Rep. Jeff Thompson Explains Indiana's Budget Shortfall

We sat down with the Chairperson of the Indiana House Ways and Means Committee, Jeff Thompson, to get a better understanding of why revenue forecasts for the State were revised significantly downward, how the State managed that shortfall, changes in local income tax formulas and property tax reform. This will be a three-part series. Part one will be about revenue forecasting and the States biennial budget. 

Jeff Thompson serves as the House District 28 Representative for Hendricks County.

Revenue shortfall

Where did the money go? In April of 2025, the State’s Revenue Forecast Technical Committee submitted an update to their December 2024 revenue projections.

The update said Indiana will receive $403 million less in 2025, $963.9 million less in 2026 and more than $1 billion less in 2027, which means all the hard work of the House Ways and Means Committee to craft Indiana’s biennial budget in February went up in smoke. Remember that analogy, it comes into play later.

Chairperson of the House Ways and Means Committee Jeff Thompson shared the reality of the timing.

“The house budget version passed in February 2025 was assuming the December 2024 forecast was correct and then it changed in the April 2025 update and all of a sudden we had about 12 days before the budget actually passed the final version. So, we had the conference committee and had to some way, find $2 billion,” Thompson shared.

Thompson sat down with The Republican newspaper to discuss how revenue projections are made, who makes them, and where they “found” $2 billion.

First of all, Indiana is a “revenue consensus” state. That means Indiana has forecasters who tell the General Assembly the amount of revenue projected to come into the state coffers to be used in creating the state’s biennial budget. There is no debate on this number.

“This,” Thompson says, “means we are not wasting time arguing about revenue forecasts like some other states do.”

According to the Tax Policy Center, about half of the states use consensus forecasting.

Why did revenue projections change?

The big question is why the forecast in December 2024 was so far off the April update. What changed?

The Standard & Poor’s Global Market Intelligence report that was used by the forecast committee gives several reasons.

The first sentence reports, “U.S. recession is not in the forecast but it’s a close call.” According to the report, the following reasons were given for the downward forecast:

• Higher than expected tariffs and counter tariffs especially with China.

• Federal layoffs – 255,000 layoffs by August 2025.

• During this biennium, the unemployment rate is estimated to rise close to 4.98% by mid-2027.

• Corporate tax rate for domestic producers declines from 21% to 15%.

• Permanent extension of 2017 personal tax cuts.

• Tax relief for overtime pay and tip income.

• Immigration: reduced by 500,000 per year for four years of Trump presidency.

• Diminished tailwinds that had been boosting growth through 2023.

It is important to note these assumptions were made months ago and only time will tell if these projections are accurate.

Thompson added, “Obviously economic things are changing, and all that’s happening with the state. It [the state] didn’t go backwards, we’re just not projecting more revenue. Though, our hope is that the forecast is not correct. Which we don’t know, and we will have updates. We will have an update in December, and we’ll learn more.”

Was the budget a bipartisan effort?

Because the Indiana House has a Republican majority, the budget is in the hands of the Republicans.

Are Democrats involved with the process? Thompson says, yes.

“We know in the end, it’s for all people, the revenue forecast, is a consensus of what we’re going to have for revenue. It’s important, I could pull up right now [Thompson indicated on his phone], a lot of Democrats on the Ways and Means Committee, in the past week, I was in contact with them, you betcha. I mean, people don’t understand that, but we behind the scenes, we talk, we may disagree, but we talk, and I am committed to doing that again. We may disagree. But I think that is critical [talking to the Democrats]. We’re going to try to solve our disagreements in ways, you know, by not trying to make it a big scene.”

How did the state make up the $2 billion shortfall?

The cost to run the State of Indiana is approximately $20.3 billion a year. Where do you find $2 billion over two years? Thompson shared how they made up the shortfall,

“Well, the main thing we did is, we cut some things, you know, a typical 5% cut but we also raised the cigarette tax. We couldn’t have made it without that. Huge, huge. I mean, it raises, it should be about $400 million a year, so that’s a pretty good chunk of that [$2 billion shortfall].

Remember the analogy about the previous budget going up in smoke? It looks like it was smoke that saved them. Thompson says the data shows that while the tobacco tax will bring in much needed revenue to the state, the increase in prices will discourage younger people from starting to use those products.

“And do you know what?" Thompson said. “I would hope someday there is no money collected. It would be a good thing, wouldn’t it?”

Next week Thompson explains his plan to restructure how local income taxes are distributed to local units of government such as towns, townships, schools, and libraries.