September 13, 2002
Indiana's State Budget: Calm Before the Storm?
The state legislators who went home from last spring's special session with a feeling of accomplishment had better get over that feeling right away. The rhetoric of the tax restructuring bill enacted into law promised a tax structure for the new millennium. But the facts on the ground tell us that we should be worried about the next two years instead.
As noteworthy as it was to finally address the implications of correcting the state's unconstitutional property tax assessment methods, the tax restructuring package did nothing to address the fundamental problem affecting the state's finances. That is the imbalance between spending and revenues.
According to the Indiana Fiscal Policy Institute, from fiscal year 1995 through 2000, state spending averaged 7.5 percent annual growth, while revenues grew by just 4.9 percent. The cushion for feeding our spending appetites -- the state's once-substantial budget surplus -- is largely exhausted, leaving open the chance that lawmakers will go back to the taxpayers again to keep the lights on in government.
That's not the only possibility, of course. If, by happy circumstance, the economy were to kick into a high enough gear to support double digit revenue growth, the rising tide would keep us afloat. But the state economy is showing no signs of cooperating with that vain hope. If anything, the recession has been longer and deeper in Indiana than elsewhere in the nation, with little prospect of break-away growth in the immediate future.
The second path to budget balancing -- reducing spending growth -- does not seem an issue worthy of serious consideration in state government. Almost three months into the new fiscal year, and we have yet to see the actual closure of state police posts announced last spring. Our money-losing system of license plate branches continues to siphon gasoline tax dollars away from much-needed road repair. And no innovative ideas seem to be forthcoming to address the two fastest growing categories of state spending: corrections and teachers' retirement.
The option of raising tax rates to finance spending growth is something that few elected officials want to talk about. Yet with a shortfall of anywhere between one and two billion dollars looming ahead for the next biennial budget, the jaws of the vice we are walking into are only going to get tighter.
Debates over tax increases are never pretty. And in the wake of what was billed as a permanent fix to our fiscal woes, the one just ahead promises to be a dogfight. So before we get into the thick of it, let's remember a few basic rules of reason.
What's best for state government may not be what's best for the state economy. Or to state it another way, raising tax dollars to save an "essential" government service may squeeze out or chase away a similarly "essential" business that puts bread on people's tables. What is more, there are no "free" tax increases. Raising an excise tax or user fee up to the levels charged by neighboring states raises the costs of living and working in Indiana just as much as boosting a tax that begins at parity.
The job of our elected leaders does not end with producing a balanced budget. We need leadership that looks out for the welfare of the state as a whole. We expect our state government to do more, but that does not mean that we always have more resources to give it.
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