By Olivia Smith 

The Indiana General Assembly is back in session, and they have more critical issues than ever heading into the 2025 to 2027 budget season. This year on the docket: affordable housing, K-12 education, Medicaid spending, and tax policy, among others. HB 1001 presents the state’s biennial budget, and we explore what it has–and doesn’t have–below, along with a timeline of how the budget process works. 

Step One: Budget Introduced

As we learned in previous blogs, the official budget bill begins in the House chamber and is always designated as House Bill or HB 1001. The language in the first version of the bill, while technically authored by legislators, is actually the Governor’s proposed budget. On January 16th, the new Secretary of Indiana’s Office of Management and Budget presented Governor Braun’s proposed budget to legislators in the Budget Committee. Her presentation highlighted policy priorities contained in the Governor’s budget and set the stage for upcoming budget debates as the bill moves forward in the House Ways and Means committee. Let’s dive into the proposed budget to see what is being prioritized and then learn about where HB 1001 goes from here.

Step Two: Braun’s Proposed Budget – Highlights

HB 1001 is currently 122 pages long, and you can search through the entire document here—but below is a breakdown of some of the key provisions we’re tracking here at the Institute. For additional resources on this large piece of legislation, the nonpartisan fiscal note provides detailed breakdowns of the impacts of the bill at both the state and local level and was used to help dissect these complicated provisions.

• Personal Exemption Index Factor: Starting in tax year 2025, the bill allows the personal exemption to be increased by an adjustment factor based on Consumer Price Index and Indiana Personal Income.
• Potential Impact: This would reduce taxpayers’ taxable income and reduce their tax burden by a small, indeterminable amount. Because this is a reduction in taxable income, it would reduce both state and local revenue collections by a small amount. Indiana’s personal exemptions are very modest, so increasing it to match inflation could provide more relief for taxpayers, but the amount of relief is likely to be small. 
• Sales tax holidays: The bill provides a Sales and Use Tax exemption period for three days in January and in August of each year for the following items: 
1. School supplies. 
2. Clothing, including shoes. 
3. Computers and computer accessories.
4. Learning aids. 
5. Sports and recreational equipment to be used by an individual who is not more than 18 years of age. 
• The bill also provides a Sales and Use Tax exemption period for seven days in May of each year for the following items: 
1. Bicycles and accessories. 
2. Fishing supplies. 
3. Hiking supplies. 
4. Hunting supplies.
• Potential impact: Revenue loss due to these two sales tax holidays would depend on the volume of planned purchases that are shifted to the exemption period. Almost all of Sales Tax revenue is deposited in the General Fund (99.838%), which is largely used for K-12 tuition support. The timing shift of purchases depends on various factors, including schools' start dates, consumers' awareness of the Sales Tax holiday policy, and retailers' promotional events (such as Amazon Prime Day sales and other retail stores' seasonal discounts). While presented as a tax relief mechanism for families, research has shown that sales tax holidays are not cost effective or efficient at providing targeted tax relief.
• School vouchers: The bill removes the annual income maximum for K-12 School Choice Scholarship eligibility. The Choice Scholarship, often referred to as school vouchers, [Currently, the income eligibility cap to receive the voucher is set at 720% of the Federal Poverty Level, which for a family of four is $230,880 annually.]
• Potential impact: The bill’s elimination of the income eligibility requirement for the Choice Scholarship would increase state spending by an estimated $88.6 million in Fiscal Year (FY) 2026 and $94.6 million in FY 2027. As newly eligible students switch to a Choice Scholarship school, public school revenue from state tuition support would decrease under the bill by an estimated $7.2 million in FY 2026 and $16.1 million in FY 2027. The Legislative Services Agency estimates the full impact would likely occur after several years, so around FY 2029 they estimate that public schools will have experienced a decrease of about 4,500 students from the Choice expansion and about a $34 million annual decrease in state tuition support.
• Cut $700 million across state agencies: While specific cuts are not identified in the budget bill language, Governor Braun’s plan involves having state agencies collectively cut costs by $700 million over the next two years — this would be through a $540 million cut in the first year followed by another cut of $180 million in the next year.
• Potential Impact: Budget leaders under Braun stressed during the presentation to the Budget Committee that such cuts didn’t mean job losses at state agencies, but rather through items like contracting and purchasing. However, without specified cuts and the fact that the single largest budget item for many agencies is personnel, it is unclear how such cost cutting measures would avoid job losses and not impact services across the state. 
• While not in the budget bill, Governor Braun had also proposed significant changes to Indiana's property tax laws in SB 1, which we will cover more as it moves through the legislature. 

Step Three: HB 1001 Committee Hearing – Feb 6th

The budget bill is scheduled to be heard TODAY – Thursday, February 6th, in House Ways and Means. There is a livestream available to watch the hearing, and the public can also come testify in committee on the bill. As we know, budgets are ultimately a set of policy choices that reflect our government’s priorities. However, this is just the first version of this bill, which will be amended heavily by the House before moving to the Senate. In the Senate, it will get a new set of amendments reflecting that chamber’s priorities. The most important changes that happen to the budget, however, are the ones that happen because of YOU. Advocating for your personal, family, and community needs when talking with your state legislators, are critical to ensuring that this budget reflects the Indiana you value and want to live in. 

Take Action!

• Find your legislator and contact them: IGA | Find Your Legislator
• Contact legislators on the House Ways and Means Committee: IGA | House Committee on Ways and Means

This blog post was funded by the Annie E. Casey Foundation. We thank them for their support but acknowledge that the findings and conclusions presented in this are those of the author alone, and do not necessarily reflect the opinions of the Foundation.