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December 17, 2009

Gov addresses funding shortfalls

Daniels says past state revenue projections were ‘wildly wrong,’ hopes latest cuts will be last

By Howard Greninger

TERRE HAUTE — Faced with new budget funding shortfalls, Indiana Gov. Mitch Daniels said past state revenue projections have been “wildly wrong” and hopes the latest round of cuts on public schools will be the last.

The governor announced Tuesday that public schools must cut spending at least 3 percent, about $300 million statewide, after a new revenue forecast projects Indiana will take in $1.8 billion less in revenue during the fiscal year than was expected just six months ago.

“We didn’t trust this forecast [previously] when our eyes and our common sense told us it was wildly wrong,” Daniels said, based on the “economic reality of the country and the actual revenue numbers as they came in.

“I said to somebody yesterday, it [the revenue forecast] was like what the New Orleans weatherman had said on the day before [Hurricane] Katrina — brisk wind and a chance of rain,” Daniels said Wednesday in a telephone interview with several reporters statewide.

The governor said he has taken previous action on the state budget to reduce costs and will continue to make cuts based on actual revenue numbers.

“When we saw that July and August were well below the budget numbers, we imposed additional cuts on state government. When we saw September and October were behind, we asked the universities to participate [in budget cuts]. That has all been based on a rolling assessment of our position and grounded in the realities of real numbers,” the governor said.

“Dealing with this problem as it shows itself, we have seen plenty to know that more action will be necessary,” Daniels said.

The governor has asked the Indiana State Board of Education to make recommendations by Friday on areas to save money. Daniels has suggested schools join the state’s health insurance program and use the state’s procurement contracts to buy supplies, as well as cancel teacher pay increases.

Daniels said he wants recommendations that do not reduce the number of teachers in classrooms.

“There is huge room,” he said for budget cuts. “There is $11 billion that we spend on K-12 in this state. There is room to shift resources out of administration and overhead and procurement. Just as K-12 was the very last resort at the state level, laying off teachers should be the last resort for school districts responding to a modest reduction,” Daniels said.

Daniels said the state may likely act on K-12 budget concerns after the first of the year to “see one more month of revenue.”

The governor said state revenues have been running about 12 percent below the previous year on a month-to-month basis. A previous budget forecast had revenues only about 3 percent below the previous year.

“The new forecast line is much closer to the current trend line. It is clearly closer to reality and let’s hope they [a state revenue committee] have it right this time,” Daniels said, adding that he has not seen a sharp improvement statewide in economic activities “that some of the national economists do. We are being very, very careful until we know.”

Daniels said 40 other states had to raise state taxes, a measure not needed in Indiana. Daniels said the state will have to dip into its $1 billion reserves, but the governor opposes spending all of it before more cost-saving measures are done. Spending all of the reserves, Daniels said, “is a plan that says let’s go broke quick and then raise taxes. We think there is a better way.”

The revenue shortfalls come as the Indiana General Assembly next month prepares to debate whether or not to make property tax caps part of the state’s constitution. The legislature last year put caps on property taxes and raised the state sales tax. It also moved the general fund of public schools off the property tax rolls in all 92 counties. School general funds are now largely funded through state sales taxes, income taxes and corporate taxes.

Other areas, such as school capital projects, debt service and transportation still remain on local property taxes.

“The sales tax has been the preferred top revenue source for this and most other states, specifically it has been stable historically, meaning in downturns, people continued buying necessities and it didn’t drop as sharply as corporate taxes or individual income taxes,” the governor said.

“I still think that is true. I think what has happened is that people who were spending were spending more than their incomes. As Americans, we were spending 102 or 103 percent of income, year on year, borrowing the rest on credit cards or housing inflation or something and that couldn’t go on forever,” he said.

“I think the sales tax is still very sensible as a reasonably predictable revenue source over time. It has just taken a step down, probably to the level it should have been at all along until people in the bubble began outspending their real needs,” Daniels said.



Howard Greninger can be reached at (812) 231-4204 or howard.greninger@tribstar.com

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