Lawmakers face challenge holding spending in check

January 5, 2009
Indiana may be in better economic shape than our neighboring states, but that status is merely relative, and Hoosiers are hurting.

You don't need a tutorial on the global economic situation, but you do need to know that Indiana is not immune to international events, and the state faces a world of hurt of its own as lawmakers return to Indianapolis for the 2009 legislative session.

Cobbling together a biennial budget will be the absolute priority of the session, with regaining solvency of the unemployment insurance trust fund the other major 2009 concern.

A budget must be forged in an environment in which even the most optimistic agree there will be no room to accommodate new programs. A flat-line budget should be viewed as a major accomplishment.

Indeed, the December state revenue forecast shows revenue down some $935 million (7 percent) from assumptions the current biennial budget was built upon, with fiscal year 2009 revenue running $488.6 million (almost 4 percent) below fiscal year 2008 levels (and lagging projections even further).

For fiscal year 2010, the forecast expects revenue to effectively remain flat, growing by a nominal 1.1 percent ($135 million), and fiscal year 2011 only likely to provide a 3.6 percent growth rate ($449 million in additional revenue).

That means less than $12.6 billion will be available for fiscal year 2010 spending. By contrast, the fiscal year 2009 budget called for spending of $13.3 billion. But now the state is projected to only collect $12.44 billion in revenue this fiscal year.

Looking ahead to fiscal year 2011, the second year of the biennium, available revenue would only be about $13 billion, still below the amount originally budgeted for the current fiscal year.

The problem is acute, and there are no easy solutions.

Revenue since July 1 already has trailed projections by some $70 million, and Gov. Mitch Daniels is implementing broad cost-cutting measures that reach beyond state government into higher education.

On top of all this, the state will be assuming an additional $1.2 billion in funding for school operating costs and child welfare expenses in the next budget for the first time.

Every agency and program will be affected, higher education will feel the pain, and K-12 funding even may be targeted for the first time in decades.

And that is just a start.

You also will see clashes over whether to access the $1.4 billion in rainy day funds the state has accumulated. Some Democrats believe it is raining now, while their Republican counterparts prefer to hold out longer. They note that even if the recession were to end this year, employment and tax revenue would not recover for many more months beyond that, and the state thus could remain in an economic funk for much longer. The manufacturing dependence of our economy traditionally finds us among the last states to recover from tough economic times.

Experienced lawmakers suggest tight budgets are easier to craft than those spending surpluses, because the affected interests understand there is no money to fight for. But even veteran solons have no experience with an economic situation such as this one, and the cuts must be deep and stretch through the biennium.

There will be the usual disagreements over priorities and which programs should be affected more than others, but you also will hear more this year about what really constitutes a "cut." K-12 advocates, in particular, will be aggressively explaining that even flat-lining the education budget is effectively a cut, because it does not maintain pace with inflation.

The unemployment insurance trust fund depletion also must be addressed this session, and it will require some combination of employer tax increases and worker benefit decreases. No one will be happy.

Other issues on the table range from a constitutional amendment to cap property taxes to structural reform of local government. But everything will be subordinate to the immediate budget and pocketbook issues.


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