Indiana’s reserve funds projected to hit post-pandemic low

Indiana Comptroller Elise Nieshalla announces the fiscal year closeout on July 23, 2024. (Whitney Downard/Indiana Capital Chronicle)

Indiana’s reserves will hit a post-pandemic low after years of above-average returns due largely to a Medicaid forecast miss of nearly $1 billion, according to fiscal statements released Tuesday.

Budget writers typically aim for reserves to be between 10-12.5% of current year expenditures, and the 2024 fiscal year closed out this month with $2.6 billion in reserves — or 11.9% of expenditures. That amount will drop even further next year.

Indiana Comptroller Elise Nieshalla credited the reserves to the state’s “long-standing conservative stewardship,” adding that “a slight increase in income and a solid return on investments further support(ed) our strong financial position.”

Cris Johnston, director of the Indiana Office of Management and Budget. (Whitney Downard/ Indiana Capital Chronicle)

“Indiana’s healthy reserves and standing as the 7th lowest debt per capita state showcases our high level of fiscal responsibility, especially during a time when our country is facing a national debt crisis,” Nieshalla said in a release. “As a lead financial officer for our state, I see the national debt at nearly $35 trillion as the greatest looming threat to Indiana’s robust economy.”

However, the 2025 fiscal year is projected to have reserves that are 10.4% of expenditures, or $2.3 billion — the second-lowest reserves percentage in the last six years. Indiana’s reserves dipped to an unprecedented 8.6% of reserves, or $1.4 billion, in 2020 when Indiana delayed tax collections during the COVID-19 pandemic.
COVID-19 relief from the federal government — both to state coffers and to individual Hoosiers — boosted reserves to a high of $6.1 billion in the 2022 fiscal year, or $34.9% of the state’s expenditures. High reserves in both 2021 and 2022 triggered automatic taxpayer refunds and lawmakers made large, one-time payments toward pension liabilities and capital projects.

Prior to 2020, the 2019 fiscal year closeout was 13.9%, or $2.2 billion, and state analysts at the time projected the state would stay near that number for 2020 and 2021.

“In fiscal year 2024, Indiana continued its long practice of sound fiscal management and prudent approach to budgeting,” said Joseph Habig, the acting state budget director, in the release. “The results of maintaining an annual surplus and healthy reserve levels ensure that Indiana’s priorities will be funded today and tomorrow.”

More from the fiscal closeout

Indiana’s revenues for the 2024 fiscal year totaled $21.48 billion, slightly below the forecasted $21.5 billion. In terms of major revenue sources, Indiana missed the mark on collecting corporate income taxes — which makes up roughly 5% of revenues — by $182 million but made up the difference in unexpected interest revenues of $179 million plus other smaller income streams, such as surplus lottery revenue. 

But future costs remain murky, especially with the ever-increasing Medicaid budget. 

Breaking down budgets: Why Medicaid expenses are growing

The December 2023 forecast revealed that actuaries had missed the mark in predicted Medicaid expenses by roughly $984 million because of unanticipated claims for long-term services and supports over the two-year budget period. 

To rebalance the budget for 2024, the state’s budget drafters transferred $255 million from the Medicaid reserve fund, as documented in Tuesday’s closeout statement. But the bulk of the near-$1 billion miss was forecasted for the 2025 fiscal year so another $457.9 million is flagged to come out of the general reserves fund to cover remaining expenses. 

However, that estimate is based off of the December 2023 forecast, which won’t be updated again until December 2024. That doesn’t account for the policy changes the Family and Social Services Administration (FSSA) has made to the Medicaid program since that time, including its reformation of the attendant care program. 

The decision to curtail parent payments under attendant care combined with pausing Medicaid rate increases and implementing a waitlist would save the state an estimated $300 million over two years, according to FSSA.

This story will be updated. 

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