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Closing the fiscal year this week, Indiana budget leaders say the state government’s finances are in a healthy spot despite posting its lowest reserves since the pandemic, an issue exacerbated by a $1 billion Medicaid shortfall discovered last December.
Reserve accounts totaled nearly $2.6 billion and were 11.9% of the current year’s budgeted appropriations. Last year, the state ended with reserves of $2.9 billion.
At the fiscal year-end presentation at the Statehouse, Cris Johnston, director of the Office of Management and Budget, said budget dips are not an immediate worry but should be monitored.
“What I hope you take away from our remarks and the data that we provide is Indiana continues its commitment to fiscal stability and sound financial management,” he said.
The reserves amount to $664 million in the general fund, $181 million in the Medicaid Contingency and Reserve account, $672 million in the tuition reserve fund and $1 billion in the rainy day fund.
However, the state continues to suffer from a nearly $1 billion Medicaid miscalculation that could lead to budget cuts, including $300 million in Family and Social Services Administration’s program rollbacks such as the attendant care program for parents of medically complex children.
The state is remedying the error this year with about $255.2 million in Medicaid augmentations sourced from the general fund. Next year, that amount could rise to $457.9 million. These numbers stem from the 2023 revenue forecast.
The Medicaid office reconciles Medicaid a year after the fiscal year closes, so augmentation amounts could change.
Medicaid is the fastest growing line item in the state budget, and Johnston said the state is taking a closer look to understand the rapid increases, including through monthly reports.
“I remain cautious about state expenditure increases as the state returns to lower and more historic levels of revenue growth,” said state Sen. Ryan Mishler, R-Mishawaka, “particularly in regard to the Medicaid program, as the current rate of growth in Indiana’s Medicaid spending is not sustainable and could adversely affect other aspects of our state’s budget,”
The current turbulence is in part triggered by the federal government’s stop-gaps during the pandemic. It paid a greater portion of Medicaid expenses, and state governments could not remove any beneficiaries for a period. The state began removing ineligible Hoosiers from the government insurance plan earlier last year.
Taxes, interest & fees
Revenue collections amounted to $21.5 billion for the fiscal year, which is $14.6 million, or 0.1%, under estimates. Fiscal year 2025 is estimated to bring in $22.3 billion.
Sales tax collections amounted to $10.4 billion while income tax totaled $8.1 billion. Sales tax finished about $85.4 million, or 0.8%, below the December 2023 estimates, but the budget was leveled by $84.2 million extra in income taxes, or a 1.1% more than expected.
Corporate taxes came in 15% below expectations at $965.1 million — short $181.5 million of estimates.
“Corporate income tax is the most difficult tax type to predict,” Johnson said. “It’s difficult to pinpoint, and we’ve seen those variances over the years.”
A bright spot was interest revenue, capitalizing off short-term interest rates. The line item came in at 45% above estimates at $572.3 million, nearly doubling last year’s total.
Hospital assessment fees brought in $295.2 million this fiscal year, and the state expects to see an uptick of less than $2 million next year.
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Too bad the federal government can’t even get close to zero debt or a zero deficit. Time for a national sales tax to replace income tax.
Keep them both.
The Fair Tax is the way. Good call Scott, in addition to significant spending cuts.
Name what you want cut.
For every dollar an Indiana resident sends to the federal government in taxes, Indiana gets more than $1.50 back in federal government funds. This is the case with forty of our fifty states. There are ten states that contribute more to the federal government then they get back in federal spending; nine of these ten are blue states (Utah is the lone red state). Nine of the top eleven states to get more federal spending than their citizens pay into the federal government are red states, led by Kentucky, which gets nearly $2.80 in federal spending for every dollar it pays in federal taxes.
Imagine what would happen if the federal government were to limit spending in each state to the amount of tax revenue each state generated. Many of the “low tax” states (both red and blue) would see incredible increases in their income taxes, sales taxes, and property taxes.
Cut what? Social and infrastructure programs are already down to the bone and honestly don’t cost our government that much anyway. Every time we cut a social safety net or a building program, it gets overtaken by the increase in the military budget. Why should we continue making our lives materially worse to keep the military industrial complex going and so multi-billion-dollar corporations can continue to pay a lower effective income tax rate than I do personally? Screw that. Raise the marginal income tax above $10 million and bring corporate taxes up to 35%.
We need to rethink the Medicaid funding.
And rethink Medicaid allowable expenses, and who receives them.
Maybe, just maybe, stop taking money ($700M, to be specific) from the Medicaid fund allotted by the federal government and CMS, put it in the general fund, and then act surprised there is a Medicaid deficit. Egregious, obtuse, and ineffective must have been in the job descriptions of those involved.
You expect anything more from a state that allows hospitals to steal money from the care of the elderly and allows it to be used instead on CEO salaries and shiny new facilities?
Relax everyone. At the end of the day, like it or dislike it, we are all in this together. No getting around that.
Oh my gosh…we spent more on medical care for people in need and we STILL have a surplus in the bank.