INDIANAPOLIS (AP) — With $2.2 billion in the bank, improving tax collections
and extra tax refunds on their way to Hoosiers, it would be easy to assume
Indiana’s leaders could coast for a while.
But lawmakers and the next governor will have to make some tough decisions
about which way the state heads as they write the budget that will set much
of the Indiana’s direction for the next two years.
A few decisions have already been made for them. That $2.2 billion cushion
will be whittled back to $1.4 billion as a result of Gov. Mitch Daniels’
automatic tax refund, which will return more than $100 to each taxpayer next
year, and payments to Indiana’s teacher pension fund. Lawmakers will also
have to make up for cuts already approved to the state’s corporate income
tax and the phasing out of the inheritance tax (some of which will be offset
with the state’s sales tax agreement with online retail giant Amazon).
Indiana’s next governor will have to decide whether to expand Medicaid under
the federal health care law. Lawmakers and the new governor also will have
to find roughly $500 million each year to pay for transportation projects as
the money from the leasing of the Indiana Toll Road runs out.
“Highway funding is going to be a big issue,” said House Ways and Means
Chairman Jeff Espich, R-Uniondale, who is not seeking re-election after more
than four decades in the General Assembly.
Espich also notes that the economic picture could turn again at any time,
causing the state to begin losing money as it did during the Great
Recession. He said even a small adjustment of a percentage point in tax
collections could throw off the state’s books by hundreds of millions of
dollars, cutting into the $500 million structural surplus the state has
John Ketzenberger, president of the Indiana Fiscal Policy Institute, said
the best thing lawmakers and the new governor can do is to take a deep
breath before making major decisions about how that money should be spent —
either on more services like education, or on tax cuts.
“The first the thing the new governor and the new Legislature should really
consider is the Hippocratic oath: First do no harm,” Ketzenberger said.
That will be tough for lawmakers bombarded with requests from lobbyists at
the Statehouse representing areas cut over the last few years. Building the
state’s cash reserves consisted of three major factors: deep cuts in
spending, improved tax collections and the discovery of $320 million in
untouched corporate tax collections.
It will be equally tough on gubernatorial candidates making promises on the
campaign trail — from new tax cuts being floated by Republican Mike Pence
and Democrat John Gregg to talk of new spending on education.
Indiana Republicans recently attacked Gregg for ending his term as House
speaker in 2002 with the state looking for $760 million. However Indiana,
like most other states, took an unexpected — and short-term — hit because of
economic woes caused by the Sept. 11 terrorist attacks and the popping of
the tech bubble.
State leaders at that time also lacked the benefit of a federal economic
stimulus. The Obama administration sent Indiana $2 billion over the last few
years to abet major losses. Any future stimulus — should the nation suffer
through a second, “double-dip” recession — would likely get stuck in the
partisan gridlock in Congress, leaving the state to fend for itself.
Espich said his replacement as the House’s budget-writer should get used to
saying “no.” He estimated that of the roughly 80 bills he weighed in his
committee earlier this year, 50 were new tax credits of some sort for local
economic development, farm aid and many other projects.
Some drains on the state reserve will likely be out of Indiana’s hands. Even
if the state decides not to expand Medicaid, the expected growth in in the
program already underway and increasing reimbursement costs could eat away
at the reserves just as easily as any conscious decision from lawmakers,
In the end, $2.2 billion might look like a lot, but it could easily
disappear depending on myriad factors, some within state leaders’ control
and some not.