State Budget and State Government and Taxes and Government & Economic Development and Government

Budget official: State was warned about tax collections

December 14, 2011

A Democratic member of the state's budget forecasting group believes the state could have discovered a massive budgeting problem two years ago, potentially avoiding deep cuts to education and other services.

Gov. Mitch Daniels announced last week that state workers discovered $320 million in corporate taxes which had sat untouched for four years.

But Erik Gonzalez, a Democratic member of the technical team that compiles estimates of the state's tax money, said his group raised concerns about the tax collections at a November 2009 meeting. The Department of Revenue could have avoided misplacing the money if it had acted then, he said.

"Either they didn't do their due diligence or they intentionally withheld information," Gonzalez said of the DOR.

State Budget Director Adam Horst said in an e-mail Wednesday that the 2009 meeting was called for by the DOR and had nothing to do with the electronic tax-collecting process at the heart of the $320 million mistake. Horst disputed Gonzalez's account, saying that the budget forecasters were more concerned with separate tax collections and whether a 2008 court ruling about MBNA bank would bring more money to the state.

"Certain members of the committee expressed concern that revenues in general were being underreported, but corporate taxes were not the focus," Horst wrote.

Gonzalez's statements came as he and other members of the Revenue Forecast Technical Committee presented their new budget estimates to state leaders Wednesday. The state is set to have $1.8 billion cash on hand at the end of the next budget, which would trigger Gov. Mitch Daniels' automatic tax refunds. But lawmakers have already said they may take a look at spending some of that money during the 2012 session that starts in January.

Much of the state's expected surplus comes from the misplaced $320 million and an annual increase of roughly $100 million stemming from the found money.

Democrats on the budget committee tried twice during Wednesday's meeting to get an independent audit of the DOR but failed both times on party-line votes of 3-2. Horst and the two other Republicans on the committee said they felt like the mistake had been identified but offered an audit from the State Board of Accounts as a compromise.

The panel voted unanimously to request the SBOA audit.

The SBOA conducts annual reviews of the department as part of the state's comprehensive annual financial review, but failed to find the $320 million error during its routine annual audits. The SBOA also conducts separate, "compliance audits" although its last audit of the DOR was published in February 2008 and it is unclear whether it would have found the missing money.

David Dukes, a Republican member on the forecasting committee with Gonzalez, said he noticed in 2009 that corporate tax collections were far off estimates. "We couldn't understand why the corporate revenues were going down," Dukes said.

But the DOR explanation for the apparent inaccuracies and volatility in the corporate tax collections during the down economy satisfied everyone at the November 2009 meeting that they did not need to look deeper into the problem, Dukes said. "Corporate's the toughest one to forecast," he said.

Rep. William Crawford, D-Indianapolis, raised questions about the November 2009 meeting at Wednesday's budget hearing and asked Roy Gabriel, DOR's information technology director, to check it out.

"I think it's a red herring," said State Budget Committee Chairman Jeff Espich, R-Uniondale. It would be impossible to go back and dissect every discussion and every assertion before the state eventually found the $320 million, he said.

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