INDIANAPOLIS (AP) - Indiana’s fiscal picture is looking good roughly one
year after former Gov. Mitch Daniels left office with about $2 billion in
cash reserves and a strong credit rating, but the next few years could leave
the state in a fiscal pinch nonetheless.
The state is continuing to crawl out of the recession, with depressed
earnings by many residents and an improving, but persistently high
unemployment rate. The State Budget Committee had to downgrade expectations
last week, after state budget and tax forecasters came back with an
expectation the state will collect $298 million less than expected over the
next two years.
The pinch will likely weigh most on Republican Gov. Mike Pence, who is
heading into his second year with a potentially pricey legislative agenda.
The governor’s plan to expand the state’s school voucher program to
preschool-age children and teachers carries an unstated price tag. And
eliminating the personal property tax, which accounts for about $1 billion
in local revenues each year, would require some sort of backfilling of
money, either by the state, local governments or some mix of the two.
In particular, the personal property tax, which is levied on business
equipment, has depressed economic growth in Indiana, he said.
“It discourages companies from investing in new technology and the expansion
of their businesses. As the most manufacturing-intensive state in the
nation, we are holding back new capital investment because of our business
personal property tax,” Pence said in prepared remarks last week, laying out
his case for the tax cut.
The state’s fiscal footing is one of the best in the nation. Indiana has
maintained a top credit rating from the major bond-rating companies, the
state still has a cash reserve of close to $2 billion and lawmakers found
money in the most recent budget to retire old debt and pay for some new
capital projects without accruing new debt.
But those tax cuts, combined with declining tax collections, are squeezing
the pot of money leaders have to work with. If the business tax cut goes
through, it will be the third consecutive session featuring a significant
tax cut. Lawmakers started to phase out the state’s inheritance tax in 2012
and they signed off on further cuts this past session, including a portion
of the income tax cut Pence asked for.
Shortly before lawmakers received the grim budget news last week, the
economist kept on contract by the state said Indiana should expect to see
steady growth over the next few years. The state’s unemployment rate has
continued a steady decline and auto parts makers have the potential to spur
All of it could keep lawmakers cautious during the upcoming session, say
Indiana budget observers.
“Although the economic forecast is optimistic, the state expects less
revenue than when the budget was written last May,” said John Ketzenberger,
president of the Indiana Fiscal Policy Institute, which tracks the state
budget and other fiscal issues. “The improving economy’s just not producing
as much tax revenue at this point and the conservative revenue forecast
reflects that. It’ll be difficult for lawmakers to rationalize additional
spending or even budget cuts given the new revenue forecast.”
Pence has continued the tightfisted budgeting Daniels established, but
unexpected downturns have still hampered some goals. He responded to news
that monthly tax collections had dipped $141 million by selling the state
plane and cutting agency and higher education budgets. And the state lost
$63 million a year from the national tobacco settlement after a federal
arbitrator determined the state had not done enough to collect settlement
proceeds from small tobacco manufacturers.
Winning new programs and tax cuts from the Legislature may have to wait
another year, until lawmakers begin work on their next budget and have a
better idea of the long-term fiscal trends.