State Government and Taxes and Government & Economic Development and Government

Indiana tax revenues concern Senate budget leader

March 6, 2012

The Indiana Senate's budget leader said Tuesday that a two-month shortfall in expected state revenue won't threaten plans for directing more money toward full-day kindergarten programs and victims of last summer's deadly state fair stage collapse.

The revenue lag, however, makes Senate Appropriations Committee Chairman Luke Kenley wary of speeding up a proposed 10-year phase-out of the state inheritance tax and wanting the state to have more money in the bank in order to trigger the automatic taxpayer refund championed by Gov. Mitch Daniels.

Legislative budget leaders are trying to reach agreements on the tax and spending proposals before the end of this week, when the General Assembly's leaders plan to adjourn the 2012 session.

Those talks follow Monday's release of figures showing state tax revenues for February came in less than expected by nearly $29 million, or about 4 percent, after a shortfall of about 3.5 percent for January.

"It makes me nervous to see this projection going downhill," said Kenley, R-Noblesville.

House and Senate budget leaders agree on directing about $80 million more in the coming year toward school districts for providing full-day kindergarten — with the caveat that districts can no longer charge parents extra fees for the programs.

That bill also makes a one-time additional payment of $6 million for the state fair stage collapse victims. The state has already paid out $5 million from an existing fund to cover lawsuits, but lawmakers and Daniels agreed that the victims — who are still left paying many medical expenses out of pocket — needed more money.

Questions remain on how quickly to phase out the state inheritance tax, which now brings in about $165 million a year. The House and Senate have both approved plans to slightly raise the current state budget reserve of 10 percent to trigger the tax refund.

The Daniels administration is projecting a surplus when the state budget year ends June 30 that would lead to perhaps a $50-per-taxpayer credit to 2013 tax returns.

Kenley said he didn't see anything threatening this year's taxpayer refund, but that he's concerned by slower revenue growth and the prospect of the state losing about $100 million a year in gambling revenue with the opening of new Ohio casinos.

"Some other elements of our revenue base appear to be just a little weak, so we can't be getting too far out there," Kenley said.

State Budget Director Adam Horst said too much emphasis shouldn't be put on the tax collections over the past two months and pointed out that the state is slightly ahead of revenue projections for the first eight months of this budget year.

Horst said the Daniels administration didn't want to see any changes to this year's automatic taxpayer refund and that the governor was comfortable about taking on the extra annual full-day kindergarten cost.

"That is a shared goal and something that we think is very important," Horst said. "That's something we think is very sustainable as well."

Republican Sen. Jim Smith of Charlestown, a sponsor of the inheritance tax elimination bill, said he would continue trying to speed up the 10-year phase-out schedule.

"I think that the timeline is very, very long," Smith said. "It is only as good as the next General Assembly ... priorities could change."

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