 

As for accomplishing his 5% goal, Braun did not provide specific details when speaking to reporters but said his staff will look for “low-hanging fruit,” and the agencies that spend the most likely have the greatest ability to save.

Braun also did not rule out eliminating jobs, saying some agencies need fewer employees while others need more.

“I always talk about doing more with less,” he said. “That’s not because you’re trying to be stingy. It’s because that’s called productivity.”

Medicaid

Growing costs, especially for Medicaid, have complicated Republican leadership’s ability to achieve its goal of spending less than the state takes in. As lawmakers seek ways to cut future costs, Braun’s proposal seeks to fully fund Medicaid as forecasted.

After a $985 million shortfall in the state’s Medicaid budget revealed last December, the state’s Medicaid bill is estimated to grow 9.4% in fiscal year 2026, reaching $4.8 billion. The year after is projected to hit $5.2 billion, a 6.9% increase.

Child care

Through his budget, the waitlists for child care programs, including the Child Care Development Fund, would be lifted through a $362 million investment.

Late last year, the Family and Social Services Administration announced waitlists for the fund and On My Way Pre-K, which provide vouchers for low-income families to access child care and preschool. The programs serve about 80,000 kids with growing numbers of applications each year, according to The Indianapolis Star.

A local child care assistance fund would be created with $4 million to provide similar subsidy support on a local level. 

Tax relief

The administration expects to Hoosiers to feel $265 million in state tax relief in 2026 and $431 million in 2027, should his agenda pass, according to the budget presentation. That includes his proposed income tax exemptions, no taxes on tips, reducing the retirement income burden, agriculture support and tax holidays.

He also is asking for a four-year phase-out of the state’s tax on retirement income, which Braun said “doesn’t amount to a lot in terms of the revenue.”

This is in addition to his ambitious property tax proposal, which will be carries in Senate Bill 1.

More vouchers

For education, he is proposing a 2% year-to-year increase in the budget that will be focused on supporting instruction and teachers. That would amount to $181 million in 2026 and $365 million in 2027. 

Universal school choice, a key Braun campaign promise and Republican priority, would be established through the expansion. Two scholarship account programs, currently budgeted with $10 million per year, would also see large gains.

The Education Scholarship Accounts program would see an additional $30 million investment. The accounts support program or tuition expenses for students who need special-education services and their siblings. The Career Scholarship Accounts program, which offers high schoolers up to $5,000 each year to offset expenses for apprenticeships, would see an additional $2 million.

Another $50 million is sought for “education initiatives,” but specifics weren’t given. 

The proposal also seeks to allot about $100 million toward public safety initiatives with the majority going to the Indiana Prosecuting Attorneys Council.