INDIANAPOLIS – There is no doubting that Gov. Mike Pence has cut taxes and balanced the budget.
Standard & Poor’s on Thursday just reaffirmed Indiana’s AAA credit rating, complimenting "very active budget management," "low overall debt levels" and a "solid level of reserves."
But Pence isn’t afraid to spend money either, and fiscal management promises to be a theme in his race for re-election against Democrat John Gregg this fall.
Pence’s most expensive pet priority has been an initiative meant to improve the growth of regional cities. But he also added funding for Department of Child Services’ caseworkers and school safety grants he first cut as well as spending millions on bicentennial projects before revenue comes in to cover the costs.
"We’re still spending less than we’re taking in," said Micah Vincent, director of the Indiana Office of Management and Budget. "That is the fundamental measure of fiscal discipline."
He boasted that the current two-year state budget held recurring spending at the rolling 10-year inflation average of 2 percent.
And Vincent said Pence’s success at cutting individual income, corporate income, inheritance and business personal property taxes "clearly speaks for itself."
The governor also fought a tax increase this year for roads.
"I would expect a free-market fiscal conservative to propose tax cuts, and he has done that. I have to give him credit for that," said Andrew Downs, an associate professor of political science at IPFW.
But Downs said Pence runs into trouble with his handling of the Regional Cities initiative. First, his administration essentially awarded 30 percent more than the legislature provided – or $42 million. And, Downs asserts, the entire program essentially subsidizes private-sector development.
Downs said it is more of a recent phenomenon for fiscal conservatives to aggressively oppose tax abatements or government investment in the free market.
Vincent said the regional cities funding was one-time money taken from one-time tax amnesty proceeds and didn’t take away from any other priority.
He also said Indiana has a great tax structure and has improved education but quality of place to attract workers is still a major issue.
"Making places attractive for people to live in is important to grow the state on a long-term basis," Vincent said.
One key fiscal concern for Pence is the reserve level.
This is essentially the amount of money the state has in a savings account for economic downturns.
Pence has slowly dropped the percentage of reserves he is comfortable having on hand.
For instance, in June 2015 the state closed out the fiscal year with a $2.1 billion surplus – or 14.1 percent of the state’s operating revenue.
But in the just-ended session – at Pence’s urging – the legislature created a trigger mechanism that sweeps hundreds of millions to road funding at the end of June. That means the official closeout will show a higher percentage, but the money will immediately be shifted, leaving only 11.5 percent available.
"I think we are not being as fiscally prudent as we perhaps should be," said Cecil Bohanon, Ball State University economics professor. "Reserves seem to be getting a little on the low side. It’s effectively an 11.5 percent reserve because that money won’t be there to use if the economy drops off quickly."
He said road funding should be included in the ongoing state budget while one-time expenditures for bicentennial projects would be a better use of surplus dollars.
Vincent said the trigger mechanism is no different from one used by former Gov. Mitch Daniels’ administration to give an automatic taxpayer refund in 2012. In June of that year, the surplus was at 15.1 percent and then $700 million was sent back to taxpayers or to pension obligations, bringing the level down to 10 percent.
That refund was replaced in recent legislation with the road funding for one year, though changes over time have made it virtually impossible to hit the automatic tax refund trigger now.
"As long as the public agrees with how money is being spent it’s OK," Downs said. "Well-documented needs – like roads – are OK. But they don’t like brand- spankin’-new programs. But they also don’t want money sitting around in a bank."
Democrat John Gregg – who is facing off with Pence in November – doesn’t quibble with the reserve level or, frankly, the state’s bottom line.
"I’m not going to hammer him on that. I talk with financial people all the time, and they tell me an 11 or 12 percent reserve level is appropriate because it won’t affect our bond rating," he said.
But Gregg said "being fiscally conservative doesn’t mean you don’t waste or squander money."
He gave several examples of spending he questions. They include $365,000 on a public relations contract with little to show for it; paying attorneys to file – or defend – several lawsuits; deciding not to seek an $80 million grant to help children attend preschool; and creating a redundant education department.
"He’s been a fiscal conservative in name only," Gregg said. "He hasn’t been managing our tax dollars wisely."
But Gregg has his own record to defend, and the Indiana Republican Party and Pence campaign started going after it last week.
Pence campaign spokesman Joe Frank tweeted several critical comments regarding Gregg last week, including one that said he "won’t get votes from ANYONE who remembers he turned a record surplus into a huge deficit."
Gregg was speaker of the Indiana House for six years from 1997 to 2002 and oversaw the passage of three state budgets.
All of them were in consultation with the Republican-led Senate.
During that time, the state hit then-record highs for budget surpluses – as high as 24 percent of state spending.
Taxpayers pushed lawmakers to return some of those dollars. And the bipartisan General Assembly did – cutting property taxes and eliminating the business inventory tax.
Gregg said he is proud of his record as a tax-cutter and when the recession hit in 2001, he worked with the Republican Senate to use the surplus so that education and other priorities weren’t slashed.
"When we didn’t have a struggling economy, we had a surplus and gave back to Hoosiers," he said. "We did get into the budget reserves in a bipartisan effort because it was raining."
At the end of fiscal year 2002 – a few months before Gregg left office – the state’s reserves had dropped perilously to $160 million, or less than 2 percent of spending.
The budget was also steeply out of balance as reserves were spent to maintain programs when ongoing revenue dropped.
"On a week when S&P reaffirmed Indiana’s AAA credit rating … it is extremely disappointing that Speaker Gregg would criticize Indiana’s fiscal management, especially considering how Governors Daniels and Pence turned the state around since he was Speaker," said Matt Lloyd, communications director for Pence. "Fortunately, Hoosiers see through this cynical criticism that’s being done solely for political gain."