State reserves down nearly half despite spending cuts

The state brought in $957 million less in revenue than it budgeted for fiscal year 2010, forcing it to use almost half its reserves, Indiana State Auditor Tim Berry announced Friday morning.

Major cutbacks in spending helped keep the state in the black. Even so, the reserve balance fell from $1.3 billion in fiscal year 2009 to $830 million in fiscal year 2010, which ended June 30.

Berry said Indiana spent less money in fiscal 2010 than it did in 2009, the first year-over-year spending reduction for the state “in modern history.”

The state cut total appropriations from $14.6 billion in 2009 to $13.7 billion in 2010 by freezing salaries and reducing spending by state agencies and in public education.

Despite those reductions, massive shortfalls in revenue collections are draining the reserves. Overall revenue has dropped 12.3 percent over the past two years, and revenue in fiscal 2010 ($12.2 billion) was less than the state collected in 2007.

The state in fiscal year 2010 experienced declines in collections of income taxes, sales taxes and corporate income taxes.

Corporate income taxes fell to $592 million, down 40 percent from the $987 million collected in 2007.

Berry said the state is counting on the $830 million in reserves to help carry it through the next year.

Even with a planned 15-percent cut in state spending and a projected 5.3-percent growth in tax revenues, Berry expects the state reserve will fall to $188 million by the end of June 2011. He said slower economic growth could reduce the reserves to near zero.

Details of the state report are available here.