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INDIANAPOLIS – Painful spending cuts – including slashing education – are possible if state tax collections continue to slide, Gov. Mitch Daniels warned Thursday.
But he did not announce any immediate action, saying his team would continue to watch the numbers and plan internally on how to trim the state budget if the need arises.
"The quest to conserve tax dollars is an everyday affair with us and that won’t stop, but we have no new policy decision for the moment," Daniels said.
"But we won’t wait forever, and we will need everyone’s understanding and cooperation if more actions are necessary."
He said "nothing is off the table" except for raising taxes on Hoosiers during a recession.
"Families are going to have to tighten their belts and get along with less until we get out of the economic doldrums. That’s unfortunately going to be the case," said Rep. Jeff Espich, R-Uniondale, the fiscal expert for the House Republicans. "The important thing is that we in government learn to live within the income we have, just as Hoosier families are doing, and under no circumstances should we consider raising taxes."
Daniels’ comments came as the state released September’s revenue report, which showed the state missed tax collection projections by $165 million. The largest drops come from individual and corporate income taxes.
During the first quarter of the fiscal year – July, August and September – the state has collected $254 million less than expected – or about an 8 percent shortfall.
By comparison, the state took in less in the first three months of this fiscal year than four years ago during the same time period.
If the trend continues – and no cuts are made – the state surplus of $1.3 billion would be depleted by the fall of 2010.
Sen. Luke Kenley, R-Noblesville, the chief budget architect in that chamber, said the governor can withhold payments to K-12 schools and higher education, noting they are a dominant part of the state budget.
About half of the state budget goes to K-12 schools with an additional 13 percent going to public colleges and universities.
"If it doesn’t turn around in the next month or two, it’s going to be in the offing that we are going to have to consider cuts in those areas," Kenley said.
Daniels has already squeezed savings out of other administrative areas, such as running state agencies.
And Kenley pointed out that a 1 percent cut in education would save $60 million, which would "go a long way toward reconciling the problem."
The current state budget gave schools a 1.1 percent average annual increase to schools statewide the first year and 0.3 percent boost in fiscal year 2011. That does not include additional federal stimulus dollars flowing to schools.
House Speaker Pat Bauer, D-South Bend, said it’s wrong to start talking about cuts. He prefers the state focus on using state and federal funds on capital construction projects that can create jobs and improve the state economy.
"It’s apparent the recovery is not coming to Indiana yet," he said.
The State Budget Committee in September approved $256 million in college capital projects. Kenley said about $300 million worth of projects from the last two state budgets remain to be approved.
Delaying those projects wouldn’t save the state much money now because the debt payments have been pushed into the next budget cycle.
Daniels also said Thursday he wants to revisit the system used to project state tax collections.
The two-part process includes an outside consultant who presents an economic forecast. Then a team of state fiscal analysts and experts translates that forecast into revenue projections.
Daniels said he isn’t casting blame but thinks the economy has changed more significantly than the committee has anticipated, including the amount of money Hoosiers are saving versus spending on discretionary items.
"The legislature cannot be expected to vote for a budget that stays in the black if they are operating on wildly incorrect assumptions on how much money will be coming in," he said. "So we’ve got to get the model in shape so we don’t have big mistakes like this in the future."
But Bauer said the system is not broken.
"We’re in volatile times," he said. "Nobody could have predicted this."
The next forecast is scheduled for December.
