Improved fiscal outlook may spare schools more cuts

Armed with a new fiscal forecast showing glimmers of hope for the state's economy, Indiana lawmakers are expressing more confidence in their ability to create a balanced budget without further cutting aid to public schools.

State budget director Adam Horst said the state should be able to create a balanced, two-year budget without tax increases or more cuts to public schools, which have lost $300 million in state aid since the last two-year budget was enacted in 2009.

"It's becoming a possibility," said state Sen. Luke Kenley, a Noblesville Republican who heads the powerful Senate Appropriations Committee. "At the time of the election, it was a longer shot. I think everybody was speaking with their hearts at that time. We're almost to the point where we can say we're thinking with our heads."

The state's largest teachers union estimates that 3,000 teachers lost their jobs because of the $300 million in cuts Republican Gov. Mitch Daniels ordered for the current budget cycle when state revenues fell short of projections. Class sizes have increased and programs have been cut, said Nate Schnellenberger, president of the Indiana State Teachers Association.

"K-12 education is an investment in our state's future. I don't think legislators want to cut that investment any more," Schnellenberger said. "We hope the economy will continue to improve and we can restore some of the cuts that have been made."

Daniels said Thursday that he would support another so-called education trigger in the budget, directing extra money to education if more money came in than expected. The two-year budget passed in 2009 contained such a trigger, but schools didn't get any extra cash because tax revenues fell millions of dollars below projections. But Daniels said the education piggy bank is a good place to put any extra change.

"That's the place to start investing," he said.

The state is currently spending more money than it takes in and has been using cash reserves and federal stimulus money to balance the budget. The revenue forecast released this week shows that Indiana is expected to take in $13.4 billion in fiscal year 2012 and $13.9 billion in 2013. Those are increases over current revenues, but current spending is about $13.9 billion—so even if the state didn't increase its spending, Indiana would likely spend about $500 million more in the first year of the budget than it brought in.

And because some areas of the budget will grow—such as Medicaid—lawmakers say the structural deficit will likely be larger than $500 million.

Kenley estimates that lawmakers will have to cut about $1 billion from current spending to cover the gap and leave a healthy amount in reserve. He said it's possible to do that without cutting education, but lawmakers will have to hold tight on spending and make tough decisions about cuts elsewhere. One place lawmakers may find room for cuts is optional Medicaid services, such as chiropractors and podiatrists, though more detailed discussions will arise once the legislative session begins on Jan. 5.

Even without further cuts, some schools may struggle to make ends meet as they cope with property tax caps and increasing costs. Senate Minority Leader Vi Simpson, D-Bloomington, said schools face mounting health insurance and utility prices, coupled with inflation and other demands. Schools need about a 2 percent increase in funding to handle rising costs, she said.

"Even if we flat-lined schools, it is a significant cut," she said. "There are all these fixed costs that have to be covered."

Schools also may have to contend with new education policies that critics say would siphon money away from public schools—such as vouchers that use taxpayer money to help parents pay for private school tuition. Daniels and the state superintendent of public instruction support vouchers and favor increasing the number of charter schools. They are likely to push those and other changes during the legislative session.

Simpson also noted that Daniels could still take money from schools after the budget is passed if the economy continues to struggle and revenues drop below projections.

"There's nothing to stay that won't happen again," she said.