Legislative Update: Survival of the Fittest

The 2019 legislative session is over; unlike last year, sine die came a few days early and without much drama (the K-12 kumbaya moment on Thursday was a stark contrast to 2018’s dueling press conferences).  There was general agreement between the Governor and GOP supermajorities in the House and Senate on the budget framework and other key issues.

But the last five months have seen plenty of tough negotiations, public controversies and private deal-making, and intense lobbying over how to collect and spend the $34.6 billion dollars that will flow from the state’s coffers over the next two years.

So to quote Mobb Deep, let’s take a quick look at the “survival of the fittest” – some of the bills and budget priorities that made it through the General Assembly gauntlet. 

Follow the Money:
Let’s start where the action is: The final budget deal, HB1001, was passed before midnight Wednesday.  Taking it from the top spending category, K-12 education:

• In all, the final version of HB1001 includes $763 million in new/increased K-12 funding (still roughly half the state’s overall spending as a total category), including $539 million in added tuition support (a 2.5% increase annually, just above inflation) and $150 million for advance payments to teacher pensions;
• While the legislature largely left salary decisions to local districts (to the chagrin of some public education advocates), the budget did include $75 million for Teacher Appreciation Grants targeted specifically to bonuses and base pay for highly-effective teachers; 
• After the Senate initially took a tougher position on charters, the final budget met in the middle at $750 per-student support (a two-year total of $45 million in the Charter Innovation Grant Fund) and 85% of tuition support for virtual programs (down from the 90% status quo);
• An early version of the budget basically flatlined complexity support, a move which would have hit urban districts like IPS and rural schools (sharing the challenge of poverty) hard – we pushed back on this as counterproductive to inclusive growth and upward mobility;
• The budget again found a middle ground on the complexity funding level ($3,650 for ’20, $3,675 in ’21) and urged an interim study committee on the most accurate way to count students in poverty;
• To prepare students for higher-paying jobs, the budget also included funds for STEM programs, computer science teacher training and Industry Credentialing Organizations to support career and technical education partnerships.

Some other budget highlights:

• HB1001 doubles Workforce Ready and Next Level Employer grants to help adult Hoosiers upgrade their skills to match the demands of the job market;
• To help create jobs for these workers, final appropriations for the Business Promotion & Innovation Fund ($15.5 and $17 million in 2020 and ‘21) even exceeded the Governor’s original request; it will cover certain regional development projects and new economic development programs created in other bills (like SB563);
• Temporary cutbacks to the 21^st Century Fund were also restored;
• The budget allocates over a billion dollars annually to ongoing highway maintenance and construction programs, continuing the level of investment supported by the 2017 infrastructure package, and lawmakers resisted the urge to tap into gas tax revenues for the Department of Child Services (a good sign for the sustainability of our infrastructure efforts);
• Legislators continued funding the Public Mass Transportation Fund at $45 million annually, and in a somewhat surprise move, reallocated $185 million to avoid derailing double-tracking upgrades to the South Shore commuter rail line in Northern Indiana (positive precedents if the Central Indiana light rail ban is ever pushed into the dustbin of bad ideas);
• Another $650 million will continue Governor Holcomb’s ‘Next Level Connections’ fund, which covers broadband deployment, local trail grants and support for non-stop airline routes.

Of note, the online sales tax provisions formerly in SB322 were moved into the budget, levying innkeeper’s taxes on short-term rentals (and at ‘retail’ rates for online hotel booking sites) and putting market facilitators like Amazon on the hook for sales tax collections.

Turning virtual transactions into real revenues will help support the Capital Improvement Board, which will rely on innkeeper’s taxes and other revenue streams to fund facility improvements (expanding the convention center and executing a long-term lease agreement with the Pacers) and support downtown development as outlined in SB7(which got a Senate concurrence vote earlier this week).

Other metro communities like Greenwood and Danville also earned the authority to levy local innkeeper’s taxes via HB1402.

As an aside, SB7 isn’t the end of the fight to sustain the CIB and strengthen our hospitality sector – now the focus shifts to the City-County Building to put these tools to work.  We’ll keep pushing forward.

A Winning Week for Economic Development
SB563 also got a thumbs-up on its conference report, making important revisions to the state’s economic development toolkit:

• A new redevelopment tax credit to give state and local economic development officials another tool for attracting investment to chronically-vacant properties, including blighted brownfield sites (a top Chamber priority);
• Longer renewal periods and flexible funding for Certified Tech Parks (another priority); and
• The expansion of existing incentive programs to cover high-growth, venture-backed firms, and a new Small Business Innovation voucher program to connect up-and-coming companies with state research resources.

Along with new tax breaks for large data centers (HB1405) and funding of the 21^stCentury and Business Promotion & Innovation Funds, it was a solid session for economic development.  And speaking of redevelopment, HB1518 also headed to the Governor’s desk this week, making it easier for mixed-use developments like Indy’s Bottleworks project (a former brownfield) to secure alcohol permits for food hall tenants.

Back to School:
We covered K-12 and workforce development funding with the budget, but a couple more items of note:

• HB1628, expanding ‘On My Way’ pre-K to all Indiana counties while protecting service levels in existing pilot counties (like Marion) got a positive vote on its conference report from both chambers this week – another step towards more accessible and affordable quality early learning programs that will pay off big for our future workforce and economy;
• HB1641 also passed after some last-minute wrangling: The bill gives school districts more flexibility on facility reuse by shortening the window for charters to pursue vacant school properties to 90 days under the state’s $1 law (and adds requirements that they must demonstrate enrollment demand), and creates two classes of properties (allowing charters to claim below-market rate space in larger buildings).

Rolling the Dice:
In the waning hours of session, SB552 also passed – with perhaps the most consternation and conflicted comments of any successful bill, as you might expect from a sprawling revision of gaming policy. 

It allows relocation (and potential expansion) of casinos in Gary, clears the way for a new casino in Terre Haute, offers ‘hold harmless’ olive branches to other gaming communities, including French Lick, and approves sports betting statewide (including mobile wagering).  Of metro interest, it also accelerates table games at racinos in Anderson and Shelbyville to 2020 (a year earlier than previously authorized).

Don’t forget your homework:
We should also note that, in addition to the school complexity formula, some important topics also landed on the interim study agenda – including the ‘regional investment hubs’ (allowing interlocal alliances to form RDAs and levy certain taxes for local and regional priorities) and the allocation of local income taxes based on residence and employment patterns. 

The Regional Cities Development Fund was phased out of the budget (leaving remaining funding needs to be covered by the Business & Innovation Fund, as mentioned earlier), but we’re more eager for a serious discussion of how localities and regions can build ‘own source’ revenue capacity to pursue ongoing capital needs and transformative economic development projects.  These are critical areas that we’ll be speaking up on during study committees.

We’ll also be doing our homework for next week: Look for a more comprehensive wrap-up of the session, including our wins (we had plenty) and disappointments (we won’t ruin your weekend by restating them now) and a more detailed list of the bills that passed, failed, and may return next year.