Business and Economics

Lawmakers Cautiously Optimistic About Revenue Projections

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December 19, 2014 — Indiana Public Broadcasting’s Statehouse correspondent Brandon Smith reports on the impact that reduced gaming and cigarette tax revenues have on the next budget proposal.

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TheStatehouseFile.com

INDIANAPOLIS – Lawmakers could have an additional $842 million in new money to spend on the next two-year budget.

On Thursday, the Revenue Forecast Technical Committee presented its projections for Fiscal Years 2016 – beginning July 1 – and 2017 to the State Budget Committee. The estimates are used as an aid for lawmakers during the session to write the state’s budget for the next two years.

“We would say this is a moderately positive forecast at this point in time,” said Sen. Luke Kenley, a Republican from Noblesville and chairman of the State Budget Committee.

The budget forecast sets the stage for the pending discussions during the 2015 legislative session about which causes require and deserve the most funding.

After the projections, Kenley said some of the new money will be directed to education.

“I think the focus on school funding reflects the right priority,” he said. “I think that a lot of the suggestions about overall funding are pretty ambitious so far. They are going to have to be prioritized within a smaller number of dollars than they appear to be asking for.”

State Superintendent Glenda Ritz, a Democrat, recently appeared before the State Budget Committee and requested its members set aside money to provide free textbooks for all Hoosier children.

Kenley said Thursday that he is more focused on providing more money to high-performing teachers in the state rather than funding a program to provide free textbooks.

The projections show the state could have $360.5 million in additional funds for the next fiscal year and $482.3 million in Fiscal Year 2017. That’s an increase of 2.4 percent in the first year and 3.2 percent the second year.

Generally, the forecast predicts an increase in sales and individual income tax revenue through the biennium. Riverboat and racino revenue is collectively predicted to drop roughly $23 million by the end of FY 2017, continuing the downward spiral of gambling dollars in the state.

Cigarette tax revenue is also expected to drop in the next biennium, a trend Kenley said doesn’t necessarily negatively impact Hoosiers.

“I think we want people to smoke less,” he said. “If they smoke less and we collect less cigarette taxes, that indicates a success on that front and we’ll have to figure out how to solve our fiscal problems in another way.”

The projected overall revenue increase in the next two fiscal years has Democrats from both chambers of the state legislature calling for the use of more than $2 billion the state has in its coffers.

“For all the talk today, there is only one number that means anything when it comes to the way this administration runs your government: $2 billion,” Rep. Greg Porter, D-Indianapolis, said in a statement. So “it really doesn’t matter how much additional revenue our state expects to get, until you try to figure out how the administration will game the numbers to keep $2 billion in the bank at whatever cost.”

Sen. Karen Tallian, D-Portage, also released a critical statement regarding the way the governor and the legislature’s republican leadership has continued to push for the increase of the surplus.

“Today’s revenue forecast set the stage for yet another year where Hoosiers will be shortchanged while the governor pads his surplus,” Tallian said. “The governor needs to reevaluate what he is doing. We are cutting services, letting our roads disintegrate, and risking educational obligations in order to fund his savings account.”

Kenley expressed a different view of the multi-billion dollar surplus.

“I think the trick is going to be to maintain the $2 billion, which I don’t consider to be an excessive reserve, and not lose that,” Kenley said. “We have a lot of demands that are being asked of us in terms of budgeting priorities.”

Gov. Mike Pence released a statement Thursday characterizing the projected revenue increase in the upcoming biennium as “modest growth” and expressing his intent to remain wary of the promising financial predictions.

“This revenue forecast confirms the growth we are seeing across our state and should be encouragement to every Hoosier,” Pence said. “While the December revenue forecast projects economic growth for our state, Hoosiers may be assured that our administration will continue to exercise caution as we finalize our recommended budget for the next two years.”

The anticipated state reserve at the end of FY 2015 – including balances from the Medicaid Reserve, State Tuition Reserve, and the Rainy Day Fund – total just under $2.2 billion. This is $166.4 million more than in FY 2014.

Along with the budget forecast for the biennium, representatives from the forecast committee presented a revised forecast for Fiscal Year 2015, which ends June 30. The revised projection reduces the total by $129 million – a difference of less than 1 percentage point.

“The problem with that is that it means you push the reset button,” Kenley said about the revised FY 2015 forecast. “Of course, the burden on that has fallen to the executive branch and the spending controls that they’ve implemented and I have to compliment them… We are in reasonably good shape because of their actions in being conservative about that and pulling back reversions.”

Before the revenue forecast was presented to the State Budget Committee, the group heard from the Family and Social Services Administration on how much the state could expect to spend on Medicaid costs throughout the next two fiscal years.

The results were met mostly with confusion by several members of the committee who called the plausibility of the final numbers into question – mainly due to the premise on which those predictions were based.

The Medicaid forecast based its calculations on the assumption that the expanded version of the Healthy Indiana Plan – also called HIP 2.0 – would be approved by the federal government and be up and running by Jan. 1.

Committee members expressed concern that HIP 2.0 might not be in place until well after the first of the year, which would throw off accuracy of the agency’s forecast by a significant amount.

However, FSSA and the forecast committee will update the projections again in April 2015, just before lawmakers finish work on the budget.

 

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