CHICAGO — Indiana lawmakers this week began debate on a new two-year budget cushioned with a $2 billion surplus, as well as a handful of high-profile bills, some of which would boost borrowing by local governments and the triple-A rated state government.

The House Ways and Means Committee Tuesday morning approved a $30 billion, two-year spending plan proposed by House Republicans last Friday. The budget strays significantly from the executive budget unveiled in January by new GOP Gov. Mike Pence, most notably by increasing spending by $1 billion and dropping his plan for an $800 million income-tax cut.

The House budget also raises infrastructure spending by $500 million instead of adopting Pence's plan to dip into surplus funds for a $340 million, one-time deposit into a newly created infrastructure fund. Indiana has now run out of funds from the 2005 $3.8 billion Indiana Toll Road lease, which it had tapped for road projects.

The full House could vote on the spending plan as early as Thursday.

Separate from the budget, lawmakers are set to consider a few bond-related measures during their current four-month session. The legislation includes a bill to advance a long-stalled $1.3 billion mass transit system in central Indiana. Another, currently in a Senate subcommittee, would allow the state to issue unemployment bonds to pay off its federal unemployment liability debt.

Last week, the powerful Senate Appropriations Committee unanimously approved legislation that would create a new state credit for debt issued for the Indianapolis Motor Speedway. Senate Bill 69 would create a new sports district around the speedway, host of NASCAR and the Indianapolis 500, which would capture a piece of state sales, income and corporate taxes to pay off 20-year bonds floated for capital improvements to the complex.

Another bill would overhaul Indiana's gambling sector in an effort to compete better with neighboring states like Ohio and Illinois that have newly expanding gaming industries. The measjure lost the support of several senators last week when the Appropriations Committee amended it to cap the state money that goes to casino-hosting counties.

The Hoosier State is in relatively strong shape as it moves into the new budget biennium, with revenues tracking ahead of projections and a $2 billion surplus, credit analysts said.

The state enjoys gilt-edged issuer ratings from Moody's Investors Service and Standard & Poor's. Fitch Ratings does not maintain an underlying rating on Indiana, which does not issue general obligation bonds, and maintains an AA-plus rating on its $2.9 billion of lease-backed debt.

The state's constitutional ban on issuing GO debt has helped it maintain the eighth-lowest debt burden among states, according to analysts.

Indiana weathered the Great Recession better than many of its neighbors in the Midwest despite its reliance on the manufacturing sector, Moody's Investors Service analyst Julius Vizner noted.

"They are the state with the largest concentration in manufacturing," Vizner said, noting that the sector makes up 17% of all non-farm payroll. "This is a long-term issue for the state, which they have been addressing."

In the short term, particularly over the last year, manufacturing has actually helped Indiana as the sector began to enjoy a rebound, particularly the domestic automobile industry.

Another of the state's strengths is its strong executive powers to make mid-year budget cuts to offset possible revenue shortfalls, Vizner said.

It's a power that former two-term Gov. Mitch Daniels took frequent advantage of, helping the state maintain structural balance.

"In terms of finances they're doing quite well," Vizner said, noting the $2 billion surplus, which includes the rainy-day fund and general fund balance, adds up to almost 20% of operating revenue. "Their revenues are on the upswing, and as of January, their general fund revenues are both above forecast and above prior-year revenues from the same period."

Daniels used the surplus to give an automatic refund to taxpayers and make pension payments. Pence, who took office in January, has proposed tapping $300 million of surplus funds to launch a new infrastructure fund instead of making the pension payments.

Pence said this week he was disappointed with the House Republican decision to drop his income-tax cut in their budget.

"Despite having the largest budget surplus in history, this House budget increases spending without giving hardworking Hoosiers one cent of new tax relief," the governor said in a statement. "As our administration budget clearly showed, we can afford to do both."

The Senate Tax and Fiscal Policy Committee was set Tuesday to hold a hearing on Pence's income tax proposal, though not take a vote on the measure.

Since 2005, the state has financed road projects with proceeds from the $3.8 billion, 75-year lease of the Indiana Toll Road. But proceeds from the lease are now either spent or allocated to other projects.

The state is turning to public-private partnerships as a way to finance infrastructure. But many lawmakers are calling for a more stable revenue stream. The House Republican budget being considered this week would divert a piece of state sales gasoline tax to fund projects.

The full House will vote on a budget by Feb. 25, the deadline for the so-called third reading of all bills, and send the measure to the Senate. The General Assembly has until April 26 to craft a final budget. A fresh revenue forecast is scheduled for early April, and legislators will use those figures to craft a final budget.

"This is something to start with," Nicholas Goodwin, a spokesman for the House Republicans, said of the proposed House spending plan. "These discussions are ongoing and we're fairly confident that by April the concerns about the budget will be addressed."

The House Ways and Means committee last week also approved a long-stalled bill advancing a $1.3 billion transit plan in central Indiana.

The measure would authorize a voter referendum to increase local income taxes by 0.3% and use the new money to pay for a new mass transit district in Indianapolis and two counties. The measure is now headed to the full House for a vote.

Senate Bill 528, which would overhaul the state's gambling industry, will now move on to the full Senate. Local representatives from casino regions originally supported the bill, but many dropped that support last week when Sen. Luke Kenley, R-Noblesville, chairman of the Appropriations Committee, proposed eliminating a 10-year-old law that guaranteed local governments would never receive less revenue from wagering and admissions taxes than they collected in 2002.

Indiana has had to supplement the revenue since the passage of the law, and Kenley said his proposal would save the state $24 million in 2015 and $48 million after that.

Senate Bill 541, meanwhile, introduced in mid-January by state Sen. Karen Tallian, D-Portage, would authorize the Indiana Finance Authority to investigate whether it would be less expensive to float bonds to pay off the state's $1.76 billion debt to the federal unemployment trust fund.

The bill remains in the Senate Appropriations Committee with no hearing date set.

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