The nonpartisan Indiana Fiscal Policy Institute issued a sobering report earlier this month that ought to give Hoosiers pause — particularly as voters prepare to weigh in on amending the state constitution with permanent caps on property taxes.
The institute found that, without a huge and rapid economic turnaround or staggeringly deep, additional spending cuts, Hoosiers could be looking at a $1.3 billion shortfall in next year’s budget. That would be a revenue-to-spending gap of nearly 10 percent.
The projection was based on Indiana’s nine-year average rate of revenue growth, 2.9 percent, and current spending levels. However, in fiscal 2009 (July 1, 2008 to June 30, 2009), the state collected 1.1 percent fewer tax dollars than it did the year before. Fiscal 2010 was worse — 5.8 percent fewer tax dollars than in fiscal 2009.
Right now, Indiana’s ledger is in the black with about $830 million over what is needed to cover the budget. This has been done with the use of federal fiscal stimulus money, through Gov. Mitch Daniels’ $600 million in spending cuts for Fiscal 2011 and by drawing down the “rainy day” reserve fund.
But the policy institute’s projections show that this surplus will fall to $188 million by the next budget, a sum that can keep the state running for only a week or so. Meanwhile, Indiana’s unemployment compensation fund is long out of money and in hock about $2 billion to the federal government.
Funding for K-12 public schools takes up a little more than half of the state’s $13 billion annual budget. The governor already has culled $300 million from the schools and another $150 million from higher education for this year. Higher ed shares the remaining 45 percent of the budget with, among other recipients, state Medicaid contributions, wages and benefits for state employees, prisons and public safety, and transportation.
Individual income taxes and the 7 percent sales tax now make up more than 75 percent of state tax revenues; taxes on gas and fuel, gaming, cigarettes and corporations mostly make up the rest. The Indiana Fiscal Policy Institute asked the obvious question in its report: Absent a meteoric economic recovery or the kind of brutal spending cuts that would bring public schools and most state services to their knees, how can Indiana meet its budget demands without raising taxes?
That is a question most people, especially politicians, would like to go away. But ignoring it will not make that happen. Come November and the ballot referendum on property tax caps, we will all need an answer as we’re asked to choose whether to constitutionally constrict a potential revenue stream forever.
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