New Indiana Governor Unveils Budget with $800M Tax Cut

CHICAGO — One day after taking office, Indiana Gov. Mike Pence unveiled a $29 billion two-year budget plan that features a nearly $800 million income-tax cut and taps $300 million of surplus dollars for a new infrastructure fund.

"Gov. Pence's budget is a jobs bill that focuses on fiscal discipline, providing permanent tax relief for Hoosier workers, small businesses and family farms, and funding our priorities," newly hired state Budget Director Chris Atkins told the State Budget Committee Wednesday.

The House Ways and Means Committee will be the first to consider the budget. Lawmakers will debate a final spending plan for the next four months, relying in part on a new revenue forecast scheduled for April.

The spending plan assumes general fund revenues will total $14.87 billion in fiscal 2014 and $15.3 billion in 2015, up from $14.21 billion in the current fiscal year.

The budget's centerpiece is a proposed 10% income-tax cut that fulfills the Republican governor's campaign promise. The tax cut would be financed with surplus revenues expected over the next two years.

The budget assumes a surplus of $518 million in fiscal 2014 and $759 million in 2015. The proposed income-tax cut would cost the state roughly $772 million, dropping the final surplus to $268 million in 2014 and $237 million in 2015, according to budget documents.

It's too early to tell if lawmakers will approve the proposed income-tax cut. Sen. Luke Kenley, R-Noblesville, one of five members of the state budget committee, said it might not be the best way to spend surplus funds.

"Some would argue that if lower the corporate income tax a little more, closer to where the individual income tax is, you'll draw more businesses and jobs in Indiana," he was quoted as saying in local news reports.

The triple-A rated state has a $2 billion reserve, about 12.5% of the state budget. Current law requires a taxpayer refund if the surplus totals more than 10% of the state budget. Former Gov. Mitch Daniels used the money remaining after the automatic refund for pension fund payments.

Pence has instead proposed using the remaining money — estimated at $347 million over the next two years — for transportation instead.

Pence proposed increasing K-12 spending by $137 million over two years. K-12 spending would rise by 1%, or $63 million, in the first year. Schools that met certain benchmarks would be eligible for another 1% bump in the second year.

The spending plan would increase higher education funding by 1% and includes $19 million for capital projects.

Pence proposed raising Medicaid funding by $200 million a year, but the budget does not include funding to expand the program as allowed under the new federal health care law.

The General Assembly will debate whether to opt for the federal Medicaid expansion over the next few months.

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