Indiana House proposed budget alters salary calculations, public health allocations

The House version of the proposed budget contains a few interesting stand-alone items outside of the K-12 funding boost that heavily favors vouchers and ongoing support for the Indiana Economic Development Corp.

Smaller changes could have big impacts for lawmakers, as the bill’s language would change the formula used to calculate pay raises for many–from the governor down to each legislator.

Previously, their raises were based on a narrow band of state employees, rather than the workforce as a whole. The change is not expected to have a financial impact but rather stabilizes annual raises.

Still, salaries for legislators have steadily increased since the General Assembly tied their salaries to the earnings of state employees – up from roughly $40,000 for the average lawmaker in 2006 to around $70,000 today.

As compared to the most recent budget, House salaries would stay flat for the first year at $8.4 million and then increase 18% in 2025 to $9.9 million. The Senate salary allocation was $2.4 million in 2022 compared to the proposed $2.8 million in 2025, a 14.3% increase.

Additionally, the bill significantly changes how–and how much–counties will cover for a proposed overhaul of the state’s public health system. Previously, counties would have paid for a small portion out of their overall budget but now can establish a dedicated fund.

Why the state wants to change salary calculation

Lawmakers opted to remove themselves from the question of salary calculations back in 2007, instead choosing to base their pay as a percentage of the annual earnings for the state’s judges. Any increase to their pay would also increase legislator salaries.

As the state budget director, Zac Jackson is responsible for drafting the language around those salary increases–though Supreme Court Justice Loretta Rush makes the decision whether or not to consider a raise.

Previously, the state code directed Jackson to compare judge pay increases to state employees “who are in the same or similar salary bracket” to determine that raise.

But few state employees are in the same salary brackets as judges, who are some of Indiana’s highest-paid state employees. The typical state employee earns somewhere between $40,000 and $50,000, according to Jackson.

Salaries for judges start at $164,823 for Circuit and Superior Court Judges—more than three times the average state employee’s salary—and end at $198,514 for Supreme Court Justices. Pay for other judges, such as those sitting on the Court of Appeals, falls somewhere between the two salaries.

Roughly 10 or so positions outside of the judicial branch fall into that salary bracket, meaning that one outlier in the group has an inordinate amount of influence over the pay of judges.

“I’m left with 10 employees to do this calculation on and in a typical year when we’re doing salary increases, maybe the statewide average is about 3%,” Jackson said. “There’s a probability that with so few people … one person can get a really high increase or a really low increase and that skews the numbers.”

Under the new language, salary increases will be tied with the average raise for all employees.

“What’s happened over the years is that the calculation I do ends up being close, but does not end up being reflective of what happened to all state employees. It’s just reflective of what happened to a very, very narrow band of 10–maybe a dozen–people,” Jackson said.

Elected state officials–from governor to state auditor–were calculated similar to judges but at a lower salary bracket. The governor receives a $134,051 salary while the state auditor, treasurer and secretary of state receive $94,761.

“I don’t even know that it costs anything, it’s really just meant to make a calculation easier and probably more representative of what the General Assembly meant when they first wrote it,” Jackson said.

Legislator base salaries are 18% of a judge’s salary, or $29,750. However, legislators earn more than the base salary–roughly $70,000, on average. The bulk of that extra pay comes from the $196 per diem paid to each legislator for each day in session.

While lawmakers also qualify for a portion of the per diem payment each day outside of session—just over $78—those in leadership positions earn even more – from $7,000 for the Senate President Pro Tem and House Speaker to $1,000 for committee chairs.

The recent pay bump for state employees won’t have the same effect on elected officials and judges.

The typical state employee saw a 5% salary increase last year, but the state utilized a hybrid calculation for individual employees: a flat $1,300 increase combined with a 2.5% increase.

The flat amount had a greater impact on the lowest-paid employees, who wouldn’t have seen the same increase under a percentage increase. The percentage increase disproportionately benefited high earners.

State code only considers flat dollar amount increases or percent increases, so the proposed budget also amends statute to include hybrid approaches such as the one above.

So while high earners–and those elected officials whose salaries are based on their performance–received an increase, their increase is less than the 5% average for state employees.

What about public health?

The House budget also proposed a slightly different tactic when it came to increasing Indiana’s public health funding: less overall state funding and more county buy-in.

Gov. Eric Holcomb’s proposal would have dedicated $120 million the first year followed by $227 million the next year to increase public health services across the state. However, to avoid looking like a mandate, counties would opt into the funding and promise to implement a series of health programs with a county buy-in of 20%.

Meanwhile the House would spend just $225 million–total–for public health. And counties would need to foot 25% of the cost.

“It’s just a little higher local buy-in and nothing more,” budget author Rep. Jeff Thompson, R-Lizton, said.

But counties don’t necessarily agree.

“We preferred a 20% match as recommended by the (Governor’s) Public Health Commission,” said David Bottorff, the executive director of the Association of Indiana Counties. “With the 20% match, only a few counties would not qualify (for state funding) under their existing appropriation… raising it to 25% means somewhere between 15 and 18 counties would not qualify.”

The bill does give counties a pathway to raising funds for public health improvements: a countywide income tax carveout.

The Public Health Local Income Tax cannot exceed 0.1% and must be tabulated in increments of 0.01%. Revenues go to a dedicated fund and are distributed directly to the county health departments.

Counties already have the option to use a similar funding mechanism for public safety, EMS services, correctional facilities and economic development. Typically, these are used to keep money at the county level to fund a county-wide service and nearly every county uses the local option income tax–capped at 2.75% in Marion County and 2.5% in all other counties.

Counties must “freeze” their property tax levies and “use the income tax revenue for budget increases,” as outlined in the Indiana Handbook of Taxes, Revenues and Appropriations.

“It’s just an option, nothing more,” Thompson told the Indiana Capital Chronicle on Monday. “You’ve got limits on levy growth so, in some counties, maybe (a local income tax) is a better alternative but that’s for the county council to decide.”

Bottorff said the local income tax wasn’t something requested by counties, although the option is appreciated.

“We don’t want it to appear as though locals have to raise taxes to benefit from this state allocation or get their (state) match,” he said.

Additionally, Bottorff said his association preferred Holcomb’s investment over the lower House proposal and hoped that the state would consider five-year commitments over yearly renewals.

“If it ends up becoming an annual review … it does feel like a grant and locals may be more reluctant to build out their infrastructure,” he said.

The budget now moves to the Senate for further consideration, with hearings set to begin Tuesday.

The Indiana Capital Chronicle is an independent, not-for-profit news organization that covers state government, policy and elections.