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Indiana Governor Alarmed About State Revenue

Indiana Governor Alarmed About State Revenue

Mike Smith | The Associated Press via YellowBrix

October 09, 2009

INDIANAPOLIS — Indiana’s state tax collections are continuing to take a dive, prompting Gov. Mitch Daniels to warn Thursday that budget cuts that could include schools and employee layoffs might be needed soon.

Revenue for September was $166 million short of a May forecast that lawmakers and Daniels used to put together a new two-year budget that took effect July 1. Tax collections are down by $254 million for the first three months of this fiscal year — 8 percent less than forecast and 14 percent less than the state took in for the same period a year ago.

The new budget already cut most agency spending by about 10 percent from the prior budget. The reductions are largely being made by not filling job vacancies, reducing travel and delaying some capital projects.

Daniels said he is not taking any additional action now, but more cuts might have to be made if revenue continues to fall short of expectations.

He said employee layoffs would be a last resort, and cutting money for schools could not be ruled out.

“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 job of keeping Indiana above water and solvent while other states are not are not getting any easier.”

If no additional budget cuts are made and revenues continue to fall 8 percent below projections over the next three quarters, Indiana’s budget surplus that was $1.3 billion on July 1 would be dwindled to just $300 million by the end of this fiscal year in June, Daniels said.

The May forecast already projected that revenues through June 2011 would be about $1.1 billion less than a forecast issued in April. The May forecast is what lawmakers and Daniels used to put together the new budget, which was projected to leave the state with a $1 billion surplus at the end of the spending cycle in June 2011.

The forecast is compiled by fiscal analysts for each of the four legislative caucuses and four other analysts. Daniels said they were competent people, but he will ask them to review and reshape the model they use to predict revenue.

“It is now very clear that the methods that have been used here, and in other states for that matter, are simply out of date,” Daniels said. "The Legislature cannot be expected to vote for a budget that stays in the black if they are operating on wildly incorrect assumptions on how much money is coming in.

“My suspicion is a big part of the difference is that Americans, including Hoosiers, have shifted in their consumption patterns. They are saving more and spending less, and I believe that isn’t a very temporary phenomenon. I think that is going to continue.”

Sales taxes make up about 40 percent of state revenue, Daniels said, and are down $71 million in the first quarter. Individual income taxes are down $158.5 million and corporate taxes are $56.6 million below forecast.

Senate Appropriations Chairman Luke Kenley, R-Noblesville, said if revenues continue to miss their targets in the next two months, the administration will have to start thinking about making budget cuts. In most cases it can withhold spending without authority from the Legislature.

Kenley said because the cuts in this year’s budget compared to the last one were mostly imposed on agencies, officials might have to consider cuts in public schools and higher education, which account for about 60 percent of the budget.

House Speaker Patrick Bauer, D-South Bend, said he was somewhat surprised by the scope of the revenue decline. He said one way to improve the situation is for the State Budget Committee to approve more capital projects included in the budget so they can move forward and create jobs that bring in tax revenue.

“Let’s not play Hoover, let’s play FDR,” he said. “Let’s do the jobs that gets us out of it.”

Copyright © 2009 The Associated Press. All rights reserved.


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  • Photo_user_blank_big

    mhdoyle

    almost 5 years ago

    6 comments

    This state is just the tip of the financial iceburg - more than 40 states are in deep financial black holes which could lead to decades of misery. We are in serious trouble that will take years if not a decade to adjust.

    From all indications, we have reached a tipping point (point of no return) with our depression. The greatest fear we face will be hyperinflation when the trillions of dollars become due. It appears we are not far off from having a declaration of a new financial currency.

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