Legislative Update: 2.21.25

For the policy lovers among us, session drama around tax policy, education funding, and healthcare spending sets our wonky hearts aflutter—but we’d be lying if we said we weren’t a little relieved about the fact that it’s now intermission.

Next week lawmakers exit stage left to prepare for the second act of session. We’ll also be leaving the Statehouse theater and taking a break from this update next Friday, so read on for a substantive recap of where things stand at the halfway point of this months-long show.

Center Stage

The Indiana House passed its version of the next two-year budget on Thursday, moving forward a proposal that includes many of Gov. Mike Braun’s spending priorities. The Senate will now review and almost certainly amend the budget before the final version is approved in late April.

In broad strokes: The $46.7 billion general fund budget is lean and increases spending by only 5 percent in light of a modest revenue forecast and decreases in some pandemic-era infusions of cash.
Key funding priorities: Education spending, which makes up nearly half of the budget, got a 2 percent increase. All families in Indiana, regardless of income, can access private-school K-12 vouchers under the House-passed version of the bill. The budget also maintains childcare vouchers for income-qualifying families who currently receive them by allocating $155 million in state funds to replace pandemic-era federal relief funds that bolstered the program in the current budget cycle. But unlike Braun’s more robust childcare spending proposal, it does not eliminate the wait lists that the state announced late last year or allocate an additional fund for local childcare assistance.
- The budget fully funds Medicaid, which has seen ballooning costs and now accounts for 22 percent of the House-passed version of the budget, and keeps public health funding generally consistent at $200 million over the biennium (down from $225 million in the current cycle, but up from pre-pandemic levels of roughly $14 million).
Business funding victories: The budget increases spending on Career Scholarship Accounts, which provide students with financial support to participate in career-preparation programs such as apprenticeships and internships. It also creates a tax credit designed to help companies upskill their workforce, reflecting Braun’s economic development approach of supporting existing businesses’ growth. While both efforts reflect Indy Chamber priorities, we hope to work on the details of the tax credit during the second half of session to ensure it’s practical for businesses to implement. In an effort to increase housing supply, the budget maintains a $25 million fund created in 2023 to allow municipalities and counties to apply for funds to help pay for utilities and other infrastructure to support new housing developments. The Indiana Sports & Tourism Bid Fund will receive $10 million over the biennium to support efforts by Indiana Sports Corp and its partners to land major events in Indiana.
On the fiscally conservative side: Public colleges and universities will not receive funding for new buildings but will get allocations for maintenance of existing buildings. The Indiana Economic Development Corp. also will see a $2.2 million drop in funding, including cuts to a $500 million fund that could be used for investment incentives or infrastructure.

Leading Actors

K-12 education and healthcare (Medicaid, specifically) collectively make up 68 percent of the state’s budget, so it’s logical that the budgetary plot would revolve around these two characters. Both topics have generated significant debates so far this session.

K-12 education: Democrats strongly opposed the House budget’s removal of income caps on K-12 vouchers, which they say skew public benefit towards wealthy families. In current law, families who earn more than $220,000 per year do not qualify for private school vouchers, which provide an average of $6,200 per student in tuition support for families (90 percent of what public school students receive). But Republicans say parents deserve the right to use their tax dollars for their students’ education.
- Meanwhile, SB 518 (School Property Taxes), a bill that enables public charter schools to access local property tax dollars narrowly passed the Senate after being amended on second reading. The legislation is intended to create funding parity for public schools regardless of whether they are operated by a school district or a nonprofit operator.
Healthcare: While House lawmakers propose fully funding Medicaid costs, about 10,000 Hoosiers remain on waitlists for waivers that provide services for home- and community-based care. Gov. Eric Holcomb’s administration enacted the waitlists to cut costs in light of a $1 billion Medicaid shortfall in 2023 due to a forecasting error. Now, lawmakers are looking to address the waitlists by scrutinizing the Medicaid program to root out fraud and find efficiencies as is proposed in SB 2. This bill also seeks to limit enrollment in the Healthy Indiana Program, which is 90 percent federally funded, to free up funds. At the core of this debate is how to rein in spending on healthcare needs to make it sustainable amidst the huge growth during COVID-19 and beyond.

Rising Action

Indiana’s road funding proposal—HB 1461—moved through the House and will be taken up by the Senate.

A key change would benefit growing communities in Indiana by capping one of the state’s key road funding sources to local communities, the Community Crossings Matching Grant Program, at $200 million. Starting in the 2026 fiscal year, surplus beyond that amount would be distributed differently.
- Indianapolis would receive an additional $50 million from the surplus, as long as the city matches that amount with local funding.
- Additional surplus would be allocated to communities based on total lane mileage, which benefits populous areas with wider roads.
- Both of these changes are strongly supported by the Indy Chamber and we look forward to working with stakeholders and members of the Senate during the second half of session.

Cliffhanger

Most good narrative tension involves a question that doesn’t get answered until late in the story. In the first act of session, the tension revolves around raising the cigarette tax.

A $2 per pack increase to Indiana’s 39th lowest rate of $0.995 would generate an additional $356 million in much-needed annual state revenue. But will lawmakers include it? We likely won’t know until the budget negotiations during the last week of session.

Sen. Fady Qaddoura included a $1 per pack increase in SB 394, which was heard in Senate Tax & Fiscal Policy Committee but did not move out of committee.
Rep. Ed Delaney offered an amendment to the House budget bill to increase the tax by $2 per pack, but it was not adopted.
House Republicans voiced support for the policy, but House Ways and Means Committee Chairman Jeff Thompson indicated they need to see support from the Senate before implementing it. That’s why the decision likely comes down to final budget negotiations.

Act Two: Coming Soon!

Legislators have departed the Statehouse and won’t return until Monday, March 3, when they’ll begin the process of reviewing bills passed in the other Chamber. There were 1,250 bills and resolutions introduced this session with only 337 (27 percent) passing in their original Chamber. Below are updated lists of bills still moving that the Indy Chamber is tracking for you to review:

Don’t hesitate to ping us with any questions, and we’ll see you back here on March 7.