Governor Special Session Budget 2009-2011

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Watchdog Indiana has analyzed the 2009-2011 state budget proposed by Governor Mitch Daniels for consideration by the General Assembly in the special session beginning June 11, 2009. This analysis is completed from the standpoint of the state and local tax burden of Hoosier working families.

First of all, it is Taxpayer Friendly that the proposed budget covers both the 2010 and 2011 fiscal years. A two-year budget provides the fiscal discipline needed to help protect Hoosier working families from the unneeded tax increases that single-interest lobbyists would demand each year if one-year budgets were unwisely adopted.

The proposed budget uses $2.717 billion of federal stimulus funds for various education, infrastructure, Medicaid, and transportation spending initiatives. The use of these federal stimulus dollars is acceptable in this uncertain economic environment IF tax increases do not become necessary to support recurring expenses that will now be covered by the non-recurring federal stimulus funds.

Refer to the spreadsheet below to see where Watchdog Indiana identifies a structural deficit of $635.7 million in the proposed budget. On June 30, 2011, $635.7 million of recurring budget spending will be supported by non-recurring revenues.

The Watchdog Indiana rule-of-thumb is that a subsequent tax increase can be avoided if the state’s reserve funds on June 30, 2011, are at least 50 percent more than the structural deficit. It is Taxpayer Friendly that on June 30, 2011, the proposed budget has a reserve funds balance of $1.0094 billion, which is 59 percent more than the structural deficit. If revenue collections from current tax sources do not increase in line with historical levels, the state's June 30, 2011, reserves together with spending discretion by the Governor can be used to avoid future tax increases.

The reserves total in the proposed budget, which is provided by the taxes paid directly and indirectly by working families, decreases $374.6 million from June 30, 2009, to June 30, 2011. What has been purchased by the spending of these reserve funds? The answer is a one-time protection against tax increases in return for K-12 education spending increases. WE CAN DO BETTER.

The proposed budget spends $289.5 million in each of the 2010 and 2011 fiscal years from the state’s tuition reserve fund. Watchdog Indiana recommends that this spending from the tuition reserve fund be halved in each of the 2010 and 2011 fiscal years. The June 30, 2011, reserve funds balance will be increased $289.5 million to a total of $1.2989 billion.

Reducing K-12 education spending by $289.5 million will still leave a K-12 spending increase of $207.5 million in the budget. If this modest K-12 spending increase somehow puts the jobs of some teachers in jeopardy, the teachers can protect their jobs by foregoing pay increases during this economic recession. Other government employees have had their pay frozen at a time when so many Hoosiers are experiencing income reductions and job losses. The average K-12 teacher in Indiana has a $49,569 salary with good benefits. Indiana has the seventh highest teacher salaries in the nation when adjusted for cost of living. Teachers will hardly suffer if they miss one pay increase.

Watchdog Indiana supports the restoration of $289.5 million in K-12 education spending from the tuition reserve fund in return for a Taxpayer Friendly Compromise. The $289.5 million in K-12 education spending can be restored in return for a House vote on the constitutional property tax caps in Senate Joint Resolution 1. SJR 1 will provide permanent ongoing protection against property tax increases from legislative and legal challenges to the weak legislative property tax caps that we now have. In other words, the spending of our hard-earned reserve funds in the proposed budget can be used to purchase permanent property tax relief instead of one-time protection against tax increases.

In summary, the proposed budget is Taxpayer Friendly because it covers two years and protects against future tax increases. However, the expenditure of tuition reserve funds should be used to purchase permanent property tax relief instead of temporary fiscal restraint.

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This page was last updated on 03/19/10 .