Pence submits lean budget built around tax cut

Indiana Gov. Mike Pence submitted an austere first budget Tuesday, with slight increases for areas like education and a large reserve set aside to cover his proposed cut in the personal income tax.

Pence's $29 billion, two-year spending plan increases state funding by about $200 million each year, or roughly 1.4 percent, while building the state's cash reserves. It also plans for a $790 million cut in the state's personal income tax, which has received a chilly reception from Republican lawmakers so far.

"Gov. Pence's budget is a jobs budget that focuses on fiscal discipline, providing permanent tax relief for Hoosier workers, small businesses and family farms, and funding our priorities in education, transportation and health care," Pence's budget director, Chris Atkins, told members of the State Budget Committee on Tuesday.

The budget pays for some of the proposals Pence floated during his campaign for governor, including $64 million in grants for schools that perform well on a trio of state metrics including the A-F grading system established by former Republican Superintendent Tony Bennett. It increases K-12 spending and higher education aid by 1 percent each year, and continues to fund the state's full-day kindergarten program.

Pence also proposes shifting excess state reserves used to pay down pension liabilities to create a new transportation investment fund.

The Pence budget also includes more funding for targeted areas, including $35 million more for the embattled Department of Child Services to hire more caseworkers and other staff, $18 million for adult workforce development programs, and an additional $6 million each for teacher performance grants and a dropout prevention program called Jobs For America's Graduates.

On the whole, it would increase state spending from an estimated $14.2 billion in this fiscal year to $14.4 billion in fiscal year 2014. It then would increase to $14.6 billion in fiscal year 2015.

Now the General Assembly will take its turn at the budget, and leaders in the Republican-dominated Legislature have indicated their priorities could be far different from the new governor's.

House Speaker Brian Bosma, R-Indianapolis, cast doubt on the proposed tax cut throughout the end of last year and other leaders, including Senate President Pro Tem David Long, R-Fort Wayne, have said a final answer may have to wait until after the state sees new economic forecasts in April.

"We're going to have a good discussion the next four months," said Senate Appropriations Chairman Luke Kenley, R-Noblesville. "There's a couple of things we don't know yet, (like) how we're going to deal with this Medicaid issue, and it kind of dwarfs everything else if we can't get a good answer to that."

Indiana's Medicaid actuary, Milliman Inc., has estimated the state will have to pay an additional $600 million over the next seven years to cover the cost of uninsured residents who qualify for Medicaid. The jump in enrollment, the firm says, has nothing to do with any change in Medicaid, but instead is due to an assumed "woodwork effect" in which low-income residents who qualify for Medicaid but are not enrolled seek federal coverage as the individual mandate takes effect next year.

Lawmakers will also be eyeing new funding for transportation, as the money from the 75-year lease of the Indiana Toll Road dries up, and could ditch the tax cut in favor of more spending on K-12 education and higher education. They also will ponder expanding the state's Medicaid program under the federal health care law, something Pence did not include in his plan.