Indiana ended the 2023 fiscal year with $2.9 billion in state reserve accounts. The reserves are within the range of 10 to 15 percent of the fiscal year 2024 budget so the state is well poised to weather any economic shifts that may come our way.
Indiana began the fiscal year with $6 billion in reserves because of the pandemic-era consumer spending that boosted state revenues far above the average financial performance. Sales taxes, which account for over half of the state’s income, exploded during the pandemic as consumers spent their federal stimulus checks.
The General Assembly contributed $2.5 billion to the pension stabilization fund and increased the 2023 budget over $3 billion for other one-time expenditures. Substantial investments were also made in areas such as public health, education, infrastructure, and workforce.
Despite the state’s strong reserves, small businesses continue to feel the effects of the pandemic on spending. There are still federal funds available that must be obligated by 2024 and spent by 2026. Some fear that contractors who benefited from excess contracts with state government could see those dry up once federal funds run out.
Although the mild recession predicted earlier this year didn’t come, talk of the recession appears to have slowed Hoosier spending, coming $66 million short of an estimated $10.5 billion. Individual tax returns remained steady, coming in at $14 million higher than expected for a total of $7.6 billion.
Legislators voted to adopt income tax cuts in 2022, choosing to accelerate those cuts earlier this year in conjunction with increased payments for the teacher retirement pension fund—the state’s only unfunded debt obligation.
Lawmakers will meet over the next two years to study the state’s tax system, including whether to eliminate the state’s income tax. NFIB will be engaged on this issue and encourage members to get involved as well.