Indiana state budget deal: Cigarette taxes go up, public health funding goes down
Legislative leaders had to go back to the drawing board last week after the latest revenue forecast showed a $2 billion drop in expected revenue over the course of the upcoming biennium. This new version cuts public health funding by more than half, dips a bit more into reserves, and adds new revenue from the tobacco taxes, which amount to about $800 million over the biennium.
They presented the outlines of the deal in a press briefing the afternoon of April 23, but the actual budget has not yet been posted. Lawmakers will likely vote on the final budget the evening of April 24.
"We used to think that when you were relatively flush with cash, that's a challenging budget to craft, and maybe harder than when you're short with cash. I'm not sure that I feel that anymore," Senate Pro Tempore Rodric Bray, R-Martinsville, said. "Trying to come up with a way to fund the budget with a $2 billion shortfall in the official forecast is, frankly, one of the more challenging things I think we've ever done."
The massive difference in the April forecast compared to December stems from a number of federal policy actions, from tariffs impacting trade and the stock market to deep federal spending cuts. It also partly reflects a return to normal revenues following a period of exceedingly high revenues during the COVID-19 pandemic era.
New revenue in the budget
Sen. Ryan Mishler, R-Mishawaka, said the final budget increases the cigarette tax by $2 a pack, which would take the tax from $1 to $3 a pack. He said the tax on other tobacco products will also increase "by the same percentage," which would be a tripling.
The roughly $400 million per year that this will raise will go entirely to the Medicaid budget, he said.
This is something that advocacy groups and the Indiana Chamber, specifically, have advocated for a long time as a way to raise revenue while discouraging people from tobacco use. The House has pitched it in the budget a few times, but the idea has usually died in the Senate. Democrats, too, have suggested it.
"Along with revenue comes a really pretty good public policy that was going to help persuade people to either not start smoking or stop smoking at the same time," Bray acknowledged. "So I think everybody expects that number will decrease over time. But that's a good thing, because we think it means we have fewer smokers."
What is getting cut
Without seeing the specifics of the bill or its fiscal analysis yet, here are some cuts leaders described:
Funding for county public health departments, which focus on preventative health care and education, will be funded at $40 million a year, down from $100 million a year.
The House wanted to expand the school voucher program to be universal in this budget, and the Senate didn't. They will both get their wish: Universal vouchers will kick in during the second year only.
Higher education funding will get slashed an additional 5%, as will the repair and rehabilitation budget, which pays for capital projects.
They "did away with some of those" commissions who haven't met in a while and had "big cash balances." They didn't specify which ones.
The new deal also dips into reserves more. While the Senate and the House budgets proposed leaving roughly 12-13% of the budget in reserves, this one will leave "a little north of 10%," Bray said. That could equate to a difference of about half a billion dollars, depending on the exact percentages.
The decision to cut public health spending while at the same time expanding voucher options for the richest families is one of the largest disappointments for Democrats, Rep. Greg Porter, D-Indianapolis, said.
"Is that making Indiana healthy again? I think it's making us extremely vulnerable," he said.
Bray said that close to half of the money counties got in 2024 went unspent, so he thinks some counties are still trying to roll out their programs.
"While that's a cut I'm sure they'll be disappointed in, they're also continuing to try to build this up," he said. "We want to continue to try to invest in that."
Overall, the state budget will grow 0.8% in 2026 and another 0.1% in 2027. By comparison, local governments are projected to have 1.6% increases in the first year and 5.1% in the second year.
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