Governing Magazine Grades Indiana

Government Performance Project 2005/Report card: Indiana –

Just a few years ago, the major criticism of Indiana’s finances was that they were simply too conservative. The state had no long-term investments beyond its pension program and had accumulated a gargantuan $1.6 billion of reserves between its rainy-day fund and year-end general treasury balances. Critics were concerned that the state might be denying its citizens some affordable services or tax cuts because of its insistence on keeping money under the fiscal mattress.

Oh, to have such problems again. Right now, Indiana faces a $600 million deficit and has become heavily reliant on single-shot funding gimmicks to pay its ongoing bills. It has short-changed its Public Deposit Insurance fund to the tune of $30 million, and been forced to withdraw $380 million from the Pension Stabilization fund. Meanwhile, the one major fiscal problem Indiana suffered from a few years ago — a dramatically underfunded Teachers Retirement Plan — is no closer to solution than it ever was.

Indiana got in trouble in much the same way other states did when the recession hit in 2001. As the economy plunged, so did tax revenues, and even the rainy day fund could last only so long. What made Indiana different, however, was a decision to continue spending as though the recession hadn’t happened. When legislators voted on their 2003-04 budget, they knew that there were deep holes that would eventually require as much as a billion dollars to fill. They approved the plan anyway. Even a laudable revision of the state’s tax system, under the late Governor Frank O’Bannon, did not keep pace with escalating costs. So state programs and services have struggled through a 7 percent across-the-board cut, followed by a 5 percent cut. And this has just been playing catch-up.

Some other tidbits: