`

BOHANON & CUROTT: State’s fiscal news offers something for everyone

January 4, 2019

Economic Analysis by Cecil Bohanon & Nick CurottIn December, the Indiana fiscal gurus gave us good news and bad news.

The good news is that state tax revenue is on target to exceed expectations. This is because of economic growth, and a Supreme Court ruling that allows collection of sales taxes on Indiana residents’ out-of-state internet purchases.

The bad news is that mandated Medicaid expenditures are also on track to be above expectations. And the ongoing opioid/substance abuse crisis implies temporary increases in appropriations to the Department of Child Services must be made permanent. Both of these increases eat up almost all the gains from the rosy revenue forecast. Easy come, easy go.

Nevertheless, Hoosiers should take comfort—and warning—from an unheralded report issued by The Volker Institute, named for Paul Volker, the 91-year-old retired Federal Reserve chairman and perennial fiscal Dutch uncle. The institute gives a report card on each state’s fiscal probity.

First the bad news. The Volker study gives Indiana’s state budget forecasting a “C.” We also get a “C” in transparency, a measure of how well the state does in providing the public with budget information. As we are constantly reminding our undergraduate students, a “C” implies average—that there is room for improvement but not an actual deficiency.

There is better news on “legacy costs.” Like every state, Indiana has promised its employees retirement benefits. For every dollar promised, Indiana has put aside 65 cents to cover the liability, earning it a “B.” In contrast, profligate neighbor Illinois has socked away only 38 cents for every dollar promised to public employees.

The best news, however, is that Indiana earns an “A” on both “budget maneuvers” and “reserve funds.” The former refers to refraining from fiscal shenanigans, such as deferring maintenance and upkeep costs in order to increase current spending. We haven’t done it recently and that gets us an “A.” Additionally, Indiana gets an “A” for setting up reserve funds for fiscal downturns and for refraining from using them to bump up current spending.

So, as we enter 2019, let’s encourage the Legislature to hold the line. Yes, it would be tempting to increase the salaries of everyone dependent on state funding. Of course, salary increases would be popular with schoolteachers, state employees and college professors at state-financed universities—present company included. But to do this with fiscal tricks or by raiding reserves is a monumentally bad idea.•

__________

Bohanon and Curott are professors of economics at Ball State University. Send comments to ibjedit@ibj.com.

 

ADVERTISEMENT

Recent Articles by Cecil Bohanon / Special to IBJ

Comments powered by Disqus