INDIANAPOLIS (AP) — Indiana’s governor on Wednesday proposed a modest increase in school funding for the next two years and restores funding to state universities that was cut when tax revenues plunged early in the coronavirus pandemic.

Republican Gov. Eric Holcomb's proposal would increase K-12 school funding by 2% during the first year and 1% in the second year of the budget that would start in July.

That would mean about $377 million more for schools, although the governor proposes spending even more to pay cash for new building projects and pay off state construction project loans early.

The Holcomb administration ordered a 7% reduction in state university funding and 15% spending cuts for state agencies as officials worried last spring about steep drops in tax revenue.

State tax collections have largely stabilized in recent months and Holcomb’s top budget advisers said the proposal largely restores the state agency funding that was cut and includes a 1% increase in university funding during each budget year.

Democratic legislators said they believed more money should be directed to boosting the state’s lagging teacher pay and assisting programs such as food banks and home health care services.

State Budget Director Zachary Jackson said the administration looked closely at whether to return state agency funding to previous levels, while protecting the state’s cash reserves of more than $2 billion.

“All the new ongoing funding increases have gone towards education, essentially everything else has been just shuffling of existing dollars and appropriations,” Jackson told the State Budget Committee.

The Republican-dominated Legislature will debate the spending plan throughout its session scheduled to last until late April and legislative leaders have said increased school funding is the top priority.

Holcomb’s budget officials said they expected ongoing discussions about a report from the governor’s teacher pay commission, which included recommendations that could cost more than $600 million a year to increase Indiana’s average teacher salary ranking from ninth-highest to third-highest in the Midwest.

Democratic Sen. Eddie Melton of Gary faulted Holcomb for not pushing Republican legislators for greater action on teacher pay after school funding was increased by 2.5% both years of the current state budget.

“Hoosier educators were promised long overdue pay increases this budget cycle, and there was nothing in the governor’s budget that indicated his desire to follow through on his own promise,” Melton said.

The state’s largest teachers union called Holcomb’s budget proposal “simply insufficient” on teacher pay.

“We need new revenue to address teacher pay if we are truly committed to being competitive with neighboring states,” the Indiana State Teachers Association said. “While a 2% increase in year one keeps us from falling further behind other states, a 1% increase in year two is simply lacking. By all accounts, the economy will be well recovered in the second year.”

The Holcomb proposal would direct about $300 million toward early payoffs of loans for several state construction projects, including a section of the Interstate 69 extension through southwestern Indiana. It also would dedicate $50 million in cash toward replacing the nearly century-old, open-air swine barn at the Indiana State Fairgrounds with a new building that could host events year-round.

Cristopher Johnston, director of the state’s Office of Management and Budget, said those moves would save the state money over the next several years.

“It’s good for the fiscal situation of the state, but then also creates additional capacity for other priorities down the road,” Johnston said.