Hot Topic: Indiana's State Budget

On June 30, 2009, a special session of the Indiana General Assembly passed a budget just hours before the start of the new fiscal year.. The problem was revenues. Revenues fell short of original projections by about $1.4 billion in fiscal year 2009, the worst revenue year in memory. The deep recession hit state revenues hard.

We started the year with just about $1.4 billion of balances in the bank. And despite revenue shortfalls, we ended the fiscal year with that same $1.4 billion. How? There were about $400 million in reversions and fund transfers. And there was the stimulus money, almost one billion dollars of American Reinvestment and Recovery Act revenue from the Federal government. Federal dollars plus reversions plus transfers covered the 2009 shortfall, and left us with money in the bank.

Revenues are projected to grow slowly through 2011, starting from that reduced 2009 level. That meant the budget for the new biennium had to be tight. Appropriations growth is planned at only 0.3% a year in 2010 and 2011, much slower than usual. Stimulus money will be used to support even this very small spending growth.

But even with the stimulus money, revenue will grow so slowly that we’ll have to use $400 million in balances to cover the budget. Balances are projected to drop to a billion dollars by June 30, 2011. And that's if revenues arrive as predicted. After just three months of fiscal 2010, though, revenues had fallen short of forecast by more than $250 million. Balances won't last long if revenues continue to fall short at that rate. More spending cuts would be needed.

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