Indiana releases FY2026 report showing $1.85 billion surplus

Indiana saw 6.8% year-over-year growth in state revenue amid a 27.7% surge in corporate tax revenue, leading to a surplus of $1.85 billion, according to a report the state released Wednesday on its fiscal year 2026 results.

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“Our state government is delivering value to all Hoosiers,” Gov. Mike Braun said in a July 15 press conference, nodding to how far the state has come since “COVID, when so much of government got bloated because of what the federal government did, the inflation that they delivered along the way, which has given us the whole issue of affordability. 

“When you close out your fiscal year, and in just a year and a half… we are in $2 billion better shape than what anyone expected,” he said. “That’s come roughly from running our state government more efficiently.”

The state’s total revenue climbed to $24.2 billion, while its expenses, $22.6 billion, represented a 1% uptick from fiscal year 2025, according to an analysis produced by the Indiana Fiscal Policy Institute.

IFPI President Stephanie Wells said there’s some consideration being given to creating a sustainable endowment with the state’s surplus. “If it’s just sitting there, it’s not terribly useful,” she said.

FY2026 general fund revenues came in $586.5 million higher than December forecasts, a 2.5% bump.

The bulk of those revenues came from sales taxes, which accounted for 47.5% of total general fund revenue, at almost $11.3 billion, which was up 6.1% year-over-year.

Individual income taxes accounted for over $9 billion, or 37.9% of general fund revenue, down from $9.7 billion in 2022. The FY2026 number represented a 3.7% year-over-year increase despite Indiana’s income tax rate declining from the previous fiscal year. 

Individual income taxes were cut 2.95% in 2026, and there’s a planned 2.9% individual income tax rate cut coming in 2027, according to IFPI.

Corporate taxes came in over $1 billion, 5.8% above the December forecast and up 27.7% compared to FY2025. 

Wells said “it’s the first time” corporate tax revenues have done so well, and attributed that to the passage of a pass-through entity tax several years ago. 

The state ended FY2026 with about $4 billion in reserves, a 59.5% surge over FY2025. Indiana’s current reserve is 16.5% of current year revenues, IFPI said.

“Many fiscal leaders believe that an appropriate number of reserves is somewhere between 10% and 15% of a state’s expected annual revenues,” IFPI noted in its analysis.

Wells said current forecasts project that by the end of FY2027, the reserves will have grown to $5.3 billion, or 22% of revenues.

“That is a lot of revenue,” she said. “And of course that is an estimate accounting for no revenue growth. So when we have our new revenue forecast in December 2026, and they come back and say we’re going to see increased revenues, then you can expect that structural reserve will be even higher.”

In addition to the general fund surplus, IFPI highlighted three other funds with healthy balances at the close of the fiscal year. 

The Medicaid Contingency & Reserve Fund had a balance of $274.7 million. The State Tuition Reserve had a balance of $739.6 million. And the rainy day fund had $1.12 billion.

Wells said that statutorily included in the last budget was a provision requiring automatic holdbacks of 5% for many line items. IFPI released a budget analysis last year that showed the real cuts in the budget when holdbacks were accounted for.

“The cuts were huge,” she said. “In some cases, as much as 15% in some agencies.” 

The state also reverted money back into the Medicaid Reserve Fund, “which means our Medicaid enrollments have gone way down,” she said. Indiana also reverted funds for state tuition support, she said.

“They just cut programs,” Wells said in response to a question about how the state was holding down expenditures at a time when the federal government is cutting aid to many states.

The state’s healthy fiscal report comes as local governments have been squeezed following the passage of Senate Enrolled Act 1, a property tax reform law. 

“Everybody’s tightening their belts,” said Wells. “That is having a real time impact on local government budgets, and also in Indiana there’s talk about continued tax property tax reform.”

The governor has proposed eliminating property taxes on Hoosiers over age 65, and a state legislator has called for eliminating property taxes in the state altogether, she said.

The legislator, state Rep. J.D. Prescott, has filed legislation, House Bill 1288, to abolish the property tax.

“Additional changes to the property tax are definitely on the table for our budget session next year,” Wells said.

The state is rated triple-A across the board.