JEFFERSONVILLE — The projections are bleak.
Indiana budget estimates show a $700 million to $1.3 billion shortfall between revenue and expenses and legislators have sworn off tax increases as a way to making up the shortfall.
That leaves budget cuts as a possible solution. However, 20 percent of the budget is state agencies that have already seen deep cuts; the other 80 percent is education and Medicaid — two items sworn by many as untouchable.
“I’m not sure what they’ll do,” said Bill Waltz, vice president of taxation and public finance for the Indiana Chamber of Commerce, a statewide business organization. “Whatever they come up with is not likely to be real pretty.”
Waltz spoke to area business and civic leaders Thursday during the chamber’s annual legislative preview at American Commercial Lines Inc. in Jeffersonville. The session aimed to update leaders on issues lawmakers will face during the upcoming Indiana General Assembly session, which starts in January.
Presenters also highlighted the chamber’s priorities on issues.
Political makeup
The makeup of the Indiana statehouse fluctuates every two years with elections — most recently in dramatic fashion.
“In this wave, [changing seats] all happened to go from Democrat to Republican,” Waltz said. “Most were down in this area of the state.”
Locally, Republicans Steve Davisson, of Salem, and Rhonda Rhoads, of Corydon, claimed House of Representative seats that had formerly been held by Democrats.
Republicans Ron Grooms, Jeffersonville, and Jim Smith, Charlestown, also moved into Indiana Senate seats that Democrats previously occupied.
The wins flipped control of the house from Democrat to Republican. In the senate, a quorum-proof super majority was created. Republicans control the chamber in such lopsided fashion that Democrats needn’t show up in order for Republicans to conduct business this year.
Budget projections
Indiana’s budget still looks better than most states, Waltz said. However, estimates from the nonpartisan Fiscal Policy Institute indicate legislators will have a difficult time keeping the state’s finances in the black.
“If you want to use the most optimistic numbers, you end up with a $700 million deficit, which obviously is still significant,” Waltz said.
It’s unlikely either statehouse chamber would support raising taxes in the current economic environment.
“They’ve all said no, we’re not going to go there,” he said.
Reducing spending also will be difficult.
“The reality, I’m afraid, from what I can see I don’t know how they do it without cutting education,” he said.
Other options could be suspending or limiting tax deductions.
Waltz said both Gov. Mitch Daniels and Indiana Superintendent of Public Instruction. Tony Bennett have offered ideas on improving education without new money. Teachers health insurance benefits could be in the crosshairs, he said, noting that cuts and employee contribution increases could create $400 million in savings.
Bennett wrote in a memo to district administrators last week that there are “no current plans for reductions” in budgets for kindergarten through 12th grade education for 2011.
Speaking on education funding after the presentation, Greater Clark County Schools Superintendent Stephen Daeschner admitted it would be tough to handle more funding cuts at the state level.
“We’ll have to be reactive,” he said.
Last year, when the school system saw decreases, it cut by not hiring new staff to replace retirees. That increased student-teacher ratios, he said.
Local government
Local government budgets will face similar funding issues.
Caps which limit how much a local government can tax property were written into the state’s constitution with a referendum last month. Waltz also noted that local option income tax, commonly referred to as the LOIT tax, is expected to see a downturn of about 17 percent on average thanks to a decrease in personal income levels from the recession.
“This is a delayed affect of the downturn,” he said.
Tighter local budgets could boost support for the more modest proposals included in the Kernan-Shepard report, a list of 27 recommendations aimed at increasing local government efficiency, he said.
Considering the report favors items such as anti-nepotism laws and tighter controls on conflicts of interest — “some of these I think are pretty hard to argue against.”
Economic development
Waltz noted that a study committee in Indianapolis recently finished a report on which economic development credits and deductions work best. That means legislators could look at eliminating or suspending less effective measures for budgetary reasons.
Additionally, he said legislation that removes barriers on public private partnerships as a means of financing infrastructure projects may be considered.
Unemployment insolvency
Righting the state’s insolvent unemployment fund will be another challenge for legislators, noted fellow presenter George Raymond, chamber vice president of human resources and labor relations.
The state’s unemployment fund ran out of money in November 2008 and has since borrowed about $1.9 billion from the federal government, he said.
Raymond argued that comprehensive changes will be needed to eligibility and benefits in the next session. There’s instances in which some workers have no incentive to take a low-paying job that may be available, because it would be a loss of income compared to what’s provided by unemployment insurance.
Energy
He said the chamber would support renewable energy initiatives but would oppose legislation that mandates it.
“The problem is when you want the lights on, you don’t care if the sun is shining or wind’s blowing.”
He said the nation needs to embrace nuclear power as a possible option to meeting energy needs, noting it would eliminate emissions and dependence on foreign oil.
There is a waste problem created by nuclear power, Raymond admitted. However, he believed that can be overcome.
Reaction
Two elected officials from Jeffersonville, Grooms and Rep. Steve Stemler, D-Jeffersonville, were at the presentation.
Stemler said one key challenge for the new house majority will be to not allow wedge issues — controversial social matters — to dominate the session.
“If we can agree that we will focus on the main, important issues, I think we will be successful,” he said.
Grooms echoed that sentiment, saying the General Assembly will have to stay focused, saying education would be a major challenge and funding for the state’s Medicaid program will eventually need to be addressed.