Guidelines for Indiana Legislators: No New Taxes, No New Spending

December 1, 2008

For release Dec. 3 and thereafter (690 words)

The Wall Street Journal’s Jason Zweig recently found a silver lining behind the global meltdown of financial markets: After years of maxing out credit cards and squandering money, consumers may be forced to live within their means.
   
If that lesson is a sound one for ordinary citizens — and it is — what about the government bodies that have modeled extravagant spending practices for decades? When’s the last time a legislature passed a budget smaller than the previous year’s? When have politicians promised to scale down programs instead of expand them?
   
Just as families are planning for a modest Christmas holiday due to the economy, Indiana lawmakers must plan for a modest 2009-11 biennium. Although an up-to-date revenue forecast won’t be out until Dec. 11, the state’s fiscal picture is expected to be grim.
   
The title of a Nov. 18 report by the Indiana Fiscal Policy Institute was sobering: “Economic Hurricane Coming — Is Indiana Ready?” The new forecast will likely show a drop in sales and income tax revenues, which are sensitive to economic conditions, said the institute, a not-for-profit organization that researches tax and spending practices.
     
“The global financial meltdown has slowed sales in big-ticket items such as automobiles, leading to reduced sales tax revenue,” the institute said. “In addition, declines in equity prices will mean a drop in capital gain income. Other revenue sources may drop as well. Gaming revenue is feeling the pressure of competition and the recession and interest income will fall due to lower rates on safe, short-term investments.”
   
Here’s the good news. Lawmakers will meet in January under far better circumstances than their peers in 41 states, all facing budget shortfalls of varying amounts. As of June 30, Indiana had a cash reserve of $1.4 billion, more than 10 percent of the state’s general fund. “Indiana is in a strong position as it enters the recession,” the institute said.
   
The situation is so dire in New York State that Gov. David Paterson convened a special legislative session on Nov. 18 to make $2 billion in cuts. When lawmakers declined to go along, Paterson did what any enterprising American would do in the current political environment: He headed to Washington D.C. for a handout.
   
Thankfully, Indiana’s governor won’t be asking for a bailout from Congress, or from Indiana taxpayers either. He said he would not balance the budget by raising taxes or by using gimmicks such as delaying payouts of state appropriations to schools, which has happened before.
   
Will he face opposition? No doubt. In the minds of some lawmakers, even a biennial budget that equals the current one — $26 billion — would be unacceptable. As always, schools, universities, social services and special interests will be falling all over each other to maintain or increase their piece of the pie. And it is a slightly larger pie, the institute points out, due to last year’s increase in the sales tax from 6 to 7 percent.
    
Lawmakers must get over the mindset, expressed recently by Democratic Rep. Terry Goodin, superintendent of Crothersville Community Schools, that a flat-lined budget is “truly a cut” because of higher health premiums, transportation costs and other operating expenses.
   
The answer is not to increase spending but to cut back as Hoosier constituents are forced to do. Indiana families face higher insurance premiums, higher fuel prices and, in some cases, job loss. Many sectors of the workforce expect negligible pay raises in 2009. Folks have no choice but to cut back.
   
A flat-lined budget will be challenge enough for the legislature in light of newly enacted programs like Healthy Indiana and all-day kindergarten and the expansion of the state’s obligation to pay for schools and welfare out of general funds. Creativity is required.
   
Lawmakers have until April 29 to made final decisions. By then another revenue forecast will be out and economists will have a better sense of the duration of the recession. In the meantime, watchwords should be: no new spending and no new taxes. When times are tough, government cannot expect to avoid the restraints — indeed the hardships — faced by taxpaying citizens.

Andrea Neal is a teacher at St. Richard’s School in Indianapolis and adjunct scholar with the Indiana Policy Review Foundation. Contact her at aneal@inpolicy.org.



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