EDITORIAL: Consider tapping bank fund to ease budget woes

January 1, 2011

It’s shaping up to be a heck of a fight.

Legislators trying to wrestle to the ground a two-year state budget—with sharply reduced revenue, programs that have been cut to the quick, a supposedly untouchable education allocation, and a host of fresh lawmakers full of their own priorities—will inflict more than a few bumps and bruises.

Something that might apply a little salve to the wounds is withdrawing cash from the dormant public deposit insurance fund, or PDIF. As reported in a front-page story in last week’s IBJ, the $250 million fund has not been tapped in nearly 20 years. This is in spite of the avalanche of bank failures during the recession.

Indiana is the only remaining state with such a fund, which was created in the wake of the Great Depression to safeguard money invested by public entities in the event a bank holding those funds failed and the Federal Deposit Insurance Corp. didn’t fully cover the losses.

The need for it is questionable now, because new state regulations require banks that hold public funds and have high risk ratings to back up those funds with collateral. The value of that collateral is expected to be $5 billion.

Which makes the need for the PDIF debatable, in spite of bankers’ political posturing to the contrary. With a projected gap of $1 billion between expenses and revenue in the next two years, the state needs to harness all possible resources to prevent cuts from going any deeper than necessary. The governor advocates dipping into the fund, and at least one high-ranking House Democrat thinks it’s worthy of discussion.

It seems reasonable for legislators to consider making a concession to banks, such as a lower income tax, to address their claims that the money belongs to them, since financial institutions paid into the fund for decades.

The solid majority of Republicans in both houses means business-friendly legislation is likely to get more attention than usual this year. Lawmakers should support Hoosier investment by beefing up these tax credits:

• Increase the maximum for venture-capital tax credits to $1 million, suspend the application fee, and simplify the application process.

• Increase the revitalization of unused industrial sites by expanding the use of so-called “dinosaur building” tax credits to include facilities that are smaller, were in use for a shorter time, and have been vacant for a shorter time.

Finally, in spite of the Republican sweep in November, we ask legislators to steer clear of issues such as gay marriage, abortion and immigration. Inserting such polarizing questions into the session only makes it more difficult to achieve compromise and progress on more pressing matters. The budget alone will create enough opportunities to make fur fly.

Let the debating begin.•


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