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INDIANAPOLIS – Higher-education cuts, a salary freeze for state employees and across-the-board reductions in agency budgets are just three actions Gov. Mitch Daniels ordered Thursday to close a $763 million budget gap in the next six months.
“We will adjust our spending to preserve a balanced budget in the state of Indiana,” he said. “These are only the first and hardly the last of the hard decisions that need to be made.”
A sobering revenue forecast released Thursday showed Indiana’s tax revenue from sales, income, corporate and gaming has dropped precipitously as the recession deepens in Indiana and around the nation.
Overall, the state will have $935 million less to spend for fiscal year 2009 – which ends June 30 – than was expected when the budget was passed in 2007.
So now the state has to cut the current $26 billion state budget deeply to get out of a deficit.
Then, lawmakers and Daniels will have to craft a new state budget – running from July 2009 through June 2011 – possibly starting at the now-reduced base.
This could mean K-12 education funding, which takes up more than half of the state budget, could see little to no increase, if not some cuts.
“There is not going to be new money for anything,” Daniels said.
The governor had already implemented some budget management actions this year.
For instance, he ordered executive branch agencies to hold back 7 percent of their spending; put in place a strategic hiring process; and delayed capital spending such as new state police posts and new pools at state parks.
So far, these initiatives have saved about $100 million.
On Thursday, Daniels said he ordered about 50 new actions to manage the budget and save an additional $663 million. The actions include an additional 3 percent cut for executive agency budgets; 3 percent less spending on grants and subsidies such as planning projects and publications; reduced out-of-state agency travel; more hiring restrictions; and additional limits on capital spending and higher-education cuts.
There also will be a salary freeze for all state employees in 2009, including the governor, all other statewide officeholders, judges and legislators.
There is one caveat for lawmakers, though. The freeze will not affect a large one-time increase for state legislators that will boost their base pay from $11,600 to about $22,000. The increase was passed in 2007 but was not set to go into effect until January 2009.
Legislators will not receive a smaller incremental adjustment that was expected in July.
Daniels declined to be specific about cuts to services and programs, saying, “I don’t believe anything truly fundamental will be stopped or postponed.”
Instead, the governor focused on what wouldn’t happen – no delays in funding for K-12 schools; no state employees will lose their jobs; no Hoosier will lose Medicaid coverage; and public safety would not be affected.
While Daniels discussed cuts to the current budget, lawmakers reviewed the financial forecast, with an eye on the possible effect for the next two years.
“We’re going to have to do what we have to do because unlike the federal government, we have to have a balanced budget,” said House Speaker Pat Bauer, D-South Bend.
Sen. Luke Kenley, R-Noblesville, chairman of the Senate Appropriations Committee, said cutting now puts lawmakers in a better position for the next biennium.
Thursday’s revenue projections estimate the state will see slight revenue growth in fiscal year 2010 and fiscal year 2011.
But the comparison is misleading because it includes money from an increase in the state sales tax rate that will pay for the state’s taking over significant property tax obligations.
Bauer wouldn’t commit to making Daniels’ immediate cuts permanent, saying, “I know cuts have to be made. But I have to see how they affect people and their lives.”
He also disagrees with Daniels, who doesn’t want to use money from the state’s Rainy Day Fund to shore up the budget.
“It’s raining,” Bauer said.
John Ellis, director of Indiana’s Public School Superintendents Association, said tapping the reserves seems like an easy fix.
“But you reduce your ability to deal with future problems,” he said, arguing that legislators need to look at the long-term effect on the state budget, not just the two years immediately in front of them.
nkelly@jg.net
