Revenue Forecast and Governor and Legislature and State Budget and State Government and Taxes and Government & Economic Development and Government

Indiana lawmakers to face more tough budget decisions

January 1, 2011

Lawmakers who watched Republican Gov. Mitch Daniels slash millions of dollars in state spending over the last two fiscal years will face tough decisions of their own starting in a few days as they meet to create a new two-year state spending plan.

"It's a new role for us," said Senate Appropriations Chairman Luke Kenley, a Republican from Noblesville. "The governor has carried the ball for the last couple years in terms of making the hard decisions, making the cuts, forcing discipline. Now the Legislature is going to have to do its share."

When lawmakers open their new session Wednesday, they won't have some of the advantages they had during the last budget-writing debate in 2009. This time around, there will be no $1 billion in federal stimulus money to keep the budget afloat. The state's reserves are nearly drained. And Daniels has already made cuts to state agencies, public schools and colleges — leaving some lawmakers wondering where there's fat left to be cut.

"They're having to deal with the reality that a lot of other states have had to deal with," said John Ketzenberger, president of the Indiana Fiscal Policy Institute.

Indiana has faced similar problems as other states during the recession, Ketzenberger said, but had the advantage of a surplus and a governor willing to make cuts.

Since the last two-year, $27 billion budget was approved by lawmakers in 2009, Daniels cut $300 million from public schools and $150 million from higher education as state tax revenues dropped below budgeted projections. More than 400 state employees have been laid off. The state's largest teachers union estimates that 3,000 teachers lost their jobs because of the cuts, and class sizes have increased while programs have been cut.

But Daniels and state budget director Adam Horst say the state should be able to have balanced budget for the next two years without tax increases or more funding cuts to public schools.

"It won't be easy, but it will be manageable," Daniels said. "If we just maintain some discipline and think more or less in terms of holding the line on spending, I think we'll be fine."

Daniels' fellow Republicans will largely control the budget-writing process in the General Assembly after the GOP won control of the House away from Democrats in the November election by capturing a 60-40 majority and adding to their strong Senate majority.

The state is currently spending more money than it takes in and has been using cash reserves and federal stimulus money to balance the budget.

The revenue forecast released in December shows that Indiana is expected to take in $13.4 billion in fiscal year 2012 and $13.9 billion in 2013. Those are increases over current revenues, but current spending is about $13.9 billion — so even if the state didn't increase its spending, Indiana would likely spend about $500 million more in the first year of the budget than it brought in.

And because some areas of the budget will grow — such as Medicaid — lawmakers say the structural deficit will likely be larger than $500 million.

Kenley, the Senate appropriations chairman, estimates that the General Assembly will have to cut about $1 billion from current spending to cover the gap and leave a healthy amount in reserve. He said it's possible to do that without cutting education, but lawmakers will have to hold tight on spending and make tough decisions about cuts elsewhere.

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