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Last updated: Wed. Jan. 16, 2013 - 03:03 pm EDT

Budget dangles carrot for schools

Links funding boost to performance; also cuts taxes

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INDIANAPOLIS — Gov. Mike Pence’s fiscal chief on Tuesday unveiled a bare-bones state budget with few surprises to the legislature’s chief negotiators.

“Gov. Pence’s budget is a jobs bill that focuses on fiscal discipline, providing permanent tax relief … and funding our priorities in education, health care and transportation,” State Budget Director Chris Atkins said.

The two-year, $29 billion spending plan is highlighted by slight increases for education and an income tax cut phased in over two years that will cost the state $521 million in tax revenue.

The Indiana House will have first crack at the proposal.

The budget would provide a 1 percent operating increase for K-12 schools in its first year, worth about $63 million. In the second year, high-performing schools could receive an additional 1 percent increase.

To qualify for the additional funding in the second year, schools would have to hit certain benchmarks. For instance, 40 percent of those dollars would be tied to schools reaching an A or B accountability ranking. In 2012, 1,276 schools hit that mark, or 61 percent. More schools would be eligible if their ranking improved one grade.

The next 30 percent of that funding would be tied to a 90 percent passage rate for the third-grade reading test. And the rest would be available if schools have a 90 percent, nonwaiver graduation rate.

Senate Appropriations Chairman Luke Kenley, R-Noblesville, questioned using the performance-based metric inside the already complicated school funding formula.

“We’ve spent 10 or 12 years getting to the point where the funding follows the child,” he said. “I think that’s going to be quite a challenge.”

Dennis Costerison, head of the Indiana Association of School Budget Officials, said he appreciates any increase but that it might be easier to keep performance-based funding outside the state formula as a separate grant.

He noted, for instance, funding is currently granted to districts as a whole but the proposed metrics seem to be based on individual school performance.

“The details will be important in this scenario,” Costerison said.

The state’s public colleges and universities would be in line for a 1 percent annual increase in funding and some additional cash for building repairs.

Overall, the budget would spend about 1.4 percent more over the biennium – lower than the state’s expected revenue growth and inflation.

The initial tax cut would kick in starting July 1, eventually dropping the individual income tax rate to about 3 percent.

Atkins said the money would inject hundreds of millions of dollars into the economy and permanently lower taxes on most small businesses that file as individuals.

The largest increases in the budget – several hundred million dollars a year – go to the state’s Medicaid budget, the joint federal-state program providing health care for Indiana’s poor. But it does not expand Medicaid – an option under the 2010 federal health care law.

Atkins did divert money from other areas to help with Medicaid costs, including $54 million that would otherwise go to the horse racing industry from racino wagering taxes and some money from the state’s tobacco master settlement fund.

One key feature of the biennial budget could increase funding for roads and bridges on both the state and local level.

Currently, when state coffers hit a certain level, half of the surplus revenue goes to taxpayers via an income tax refund and the other half goes to stabilize the state’s pension obligations. Pence has proposed instead directing the latter half to a new infrastructure fund. That amount could reach $347 million over the next two years.

Atkins said the state’s transportation needs are currently more critical than its pension obligations.

Some other increases would be $18 million for adult workforce improvements; $6 million to improve vocational education; $35 million for the Indiana Department of Child Services; and increased dollars for dropout prevention, teacher excellence grants and a school-security study.

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