Tough decisions await Indiana

INDIANAPOLIS — Gov. Mitch Daniels has promised no new taxes. It’s about the only positive news he had after the latest report on state revenue.

Leading lawmakers didn’t try to sugarcoat the news either, although House Republicans used the occasion to pat themselves on the back for supporting a lean budget.

The news was indeed grim.

State tax collections in September were $166 million below target, and for the first three months of the fiscal year, revenue is $254 million below a May forecast. And that forecast, which lawmakers and Daniels used in drafting the current two-year budget, already predicted that the state would take in $1.1 billion less than a forecast issued in April.

Daniels didn’t buy the April forecast, saying it was way too rosy. His stance was a key reason that lawmakers failed to pass a two-year budget that Daniels could sign during the regular legislative session, forcing an overtime session that ended with a lean budget being enacted.

But if the revenue trend so far continues, that budget — which was projected to leave the state with a $1 billion surplus in June 2011 — won’t be lean enough.

Revenue for the first quarter of this fiscal year was 8 percent below target. If it continues at that rate over the next three quarters, Indiana’s surplus will have dwindled to $300 million by June. And if the trend stays the same in the next fiscal year, Indiana will have a deficit exceeding $1 billion in June 2011.

Daniels says he won’t allow the state to dip into a deficit.

At a news conference last week, he reiterated his belief that Indiana’s business climate is among the best in the country and that the state is in better fiscal shape than many others. Many states have cut funding for public schools, and 45 states have either raised taxes or proposed raising taxes since the beginning of the recession.

Indiana wasn’t one of them and won’t be one of them despite the dive in revenue, Daniels said.

But he warned the public that some painful spending cuts could be on the horizon. Cuts to schools and state employee layoffs can’t be ruled out, he said.

“Today is not a day to remove any option except we are not going to raise taxes on people who are strapped as it is,” he said.

The current budget cuts most agency spending by 10 percent from the previous budget. Most employee vacancies are not being filled, and some capital projects have been postponed. But Daniels said more action might be needed soon.

He would not say what contingency plans are in place, but he made it clear that he means business when it comes to keeping the state solvent.

Senate Appropriations Chairman Luke Kenley, R-Noblesville, said Daniels did the right thing in warning the public and lawmakers that “we are not out of the woods yet.”

Daniels had more bad news to share.

He said he didn’t buy figures showing that Indiana’s unemployment rate dropped from 10.6 percent in July to 9.9 percent in August.

“I don’t honestly understand or trust the big drop in unemployment that was last reported on,” he said. “It just doesn’t match up with my sense as I travel around the state. It may have stopped the hemorrhaging a little bit, but I don’t see that we have gained much back.”

He said Indiana has put some of its federal stimulus money to quick use but that it’s hard to see a big difference.
“I personally wouldn’t try to tell a taxpayer that this had any effect that I can see on the economy or let alone that there is some specific number of jobs attached to it,” he said.

It’s bad news, to be sure. But maybe it’s what Indiana residents needed to hear.
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Mike Smith has covered Indiana’s Statehouse and political scene since 1993.