The Journal Gazette
Sunday, March 29, 2020 1:00 am

COVID-19 threatens Indiana's surplus

Rainy Day, unemployment funds expected to take hit

NIKI KELLY | The Journal Gazette

INDIANAPOLIS – Between Indiana's general fund reserves and unemployment trust fund, the state has more than $3 billion on hand to weather the economic crisis caused by the coronavirus.

But the reality is that might not be enough.

“We are receiving very little revenue and our expenses are skyrocketing,” House Speaker Todd Huston said. “We are very conscientious. I would like to think we would be able to maintain a little surplus. But I think we have to be honest that we could run through it by the end of the year.”

Indiana's surplus – including the Rainy Day Fund and a Tuition Support Fund – has $2.3 billion and the unemployment insurance trust fund has about $850 million.

The Rainy Day Fund is intended to keep government going when tax revenue drops. So don't expect a state stimulus check akin to the indebted federal government. That's because Indiana constitutionally has to have a balanced budget and can only take on debt in very specific circumstances.

“We are like any family – we can only spend as much as we take in,” Huston said. “We have to manage through this using existing resources. We will look through the budget and look at things that are non-essential.”

According to the Pew Charitable Trusts, Indiana's surplus could run the state for 51 days if it received no revenue at all. Five states have less than a week's worth of operating costs in their funds – including Kentucky, Pennsylvania and Illinois.

Some revenue will still come into Indiana, but income and sales taxes will take severe hits. With all casinos closed, gambling taxes will be non-existent.

“We're digging a hole right now. The whole world is,” Gov. Eric Holcomb said. “We will bounce back.”

April is usually Indiana's biggest revenue month and the state originally expected to collect $2.2 billion.

Cris Johnston, head of the Indiana Office of Management and Budget, said that amount could drop by half. This is due to income taxes being delayed until July and also fewer sales tax dollars as Hoosiers aren't out and about spending as much.

Holcomb said the state spends about $1.4 billion a month so up to $1 billion of the surplus will be used to keep the government running until the new July tax deadline. 

Johnston said agencies are working to find places to cut in their current budget. “What once was a nice-to-have can be stopped and delayed to deliver on the must-haves,” he said.

And he said some of the reserves are already being used to front payments for personal protection equipment for hospitals and unemployment services until federal reimbursement.

The next step is coming up with a blueprint of what the state needs to get through the public health emergency. A recovery package is under discussion, Holcomb said.

But Holcomb is being strategic with the state surplus because federal help is on the way.

“I don't want to be playing against myself here when the federal government is stepping up to the plate in such a big way,” he said.

He estimated a minimum $1.2 billion is coming to every state through the $2 trillion aid package.

“We will evaluate what they are able to cover and what shortcomings are left over in terms of that $2 billion,” Holcomb said.

Some areas that might need additional spending are in Medicaid, health and safety net services such as welfare and food stamps.

Then there's unemployment. Indiana has been building its trust fund – at about $850 million right now. Indiana was already working on increasing the solvency of the fund, and is now faced with a full-stop instead of gradual economic slide.

More than 62,000 unemployment claims were filed for the week ending March 21, compared with 3,400 the week before.

Josh Richardson, chief of staff for the Indiana Department of Workforce Development, said they haven't run any models on how high unemployment rate could rise and how quickly the trust fund could evaporate.

“It's kind of hard to tell. There are so many different things going on,” he said. “We're clearly in much better shape than in 2008 when recession hit.”

In 2008, the state eventually had to borrow $2.2 billion to pay unemployment claims and businesses got smacked with a large penalty.

In 2018, the state paid out just $250 million in claims. By comparison, during the height of the last recession, Indiana paid out $1 billion, $1.8 billion and $1 billion in consecutive years.

The average benefit is $300 and the maximum is $390. Usually a person can stay on for 26 weeks, but when the economy dips, it triggers an additional 13 weeks of state benefits. The federal stimulus bill will also give unemployed workers an extra $600 a week on top of their state benefits for four months.

Indiana is also waiving a traditional one-week waiting period before a person can file and interpreting state and federal rules as widely as possible. DWD officials said once a person files it can take up to 21 days to receive their first check.

Richardson said the agency is hiring 50 unemployment claims investigators, 20 contact center staff and have contracted with an outside firm that is assisting with the high volume in the call center.  

Huston said the priority for state officials and lawmakers is Hoosier families – “we're all in triage mode right now.”

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