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K-12 funding increases, agency budgets are mostly restored in Holcomb's budget proposal

Kaitlin Lange Arika Herron
Indianapolis Star

As businesses and families struggle to rebound financially from the pandemic, Gov. Eric Holcomb plans to use state money to pay off some debt and build back up reserves in the two-year budget his office unveiled Wednesday morning, moves that are criticized by the House Democrats' fiscal leader. 

"By making those investments that we proposed," said Office of Management and Budget Director Cris Johnston, "those free up dollars in future years for other things."

Not everyone agrees. 

Rep. Greg Porter, D-Indianapolis, said that the state should be lending a hand to Hoosiers, many of whom are still struggling financially, rather than spending its extra cash on debt and projects that could be bonded. 

"Take care of the human infrastructure," Porter said after the meeting of the state's budget committee. "Again, we have missed opportunities to take care of individuals that reside in our state."

K-12 spending would get a modest bump, though perhaps not as much as school districts would have hoped prior to the coronavirus pandemic.

Meanwhile, some departments will not return to funding levels from before the pandemic, when Holcomb required all agencies to slash their budgets by 15%. 

Under Holcomb's budget, the state would spend roughly $17.5 billion in 2022, a 2.8% increase in spending from 2021, and $17.8 billion in2023, an increase of 1.7% from the previous year. The state's fiscal years begin July 1.

State budget officials expect yearly revenues to return to pre-pandemic levels by the end of this year, with the help of federal COVID-19 relief money. 

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The final two-year budget could look much different when it makes its way to Holcomb's desk at the end of session as lawmakers try to impose their own will on the massive piece of legislation.

Here are five takeaways from Holcomb's budget:

K-12 schools would get a small bump

Holcomb is proposing that the state increase spending on its public K-12 schools by 2% in the first year and an additional 1% in the second. That works out to about $150 million new dollars in the first year of the budget and roughly $225 million in the second year.

School leaders were bracing for flatlined budgets earlier in the year, when state officials were predicting the pandemic would have a much larger economic impact than it has.

"I commend Gov. Holcomb for his continued support of K-12 public education," said Terry Spradlin, executive director of the Indiana School Boards Association. "His proposed budget for schools to support Hoosier students is a promising start to the budget session, as just months ago there was anticipation of budget cuts due to the Coronavirus recession."

The increases should help schools keep up with inflation but are unlikely to allow them to do much more, such as offset the expenses incurred in responding to the pandemic or invest much more in teacher salaries.

The Indiana State Teachers Association called the 1% increase in the second year "simply lacking."

"By all accounts, the economy will be well recovered in the second year," said Keith Gambill, ISTA president in a statement released Wednesday. "If the state isn’t prepared to make a significant commitment to investing in teacher pay now, the legislature should commit to reopening the budget in the 2022 session."

Holcomb is proposing that the state move forward with an investment into one of its teacher pension funds, which would free up about $70 million annually. Doing so is what will allow the state to give schools the 2% bump in the first year of the budget and still maintain an annual surplus without having to cut spending in other places, budget directors said Wednesday.

Eric Holcomb is sworn in as Indiana's governor by Chief Justice Loretta H. Rush on a bible held by his wife, Janet, during an inaugural ceremony at the Indiana State Museum, Monday, Jan. 11, 2021, in Indianapolis. (AP Photo/Darron Cummings)

It's unclear if General Assembly leadership will agree with these increases for K-12 spending, though it would be a tough sell to propose spending less on education. Two years ago, lawmakers increased education funding from Holcomb's initial proposal.

Last week, House Speaker Todd Huston said his caucus was hoping to increase education spending in the budget but didn’t go so far as to commit to it. How much of any increase makes its way into public schools is another question. Huston said Republicans will introduce a bill to expand the state’s private school voucher program, which could divert a portion of any new education dollars into the state’s private schools.

Silent on teacher pay     

While Holcomb is calling for modest increases in the state’s K-12 spending, his proposal does not include anything specifically related to teacher pay.

A report on the state’s teacher pay problem, which was commissioned by Holcomb, was released last month. It found that the state would need to make an investment of at least $600 million — through a combination of new dollars, savings and reallocations — to become competitive regionally.

The pension pay down Holcomb is proposing was among the report's many recommendations, but the governor doesn't direct those savings to teachers' salaries. 

"We need new revenue to address teacher pay if we are truly committed to being competitive with neighboring states," Gambill said. 

The discussion around how current education dollars and any new dollars should be spent, though, is a recurring one and will likely pick back up as budget negotiations get underway. So far, the state has been reticent to give schools a mandate as far as their spending on teacher pay.  

Agency budgets are mostly restored 

In May, Holcomb cut all state agencies' expenditures by 15% after the steep state revenue declines during the coronavirus shutdown this spring.

Originally state budget leaders had asked agency heads to use that reduced number as their starting point when budgeting for the next two years. But, because state budget officials expect revenues to return to pre-pandemic levels in each of the next two years, some of that funding was restored in the budget.

Budget Director Zac Jackson predicts that most agencies will get roughly 90% to 95% of their funding back. Some, such as the Department of Corrections, would see increases.. 

The Department of Child Services was among the agencies that received a funding bump in the budget after the latest revenue forecast. Still, the agency will continue to operate with 5% less funding than in the previous budget cycle. 

"If you look at the success they’ve had during this administration, I think early on in the Holcomb administration DCS was managing caseloads of approximately 28,000 cases," Jackson said. "They are now down to just under 20,000. Frankly we’re managing a lot fewer cases and so, in this instance, right sizing meant they didn’t need as much money."

Under Holcomb’s proposed budget, the state would also add money toward Manufacturing Readiness Grants, which allow companies to invest in new equipment. It also would add money to county jail maintenance and starting salaries for correctional officers. 

Higher education funding increases slightly

In June, the state’s public colleges and universities were asked to cut 7% from their budget as the state braced for the economic fallout of the pandemic. Now that officials have seen the impacts weren’t as bad as initial predictions, that 7% is being restored in higher education spending for the next two years.

Holcomb is also asking lawmakers to give colleges and universities a 1% increase in the first year of the new budget and another 1% increase in the second year. The governor’s budget would also fully fund the request for need-based aid submitted by the state’s Commission for Higher Education.

Reserves remain intact

Indiana ended 2020 with a deficit, causing the state to spend down its reserves to 8.6%. But by the close of the current fiscal year, the state's reserves are poised to return to pre-pandemic levels, partially due to the Coronavirus Relief Fund reimbursement. 

Holcomb's budget for the next biennium would keep reserves at 13.1% of the budget in 2022 and 12.8% of the budget in 2023.

Democrats have routinely criticized the level of reserves the state sets aside each year, arguing those are dollars that could be going directly to services for Hoosiers. Porter said he would like like to keep reserves at 11% or 12%, especially in the midst of a pandemic. 

Johnston said the high reserves enabled the state to make it through the pandemic-induced revenue shortfall in 2020, especially as income taxes were deferred into the next fiscal year. 

"We have this debate every year of what are the right reserves," Johnston said. "We’ve bounced back and we’ve recovered very well. But at the time when we had the tax deferral (in 2020), if we were down at a 10% reserve level, things would have gotten really skinny at that time." 

Some debt will be paid off

Holcomb's administration plans to use roughly $700 million in surplus money to pay off old bonds, such as that associated with a portion of I-69, and make a down payment on one of its teacher pension funds at the close of this fiscal year.

This payment would free up money in future budget years. When Mitch Daniels was governor, he used surplus money to give taxpayers a one-time tax refund. 

Porter said House Democrats would rather see that $700 million directed back to the Hoosiers that need it. 

"We would take that money and help with the food banks," he said. "We would help with small businesses here in Indiana, all the frontline people that are hurting."

Porter said it could also help families facing eviction and struggling to pay utility bills during the pandemic.

While the spending will occur before the close of this fiscal year, the state's budget leaders are seeking approval to spend that money as part of this budget process. 

More money for broadband

Holcomb's budget would replenish the Next Level Connections program with $100 million for broadband expansion. When the program was created in 2019, the state provided $100 million worth of grants to expand high-speed internet service to parts of the state that didn't yet have it. That money, which was initially a one-time expense, has been used up already. 

"COVID-19 has brought to light how critical access to affordable reliable, high speed internet is for E-learning teleworking, and telehealth," Lt. Gov. Suzanne Crouch said during the administrations 2021 agenda roll out. "Broadband expansion will continue to be an important part of our administration for the next four years."

Call IndyStar reporter Kaitlin Lange at 317-432-9270. Follow her on Twitter: @kaitlin_lange.

Call IndyStar education reporter Arika Herron at 317-201-5620 or email her at Arika.Herron@indystar.com. Follow her on Twitter: @ArikaHerron.