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The Journal Gazette

In the black: State surplus comes at cost

But future fiscal concerns remain

– The state closed the fiscal year with $830 million in the bank, thanks to steep spending reductions and the use of reserves.

Fiscal year 2010 ended in June, and Indiana Auditor Tim Berry on Friday released the close-out numbers showing the state in the black.

"Here in Indiana, we've refused to increase taxes or spend money we simply don't have," he said.

But to balance the budget – which took in nearly $1 billion less in tax revenue than expected – state agencies and offices reverted money and made cuts totaling $785 million. This includes education reductions that are wreaking havoc with local school budgets.

In addition, the state used $500 million out of its reserve accounts.

Next year's finances won't get any better. Even if the state achieves an optimistic 5 percent revenue growth, the state will spend more of its reserves, dropping cash balances to $188 million.

That equals about five days' worth of cash to run state government.

"Staying in the black when most states are broke, and cutting taxes while they are raising them, is the best way to help Hoosier families through this recession and out-compete other states for the new jobs we need," Gov. Mitch Daniels said.

"Thanks to our agency heads and state employees who are helping us find new ways to stretch tax dollars and do more with less every day."

Some agencies are doing more with less. For instance, the Indiana Department of Correction cut its budget by 4 percent but is housing hundreds more inmates, and the state's Medicaid program has increased enrollment by 18 percent within its budget.

But many agencies are providing fewer services to make the cuts.

For instance, fewer families are receiving child abuse and neglect preventive services because of cuts to the Healthy Families program; the Indiana Tobacco Prevention Cessation Agency is serving 65 counties instead of 80; some state offices and the Indiana State Museum are now closed one day a week; several recycling programs have been halted; and pools in state parks have reduced hours.

"One thing that wasn't discussed is the effect," said John Ketzenberger, president of the Indiana Fiscal Policy Institute. "Are they doing more with less, and at what point are they unable to meet the needs and expectations of people who are paying the taxes to provide those services? That's something time will tell."

Rep. Jeff Espich, R-Uniondale, cautioned Hoosiers to keep the state's reserve numbers in perspective, noting it could run out in 15 months at the current pace.

"The state's situation is similar to that of a family who has $2,000 in monthly expenses but only $1,500 in monthly income. To meet their obligations, the family must reduce their spending, spend money from their savings account, or do a combination of both," he said. "Unfortunately, spending savings is just a temporary solution. Without major changes, those savings will eventually be gone. The only permanent solution is to lower spending to match available income."

To help reach the $785 million in reversions and cuts, state budget officials transferred about $155 million from various funds dedicated to specific programs and purposes.

For instance, $13 million came from handgun licensing fees. By statute, the first $1.1 million goes to the general fund and the rest remains in a dedicated fund. That balance has built up over the years, allowing a large transfer.

Of the cuts and transfers, about 21 percent came from K-12 education, 18 percent from higher education and the rest from general government.

"Since the report issued today failed to do so, I want to make sure that the people of Indiana realize that this budget survives thanks to support from the federal stimulus package that has often been attacked by the governor and his administration," said House Speaker Patrick Bauer, D-South Bend.

Indiana received an infusion of cash last year that helped prop up spending.

Legislators in January have to start crafting a new two-year state budget.

That spending plan will have several disadvantages from the start: it won't have $1.1 billion in stimulus money to rely on, and the state likely will have little or no surplus to fall back on.

"These numbers tell me that we need an honest effort to create jobs in the state of Indiana by this administration and by the General Assembly," said Senate Minority Leader Vi Simpson, D-Bloomington. "Both the income side and the sales-tax side of our revenue streams are impacted by the lack of jobs and by the fact that people are unemployed or underemployed.

"It's all connected, and it's where our focus should be 100 percent of the time."