Hot Topic: Indiana's State Budget

Indiana's state budget looked better than it had in years at the end of the 2008 fiscal year on June 30, 2008. Revenues had exceeded spending for the third straight year. Balances had been rebuilt to almost 11% of the budget. Payment delays to local governments were almost completely reversed. And the budget for fiscal years 2008 and 2009 increased education spending more than at any time this decade.

But: are their clouds on the horizon? On December 13, 2007 the state's revenue forecast was revised, downward. The national economic slowdown was projected to affect Indiana, reducing state income growth from 4.5% to 3% in 2008 and 2009. $265 million in projected revenues for fiscal 2009 disappeared. Now balances look like they'll would fall short of 10% in 2009. The governor immediately ordered his state agencies to cut their spending 5%, and "reversions" were $133 million in 2008.

Is this just a temporary slowdown? After all, revenues came in above predictions in 2008. So far there's no recession in state revenues. The state has $1.4 billion in balances, which is more than enough to handle a $265 million revenue shortfall.

Or, is this the beginning of another recession? During the last recession, over the five fiscal years 2000 to 2004, revenues fell short of projections by almost $3 billion. Indiana does not have the resources to cover a shortfall like that without severe spending restrictions, or even tax hikes.

Added to this is the major tax reform of 2008. The state will take over the school general fund and county welfare funds in 2009, which will significantly increases state spending. Will the money be there to support the schools and counties?

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