Indiana Budget Surplus Projected to Nearly Double to $5 Billion by 2027

2025-12-20 economy

Indianapolis, Saturday, 20 December 2025.
Indiana’s projected reserves are on track to reach nearly $5 billion by mid-2027. This substantial fiscal upward revision is driven by robust tax revenue growth and a sharp 15% decline in Medicaid enrollment.

Revenue Projections Defy Previous Estimates

The revised forecast presented to the State Budget Committee on December 18, 2025, paints a starkly different picture than the conservative estimates finalized earlier in the year. While the state budget finalized in April anticipated sluggish revenue growth of just 0.8% for the current fiscal year and 0.1% for the next, the updated data projects robust increases of 4.2% and 2.7%, respectively [1][3]. Consequently, the state is expected to collect approximately $2.5 billion more over the coming biennium than originally predicted [5]. This surge in liquidity is expected to bolster Indiana’s cash reserves to roughly 22% of state spending by mid-2027, a substantial increase from the previously estimated 12% [1][3].

Economic Drivers and Market Performance

State Representative Jeff Thompson, chair of the House Ways and Means Committee, attributes this positive trajectory to specific macroeconomic factors, citing rising personal income levels and a booming stock market as primary drivers [2]. This economic resilience provides a stark contrast to the outlook from April, when growth was expected to proceed at a much slower pace [2]. The improved revenue stream suggests that the regional economy is outperforming earlier conservative models, providing legislators with unexpected capital [2].

Medicaid Enrollment Trends Shift Financial Outlook

A critical component of this fiscal turnaround is the stabilization of Medicaid expenditures, which had previously been a significant source of budgetary concern [1]. Following the implementation of quarterly income verification letters starting in April 2025, Medicaid enrollment has seen a sharp decline [1][3]. The number of enrollees dropped from approximately 2 million at the start of 2025 to 1.7 million by November, representing a decrease of -15 percent [1][3]. Family and Social Services Administration Secretary Mitch Roob noted that while the patient count has decreased, the system is now covering a population with higher medical needs [3].

Cost Projections and Strategic Cuts

These demographic shifts have materially altered the program’s financial trajectory. In April, officials feared Medicaid costs would jump by 9.5% in the current fiscal year; however, the updated forecast moderates this growth to 3.2% [1][3]. Over the next two years, the state is now projected to spend roughly $465 million to $470 million less on Medicaid than anticipated in the spring [3][5]. Despite this relief, cost-control measures remain active; officials plan to reduce payment rates for Applied Behavior Analysis (ABA) therapy by 10%—dropping from roughly $68 to $61 per hour—effective April 2026 [1][3].

Legislative Debate on Fiscal Strategy

The emergence of this surplus has immediately ignited a debate regarding the allocation of these unexpected funds. Governor Mike Braun and Republican legislative leaders are advocating for a strategy focused on tax relief, with Rep. Thompson pointing toward potential lower property taxes and individual income tax cuts intended to save taxpayers hundreds of millions of dollars [1][2]. Conversely, State Senator Ryan Mishler urges fiscal restraint, viewing the Medicaid savings as merely “breaking even” rather than a windfall sufficient to launch new initiatives, emphasizing the need to slow program growth to fund other priorities [4][5].

Diverging Priorities for Reinvestment

On the other side of the aisle, Democrats are calling for the reinvestment of these funds into social services rather than tax cuts or reserve accumulation. State Senator Fady Qaddoura has proposed legislation to restore funding to programs such as “On My Way Pre-K” and the CCDF child care fund, which faced cuts in the 2025 budget [5]. As the state approaches the 2027 budget planning phase, legislators face the challenge of reconciling these competing philosophies—balancing the desire to maintain a $5 billion reserve with calls to restore critical social infrastructure [1][5].

Sources

Fiscal Policy State Budget