FROM THE DESK OF SENATOR DAVID LONG
On July 12th, the State closed the books for Fiscal Year 2004. According to official figures released by the State Budget Agency, Indiana is expected to have a “surplus”, or reserve, of just $300 million dollars on June 30, 2005—the close of the budget cycle we have just begun. This means the reserve will have declined by nearly $2 billion since 1998!
The problem is that state spending has been exceeding state revenues for the past several years, and that continues to be the case today. We cannot continue down this road, and given the current slow economic recovery in our state, the situation promises to get no better for the immediate future.
The past few years, the State has done everything possible to avoid large spending cuts in education and health care. One of the key tactics has been to use the surplus and employ spending delays and other temporary solutions. These measures have made it possible for the State to spend nearly $800 million more than it will collect this year. While there is precedent for this type of budgeting approach in order to avoid damaging spending cuts in critical areas like education, these measures are only one-time temporary fixes and cannot be sustained.
Thus, while it may seem like Indiana’s economy has begun to rebound, the State’s financial condition remains very weak.
A $300 million reserve sounds like a lot of money. But with an annual $11.2 billion General Fund Budget, including $4.3 billion for K-12 education, $2.1 billion for local property tax relief, $1.4 billion for universities, and $1.2 billion for Medicaid, a $300 million reserve is totally insufficient. The State spends $30 million dollars per day every day of the year. A $300 million reserve barely funds ten days of expenses!
The root of Indiana’s budget problems is slow revenue growth, due in no small part to the significant loss of jobs during the recession. But of even more concern is that Indiana lags the nation in personal income growth, and has since 1996. Today, the average Hoosier worker earns only about $.91 cents for every $1.00 earned by the average worker nationwide.
Correspondingly, State tax revenues lag as well. If Indiana’s workers just earned the national average, the subsequent gain in tax revenues would erase the State’s structural deficit. Indiana must improve its economic situation relative to the rest of the nation or the State Budget—and the ability to adequately fund priorities such as education and health care—will remain a serious and lingering problem.
Beginning in January, the Legislature will begin the four-month process of creating the state budget for the next two-year period. Whether the Budget can be forged absent serious spending cuts is impossible to answer at this point. But the long-term answer to the State’s budget woes is diversification of the economy and renewed business investment. This will, in turn, create the expansion of jobs and income that is the key to overcoming the continuing revenue shortfall. Indiana needs to grow its way out of its budgetary dilemma. It can be done, but we’ll need vision, solid leadership, and a large dose of political courage from our Governor and the Legislature over the next few years to achieve this goal.
Note: Coming next edition-the annual Long Family vacation report. This year, we traveled to New England.
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