Senate & House Special Session Budgets 2009-2011

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The next state budget passed by the Indiana General Assembly will be Taxpayer Friendly if it (1) provides sufficient resources for good government AND (2) protects Hoosier working families from state and local tax increases. 

Two starkly different state budgets have been proposed in the current special session of the General Assembly - a two-year budget by the the Indiana Senate under the leadership of President Protempore David Long that follows the guidelines of Governor Mitch Daniels, and one-year budget by the Indiana House as directed by Speaker B. Patrick Bauer. A spreadsheet analysis of each budget follows:

Providing sufficient resources for good government is difficult during these challenging economic times - the nation's longest recession since the Great Depression. To help replace declining revenues, both the Senate and House budgets use (or intend to use) about $2.7 billion of federal stimulus funds for various education, infrastructure, Medicaid, and transportation spending initiatives. The use of these federal stimulus dollars is acceptable in the present 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.

The Watchdog Indiana rule-of-thumb is that a tax increase in a subsequent budget can be avoided if all the state’s reserve funds on June 30 of the last budget year total at least 50 percent more than any structural deficit. A structural deficit is created when recurring budget spending is supported by non-recurring revenues - when appropriations that repeat year-after-year are not fully supported by current revenues, but rely on non-recurring revenues such as federal stimulus funds and reserve funds.

The House budget is Taxpayer UNfriendly because on June 30, 2010, the alarmingly high structural deficit of $1.3797 billion is fully half a billion dollars more than the state's total reserves of $877.8 million. There is little chance that revenue collections in the 2011 fiscal year will recover sufficiently to cover the structural deficit. Even though there will be an additional $289.2 million in Medicaid federal stimulus funds available for the 2011 fiscal year, a House budget structural deficit that is half a billion dollars more than the state's reserves WILL result in a 2011 tax increase.

The Senate budget is much more Taxpayer Friendly than the House Budget because on June 30, 2011, the Senate budget has a reserve funds balance of $1.0036 billion, which is 36 percent MORE than the structural deficit of $740.3 million. If revenue collections from current tax sources do not increase in line with historical levels, the state's reserves together with spending discretion by the Governor can be used to avoid a tax increase after 2011.

The K-12 education provisions in the Senate budget are Taxpayer Friendly. The Senate budget provides a spending increase for every student, and those school districts with increasing enrollments will get more state money while school districts with decliniung numbers of students will receive less state funding. Current law phases out per student state funding for school districts with declining enrollments over a five-year period, and phases in over five years the per student funding for school districts with increasing enrollments. Governor Daniels proposed that the five-year per student phase-outs and phase-ins be eliminated. Because some school expenses continue in school districts with declining enrollments, the Senate budget properly provides a compromise three-year period of per student phase-outs and phase-ins.

The K-12 education provisions in the House budget are Taxpayer UNfriendly. The House budget unwisely gives every school district more state funding, even those school districts with declining enrollments. The House budget reflects a philosophy that it is improper for K-12 teachers to protect their jobs by foregoing pay increases during this historic 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, while the median income for all the members of a Hoosier working family is $47,074. 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 to help protect the funding of their K-12 school districts.

The Senate budget is also Taxpayer Friendly because it 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 House budget is Taxpayer UNfriendly because it covers the 2010 fiscal year only.

Some additional noteworthy Taxpayer Friendly and Taxpayer UNfriendly provisions in the Senate and House budgets are listed next. It must be noted that the long list of Taxpayer UNfriendly provisions in the House budget favors tax spenders and developers at the expense of those who pay taxes.

Noteworthy Taxpayer Friendly Provisions in both the Senate and House budgets:

Referenda: The bill allows the legislative body of a political subdivision to adopt a resolution withdrawing a controlled project from consideration at a referendum and specifies that if a public question on a controlled project is withdrawn, a referendum on the same controlled project or a substantially similar controlled project may not be submitted to the voters earlier than one year after the date the resolution withdrawing the referendum is adopted.

Income Data within City or Town: The bill provides that after December 31, 2010, the Department of Revenue in cooperation with the Department of Local Government Finance (DLGF) and the Budget Agency shall provide data annually that: (1) identifies the total number of individual taxpayers that live within a particular incorporated city or town; (2) identifies the total individual adjusted gross income of those taxpayers; and (3) includes any other information that can be abstracted from the taxpayers’ individual income tax returns, as agreed to by DOR and the Legislative Services Agency. The DOR must provide this information to the Legislative Services Agency upon written request.

Property Tax Billing Statement: The form of the property tax billing statement is currently prescribed by the Department of Local Government Finance but must also be approved by the State Board of Accounts. This bill would eliminate the requirement for Board of Accounts approval, allowing the Board to direct those resources elsewhere.

Control Boards: This bill eliminates the local government tax control board and the school property tax control board. Petitions regarding budgets for new taxing units, excessive levy appeals, debt issues, and any other items that currently come before the control boards would be made directly to the Department of Local Government Finance.

State Income Tax Deduction: The bill increases for certain taxpayers the maximum allowable homeowner's income tax deduction for property taxes paid in tax year 2009 only. The increase in the maximum allowable deduction would apply only to homeowners who make on-time payment of any or all of their 2007 Pay 2008 property taxes in 2009.

Allocation of  Excess Revenue: This bill specifies that the Budget Agency shall calculate whether tax collections for the state fiscal year ending June 30, 2010, exceed the May 27, 2009, adjusted state revenue forecast for that state fiscal year. It provides that if actual receipts for the state fiscal year ending June 30, 2010, exceed the adjusted state revenue forecast, 50% of the excess revenue is appropriated to the Department of Education (DOE) to be used as a special one-time tuition support distribution to increase the foundation amount for each school corporation eligible for a tuition support distribution.

School Corporation Health Care: The bill provides that if a school corporation does not elect to provide coverage of health care services under a state employee health plan and the cost to the school corporation is greater than the amount that would have been paid if the school corporation had elected coverage, then for contracts entered into or renewed after 2010 to provide coverage for health care services, the school corporation's employees shall pay the difference and the school corporation may not pay the difference on behalf of the school corporation's employees.

Trending Catch-Up: The bill allows the Department of Local Government Finance to specify trending values for an area if the county assessor is more than six months late in providing assessed values to the county auditor.

Assessment Appeals: The bill provides that if a notice of review of a property tax assessment is filed for an assessment that increased by more than 10% over the assessed value for the preceding assessment date, the assessor making the assessment has the burden of proving that the assessment is correct.

Waiving of Compensation: The bill allows an elected county, city, town, or township officer to waive some or all of the elected officer's compensation for any year and repeals a statute that allows only an elected town officer to waive compensation. It also allows a state elected official to waive some or all of the state officer's compensation for any year.

School Property Tax Replacement Grants: The bill changes the school property tax replacement grant calculation. Under current law, to qualify for the grant a school must have circuit breaker losses of more than 2% of its total school property tax levy. For CY 2009, it is estimated that the current grant will provide sufficient funding to pay 100% of the circuit breaker losses for schools where the loss exceeds 2% of levy. For CY 2010, this bill changes the distribution of these grants to pay for the circuit breaker losses in excess of 2%. As an example, under current law, if a school’s total levy was $10,000 and their circuit breaker loss was $600, then the school would qualify for a $600 grant, and if their loss was $100, then they would not qualify for a grant since the loss is less than 2% of levy. Under the bill, if the loss is $600, then they would qualify for a $400 grant ($600-2%*$10,000), and if their loss is $100, then they would not would qualify for a grant.

Board of Pharmacy Secure Prescription Program: At the Governor’s discretion, the bill would allow the Board of Pharmacy to develop and contract for a prescription drug program that includes criteria to eliminate prescription drug fraud.

Homestead Property Defined: DLGF’s interpretation a homestead is defined as a principal residence consisting of a dwelling and up to one acre of land. Some improvements located on the home site are not considered homestead property. These improvements include, but may not be limited to, decks, patios, gazebos, and swimming pools. Since these improvements do not qualify as homestead property, they are not subject to the standard or supplemental standard deductions, they do not qualify for homestead credits, and the circuit breaker cap for that part of the property is 3% (3.5% in 2009) instead of 1% (1.5% in 2009). Under this provision, beginning with taxes payable in 2011, decks, patios, gazebos, and swimming pools would be considered part of the homestead qualifying property. The standard and supplemental deductions would apply as would any local homestead credits and the 1% circuit breaker cap. The additional standard and supplemental standard deductions are estimated at $1.5 B. These additional deductions would cause a shift in the property tax burden from the owners of the subject property to all other property owners. The shift is estimated at $14 M in 2011. In addition, the cost of the circuit breaker cap to local taxing units and school corporations would rise by an estimated $9.8 M, from $443.3 M to $453.1 M in 2011.

Rainy Day Fund Loans: The bill allows a taxing unit that experiences a property tax shortfall with respect to taxes payable in 2009 or 2010 resulting from the bankruptcy of a motor vehicle transmission manufacturer to obtain a loan from the Rainy Day Fund. Under this bill, the Covington Community School Corporation would be eligible to apply for a loan before June 30, 2010, to pay a tax anticipation warrant. The loan may not exceed $2.7 M and would have to be repaid with interest in equal installments over five years. The bill also allows taxing units that suffer a significant revenue shortfall because of an automobile manufacturer bankruptcy to borrow up to a total of $34 M. The loans must be repaid within 10 years and would be interest free. In addition, the House budget allows the various taxing units in LaPorte County to apply for loans to cover cash flow shortages caused by late property tax billings. The total amount of the loans available to all taxing units in the county would be limited to $36 M. The loans would be paid within 72 months at an interest rate determined by the State Board of Finance.

PTABOA Attorneys: Under current law, a township or county assessor, county auditor, county property tax assessment board of appeals (PTABOA), or member of the PTABOA may hire an attorney, rather than use the Attorney General, to defend an original assessment determination only with the written approval of the Attorney General. Under this provision, the local official would not need the Attorney General's permission to hire a private attorney beginning with appeals for the March 1, 2005, assessment date. This provision could increase local legal costs if more private attorneys are hired to defend assessments.

Bond Issues: Under current law, a civil taxing unit or school corporation with a non-elected governing body may not issue debt payable from property tax without the approval of the county fiscal body or municipal fiscal body. Beginning in 2009 under this bill, non-elected school board debt issues would not be subject to this review.

Child Welfare Surpluses: Under HEA 1001-2008, surplus balances in a county's family and children's fund and children's psychiatric residential treatment services fund must be deposited into the county levy excess fund. Money in the levy excess fund may only be used to pay property tax refunds and to reduce the following year's levy. DCS has estimated surpluses in one or both funds in 86 counties totaling $103.3 M, which will be used to reduce 2010 county general fund levies. Rather than reducing levies in 2010, this bill would allow any county to transfer the surplus into the county's rainy day fund.

Noteworthy Taxpayer UNfriendly Provisions in the House budget:

Petition and Remonstrance: The bill also provides that an elected or appointed public official of the political subdivision may advocate for or against a position on the petition or remonstrance or local public question for a controlled project so long as it is not done during the official's normal working hours or paid overtime or by using public funds.

Property Tax Statement: This bill removes the tax rate and percentage change in liability from the property tax statement.

Pension Stabilization Fund: The bill reduces the amount that must be contributed from the Pension Stabilization Fund to pay the pension benefits from the Pre-1996 Teachers' Retirement Fund, thereby reducing the rate of growth for the General Fund share of future teacher pension obligations. It also eliminates the requirement that money transferred to the Teachers' Retirement Fund from the Lottery Commission must be deposited in the Pension Stabilization Fund. Under current statute, the $30 M transfer from the Lottery Commission is deposited in the Pension Stabilization Fund to be used as a credit against the unfunded accrued liability of the Pre-1996 Account. For FY 2010 only, the $30 M is appropriated for current Teachers' Retirement Fund liabilities.

Local Project Funding: It provides for a distribution of $250 M from the Next Generation Trust Fund to counties, cities, and towns for engineering, land acquisition, construction, resurfacing, restoration, and rehabilitation of highway facilities. Under current law, the principal of the NGTF does not diminish, but the NGTF pays its available interest to the Major Moves Construction Fund each five years beginning on March 15, 2011.

Medicaid Managed Care Provider Contract Requirements: The bill would require the Medicaid managed care organization (MCO) contract to include a prescription drug program. This requirement would eliminate the possibility of removing pharmacy expenditures from the MCO contracts in order to maximize the amount of drug rebates that could be claimed by the Medicaid program. An initial estimate of the dollar amount of rebate revenue that might otherwise be available indicated a potential for additional annual, state-only revenue of $22 M.

Indiana Check-up Plan Chiropractic Benefits: The bill would add chiropractic services to the list of benefits required to be included in the Healthy Indiana Plan (HIP). The fiscal impact of the requirement has been estimated to be $2.5 M in additional annual cost.

Higher Education Operating Base: The bill clarifies that the base appropriations for higher education calculations in the FY 2011-2013 budget includes any funds from the ARRA. The bill uses about $164.4 M of State Fiscal Stabilization funds in FY 2010. The impact on the 2011-2013 budget will depend on future legislative action.

School Property Tax Replacement Grants: The bill changes the school property tax replacement grant calculation. Under current law, to qualify for the grant a school must have circuit breaker losses of more than 2% of its total school property tax levy. Beginning in CY 2010, this bill changes the distribution of these grants to pay for the circuit breaker losses of any school with a revenue loss over 0.15%. The estimated revenue for school property tax replacement grants is $118 M for CY 2010, or about $48 M more than the amount to be distributed by HEA 1001-2008.

School Business Officials: The bill requires the Department of Education to make grants to an academy that is established to strengthen the leadership and management skills of school business officials. The bill includes an appropriation of $150,000 for that purpose.

Rail Transit: The bill appropriates $300,000 from the state General Fund to study beginning July 1, 2009, and ending June 30, 2011, the feasibility of an interstate passenger rail system connecting Chicago and Evansville via existing rail corridors. A $15M appropriation is made from the state General Fund to the Central Indiana Regional Transportation District to advance the proposed rail transit for the northeast corridor of central Indiana.

Department of Correction Management: The Department of Correction (DOC) has contracted with GEO Group to manage the New Castle facility since January 2006, for an initial term of four years. After 2010, DOC would be required to employ state employees to manage and operate New Castle. If the costs of contracting with GEO to operate the New Castle facility is significantly less than requiring DOC employees to operate the facility, DOC expenditures may increase.

School Construction or Renovation: The bill allows a city where a riverboat casino or racetrack slot machine facility operates to use any revenues, including gaming revenues, to pay for or finance the construction or renovation of a school building.

Economic Improvement District Projects: Under this bill, Economic Improvement District projects could also include development of RESIDENTIAL property, and other economic development and redevelopment projects. Under current law, an economic improvement district (EID) may be formed by a county or municipality if a petition is signed by (1) a majority of the real property owners in the proposed district; and (2) the owners of at least 2/3 of the non-exempt assessed value in the proposed district. All real property owners in an EID, except those entities that are exempt from property taxation, must pay a special assessment that is used to fund improvements in the district.

The same Bauer Obstruction Team that is blocking passage of the constitutional property tax caps in Senate Joint Resolution 1 is trying to use the House budget to set up a tax increase on Hoosier working families during the midst of a prolonged recession.

The bottom line is that a special session YES vote for the Senate budget is Taxpayer Friendly, while a special session NO vote against the Senate budget is Taxpayer UNfriendly.

Watchdog Indiana calls on Senator Long to improve the Senate budget further by reducing the use of the Tuition Reserve Fund in the 2010 fiscal year from $305 million to $231 million and in the 2011 fiscal year from $305 million to $262 million. Taking this action, together with eliminating the $74 million transfer from the General Fund to the Tuition Resrve Fund in the 2010 fiscal year and reducing K-12 spending by $43 million in the 2011 fiscal year, will enable the state’s reserve funds of $1.0466 billion on June 30, 2011, to be a Taxpayer Friendly 50 percent more than the structural deficit of $697.3 million. If the Bauer Obstruction Team wants the use of the Tuition Reserve Fund returned to $305 million in both the 2010 and 2011 fiscal years, insist that they allow a vote in the House on the Taxpayer Friendly constitutional property tax caps in Senate Joint Resolution 1.

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