Governor and State Budget and State Government and Statehouse Dispatch

Governor's proposed budget sets penny-pinching tone

January 12, 2009
The $28 billion, two-year budget that Republican Gov. Mitch Daniels unveiled Jan. 6 transcends characterization even as a "bare bones" effort because programs outside of public safety and K-12 education are being trimmed (generally by 8 percent), delayed or eliminated.

Even the sacred cows are effectively being flat-lined, while higher education faces 4-percent operating budget cuts.

Daniels adhered to the two principles he has espoused since the international economic crisis began to unfold, serving up a budget that does not include (or force) tax increases nor require tapping into state reserves—the so-called Rainy Day Fund.

The bottom line came as no surprise to most, given that everyone understands the seriousness of the economic problems the state faces. Daniels has been transparent about his intentions since the depth of the fiscal straits became clear, and Democrats were certainly not blindsided—nor, outside of K-12 education, necessarily troubled—by his proposals.

The dynamics of the situation this year dictated a different partisan response than usual.

Sure, Senate Democrats—led by new Senate Democratic Leader Vi Simpson, D-Ellettsville—have been saying since early December that flat-lining K-12 spending would effectively be a budget cut they could not accept. House Democrats focused on the lack of job creation (and retention) investments, as well as Daniels' reluctance to dip into the Rainy Day Fund.

But the big problem the governor and lawmakers of both parties face is the economic uncertainty Indiana confronts.

Debating the specifics of cuts this early in the process may constitute an empty exercise should a major automobile manufacturer collapse, the economic stimulus package be delayed by Congress, small businesses (the heart of the Hoosier economy) begin to lay off employees in large numbers now that the holidays are behind us, or markets and consumers not respond to any of the Obama administration's mitigation efforts.

Work on the budget will begin with legislators forced to make assumptions about the state of the economy in a remarkably fluid environment.

Through what effectively was administrative decision, the federal government made billions of dollars available to shore up the relatively anonymous insurance giant AIG. Then, just a few weeks later, when the Big Three U.S. automakers sought a much smaller amount, it became a huge political issue that split Congress.

Legislators will be operating with the aid of an early December fiscal forecast, and even as Daniels was detailing his budget plan, December revenue numbers were released by the State Budget Agency showing collections trailing the projections of just a few weeks before by more than $33 million.

Officials will not benefit from a new forecast until just a few weeks before the late April end date for the session. Leaders seem to have no interest in setting the proverbial four corners of the budget (establishing priorities and percentages of revenue to be directed to certain program areas) in late April, then returning to plug in the final amounts in late June, following a special mid-June forecast.

While everyone understands this is not a year to advance new programs, there will be a sub rosa drama of sorts developing as social services advocates attempt to preserve funding for their programs while business interests seek to seize upon Democratic wishes for job creation, perhaps in the form of construction programs.

A federal "bucks for building" economic stimulus program could mean a major shift in how legislators view the budget even in the next month, obviating the need for such state efforts, and reviving capital spending that the governor prefers to delay.

Democrats also are concerned about delaying $20 million authorized for a joint Indiana University/Purdue University life sciences initiative. This may end up being negotiated back into the budget.

While the governor has eschewed tax hikes in the budget, a separate initiative would be needed to jump-start the Unemployment Insurance Trust Fund, which is now relying on federal loans and faces a $1 billion deficit by year's end. This will require lots of cash, but a delicate balance in how to raise it, weighing the burden of additional employer taxes against the ethics of reduced benefits (or terms) for needy former workers or payroll taxes tapping employees.

Hope for those involved to rise to the occasion, but nevertheless brace yourself for a depressing session.

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Feigenbaum publishes Indiana Legislative Insight. His column appears weekly while the Indiana General Assembly is in session. He can be reached at ed@ingrouponline.
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