- Associated Press - Wednesday, February 15, 2017

INDIANAPOLIS (AP) - Shortly after Indiana House Republicans unveiled their two-year budget proposal on Wednesday, it ran into a major stumbling block: a powerful senator from their own party.

Key components of the $31.7 billion spending plan - including a $1 cigarette tax hike and a significant rerouting of sales tax revenue to pay for infrastructure improvements - were panned by state Sen. Luke Kenley, the powerful lead budget writer in the GOP-controlled state Senate.

That could set up a showdown as the annual legislative session nears its midpoint and Republicans who dominate state government debate how best to pay for improvements to the Indiana’s crumbling infrastructure, which all agree are overdue.

Kenley and Republican Gov. Eric Holcomb have signaled they are open to increasing the fuel tax, which House Republicans proposed hiking by at least 10 cents a gallon. But Kenley says he objects to a proposed shift of sales taxes that are also charged on all fuel purchases.

Currently sales taxes charged on fuel purchases are allocated however lawmakers please, but the House GOP wants to dedicate that money solely to infrastructure. To backfill the budget hole such a move would create, they want to hike cigarette taxes, which many predict will yield diminishing returns as more people quit smoking.

“If you do that, I think you run the risk of a general tax increase and I don’t want to put us in that position,” Kenley said during a surprise news conference that was announced as House Republicans were in the middle of presenting their budget.

When asked if he had major concerns with the House plan, Kenley responded drolly: “they are probably big.”

Rep. Tim Brown, the chairman of the House Ways and Means committee acknowledged that if a cigarette tax increase - currently projected to bring in $287 million a year - did yield less than expected the blow would have to be absorbed somehow.

“As a physician, I would hope that nobody smoked and we’d have zero cigarette tax coming in,” said Brown, who is also a medical doctor.

However, not everything in the House budget proposal was contentious.

The plan includes a modest funding increase for K-12 education and directs an additional $10 million to the state’s preschool pilot program for needy kids. That’s a significant increase over the $10 million currently set aside, but a far cry from the $50 million advocates say is needed to substantively address the need.

The House budget proposal also sets aside $5 million in funding for efforts to be undertaken by Gov. Eric Holcomb’s new drug czar and would give Indiana state troopers a 12 percent pay raise over the next two years.

The state’s biggest expenses are K-12 education, higher education and Medicaid spending. Primary education accounts for about 52 percent of state spending, higher education accounts for about 12 percent and Medicaid accounts for roughly 12 percent, according to estimates.

The proposal put forward Wednesday was approved by the House Ways and Means committee on a 14-8 vote, with Democrats in opposition.

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