Opinion

FEIGENBAUM: Revenue forecast, cold weather complicate budget

February 15, 2014

Ed FeigenbaumMuch of what transpires in the General Assembly is often driven—or stopped in its tracks—by money.

The ambitious agenda laid out at the beginning of the legislative session by Gov. Mike Pence is no different.

Beginning with his $1-billion-plus business personal property tax cut proposal and continuing through assorted less-costly tax expenditures such as adoption tax credits and indexing the personal income tax deduction to inflation, and direct spending to fund a preschool voucher program and teacher transfer initiatives, the gubernatorial legislative agenda came with a heavy price tag even as he declared the $2 billion state surplus off limits.

As a result, lawmakers were left to cobble together funding for a series of programs—or simply leave some constituencies out in the fiscal cold.

Faced with losing more than $1 billion in revenue flow—after some units were already tapped out of tax-raising ability as a result of the constitutional property-tax caps—mayors, county commissioners, city and county council members, school superintendents, school board members, library directors, and public safety personnel undertook an intense bipartisan lobbying effort. They sought to convince the governor and legislators not to leave them without replacement revenue, or at least the ability to help themselves raise dollars to offset any forgone business personal property tax income.

They suggested the real impact of any loss of income would be felt directly by taxpayers in further reduced services or simply the exit entirely of some functions from government. And like presidents have made plans to first close national parks, monuments and memorials in federal fiscal fights to prove a point and rally public support, local officials talked about reduced public safety spending, closed parks, further deteriorated roadways, and cuts in trash collections as consequences.

Pence told a group of mayors Feb. 11 he was “open to full state replacement revenue for local governments to cover the cost of eliminating the business personal property tax,” but his commitment officially extended only to an estimated $54.4 million hit from the elimination of the tax on small businesses with less than $25,000 in equipment, as proposed in Senate Bill 1, and not to any other phaseouts (he’s also supporting a different House plan).

Meanwhile, state revenue has taken a turn for the worse, as January weather woes (likely to be followed by February problems) saw General Fund revenue down $93 million, or 6.5 percent, from January 2013 collections. January collections also fell short of the revised Dec. 20 forecast by $38.3 million, 2.8 percent.

Shortly before the numbers were released, House Speaker Brian Bosma allowed that underperforming January revenue numbers could give him pause about additional appropriations or tax expenditures.

Bear in mind that lawmakers will see just one more set of numbers (in early March) before they must quickly make final policy, program and spending decisions, and January weather woes continued through the first week of February.

Of course, the revised projections were a revenue forecast, and it was a weather forecast that largely disrupted collections, with record snows from Lake Michigan to the Ohio River keeping Hoosiers indoors.

Fiscal year-to-date general revenue of $8.06 billion now trails even the revised two-month-old forecast by $35.5 million, and for the first seven months of fiscal year 2014, revenue was down $65.9 million compared with the same point a year earlier.

Much of anyone’s agenda that involves spending will be affected by February’s revenue report released during the first week of March (which no one expects to be optimistic due to the lag in tax collections from actual events).

Lawmakers will seek to divine just how much revenue may simply be displaced from January and February (such as from vehicle sales and big-ticket hard goods, affecting both taxes and Indiana production), and how much will not be replaced (such as taxes from restaurant sales, and entertainment and gambling expenditures).

Those dollar determinations will affect the governor’s expensive agenda in a non-budget session … while another major February storm or two could cause rank-and-file lawmakers to line up behind fiscal leaders expressing concern about so much spending in a short session.•

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Feigenbaum publishes Indiana Legislative Insight. He can be reached at edf@ingrouponline.com.

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