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House passes budget that includes cigarette tax increase, school choice expansion

Indianapolis Star logo Indianapolis Star 2/23/2021 Kaitlin Lange and Arika Herron, Indianapolis Star
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Update, February 22: The Indiana House voted to approve its version of the budget by a 65-30 vote on Monday. Every Democrat present and two Republicans voted against the measure. 

It now moves to the Senate. 

Earlier: House Republicans are pushing for a cigarette tax increase and a major expansion to the state's private school choice programs in their version of the two-year state budget. 

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The $36.3 billion budget sets aside 11.9% of the budget for reserves in 2022 and 11.7% in 2023. 

Rep. Tim Brown, R-Crawfordsville, the House's top budget writer, said he was pleased with Indiana's economic position, in spite of the ongoing coronavirus pandemic. The House budget proposal prioritizes education with a modest increase in K-12 spending, help for small businesses and support for law enforcement, he said.

a man wearing a suit and tie: Representing Indiana House District 41, Tim Brown, Republican, on the first day of the Indiana legislative session, Indiana Statehouse, Indianapolis, Monday, Jan. 6, 2020. © Robert Scheer/IndyStar Representing Indiana House District 41, Tim Brown, Republican, on the first day of the Indiana legislative session, Indiana Statehouse, Indianapolis, Monday, Jan. 6, 2020.

Democrats raised concerns about the lack of action on teacher pay. They also said budget reserves are too high, calling on Republicans to either "do something useful" with the money or give some back to taxpayers. They proposed a higher cigarette tax, more money for food banks and increased spending on health care initiatives.

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There are some major differences between what Gov. Eric Holcomb proposed last month for the two-year budget and what House Republicans are proposing, including spending more surplus dollars on grants rather than paying down debt and greater support for school choice at the expense of the state's traditional public school system.

Here's what's in the House's version of the budget.

Cigarette tax increase

Unlike Holcomb's proposed budget, the House's version calls for a 50.5 cent cigarette tax increase, which brings the total tax to $1.50, and establishes a new 10% retail tax on electronic cigarettes. Brown said the cigarette tax increase would bring Indiana about $150 million in extra revenue, which would go toward Medicaid.

But he says the tax is about health, not making more money. 

"This budget also looks at the health of the state of Indiana," Brown said, "and one of the most important things we can do in the state of Indiana to make us a healthier state is to decrease smoking." 

The Indiana Chamber of Commerce has unsuccessfully pushed for a cigarette tax increase for years. The House's proposed increase, however, is lower than both the $2 certain advocates for the tax increase have pushed for in the past, and the $1 increase proposed in rival legislation in House Bill 1434. 

In past years, the Senate has been more reluctant than the House to raise the cigarette tax. Senate President Pro Tempore Rodric Bray did not commit to keeping that tax in the final bill. 

"I do see value, if we put it in a cigarette tax that it will stop young people from beginning to take up the habit and might help people to actually quit the habit," Bray said. "That would be a great thing for their health, of course it would also be a great thing for the health of Hoosiers generally."

More money for private schools

The House Republicans' budget invests more in K-12 education spending over the two years, but a large chunk of those new dollars will be spent on expanding the state's private school choice programs. 

The proposal increases K-12 spending by 1.25% in the first year and another 2.5% in the second year of the budget, for a total of $378 million new dollars. Holcomb's budget called for $377 million in new K-12 money. 

During his State of the State address, Holcomb said that increasing options for parents shouldn't come at the expense of the state's public schools. 

Proposals from the House GOP would eat up a lot of those new K-12 dollars, though. House Bill 1005 expands eligibility for the state's private school voucher program, increases scholarship amounts and creates a new Education Scholarship Account program. All told, those proposals are estimated to cost about $33 million annually and that means public schools would actually see $312 million new dollars — about $65 million less than Holcomb proposed.

Under the proposal released Thursday, the state's public schools would be seeing increases closer to 0.8% in the first year and another 2.1% in the second year, rather than the 1.25% and 2.5% increases that are part of the House GOP's talking points. 

Silent on teacher pay

Two months ago, a panel convened by Holcomb to look for solutions to the state's teacher pay problem released a report with more than a dozen suggestions for actions that lawmakers could take. 

Brown told reporters Thursday morning that it was up to schools to determine their teachers' salaries. 

"The decision on what a teacher gets paid is a local school board decision," Brown said. "And you don't want the Indiana General Assembly to become a school board."

Without significant new dollars from the General Assembly, it's unlikely schools will be able to give teachers meaningful raises and catch up to neighboring states. The House budget proposal falls short of inflation in the first year and slightly exceeds it in the second year.

The report estimated that Indiana needed to invest $600 million through new dollars and cost savings to make Indiana competitive with its neighbors on teacher pay.

Rep. Ed DeLaney, D-Indianapolis, introduced several budget amendments around teacher pay. One would have created a grant program to incentivize school districts to raise starting salaries to $40,000.

Members of the GOP majority said they would like to see teachers get paid more but were uncomfortable with DeLaney's mechanism to do so. The amendment was not adopted into the budget. 

Law enforcement, broadband money

The House budget also calls for more money for law enforcement training and other related initiatives. 

The House is asking for $70 million to bring the Law Enforcement Training Academy up to modern standards and enhance training. The House also added $10 million for a grant program to allow more police agencies to purchase body cameras. 

The House budget also sets aside $250 million for broadband expansion, bringing high-speed internet to more places, instead of the $100 million requested by Holcomb. 

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Holcomb would not get everything he wants

One of the key differences between Holcomb's proposed budget and the House's is their use of one-time expenditures.

Holcomb proposed spending $400 million to pay down debt in one of the state's teacher retirement funds. Doing so would allow the state to increase K-12 spending by 2% in the first year of the biennial budget, said Holcomb's budget writers. 

Instead, House Republicans are devoting more dollars to grant programs — such as one that would invest $150 million in summer school to combat COVID-19-related learning loss — and increasing K-12 spending by a more modest 1.25% in the first year. 

Holcomb also wanted to pay down more of the state's debt using surplus money than the House version of the budget proposes. The House budget calls for using $110 million to pay off outstanding debt on state facilities, while Holcomb's version called for a collective $302 million to pay off debt, including that associated with a portion of I-69. 

Democrats had criticized Holcomb's use of surplus expenditures in his proposed budget, arguing that money could be going back to Hoosiers who need it as the economy continues to recover from the pandemic. 

The final version of the budget could look much different by the time it crosses the finish line at the close of the legislative session this April, likely featuring bits of the Senate, House and Holcomb's priorities. 

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

This article originally appeared on Indianapolis Star: House passes budget that includes cigarette tax increase, school choice expansion

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