How much of our tax dollars should the state of Indiana hold in reserve?

Unlike many states and the federal government, the Hoosier State requires that state and local units of government operate on a balanced budget.

Most residents would agree that provision of the Indiana Constitution makes perfect sense. It was added when the state defaulted on loans in 1841. The state couldn’t make the interest payments on several major projects, including the planned canal that never was completed.

So, how much should the Indiana General Assembly keep in reserve for unexpected expenditures?

By the end of the current fiscal year on June 30, 2023, the state surplus is expected to approach $3 billion.

The general rule of thumb the Indiana State Board of Accounts recommends for local units of government is cash reserves of 10% of the expected budget expenditures.

If the projections are right, the state reserves will be approximately 12% of the state’s budget needs.

In fact, any surplus over $2.5 billion at the end of fiscal year 2022, next June 30, is designated to lower what the state owes for pensions.

As one lawmaker explained it’s like paying off a car loan early. You save the interest.

Obviously, back when Republican Mitch Daniels served as governor he wanted any reserve funds over a certain percentage to be returned to those Hoosiers that pay income taxes.

The Automatic Taxpayer Refund legislation was adopted in 2010 and established recognizing that after some prudent reserve level was reached, the money should be returned to those who paid it.

It actually kicked in in 2012 when the state’s savings account exceeded 10% of the budgeted amount.

The deemed amount was $760 million, with 50% going to pay pension liabilities and the remainder given as a tax credit to residents.

The payment was $111 for a single taxpayer and $222 for a couple filing a joint return. Granted not a huge amount, but it probably would have been spent locally to bolster businesses.

In their infinite wisdom, lawmakers quickly changed the law to increase the Automatic Taxpayer Refund from 10% to 12.5%.

Over the past decade, there have been no discussions about returning any of the reserve funds to the taxpayers.

When Daniels was pushing for passage of the Automatic Taxpayer Refund, his rallying cry was “It’s Your Money.”

Daniels was correct — it is our tax dollars.

Many Hoosiers pay income and property taxes, sales tax, food and beverage taxes, excise taxes on vehicles and the list goes on and on.

The state reserve doesn’t include the $2.4 billion provided by the federal government to offset the coronavirus pandemic and more federal cash is in the pipeline.

It would be a welcome idea if the Indianapolis lawmakers asked the voters and taxpayers how much should be kept in reserve and at what point does it mean a possible tax refund.
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