Daniels says state discovers extra $300 million

Indiana's governor announced Tuesday that state officials have found $300 million that went untouched even as lawmakers made deep cuts to education and slashed vacant government jobs while it weathered the Great Recession.

Republican Gov. Mitch Daniels said the money was collected but never transferred to the state's general spending account, which lawmakers use to allocate funds to various programs and departments. While Daniels tried to downplay the discovery, Indiana Democrats called for investigations into how an administration sometimes held up by Republicans as a model for the rest of the U.S. could misplace so much money.

"This is a very serious error and the governor himself, he needs to launch an investigation into why this happened," said state Rep. Scott Pelath, a Democrat from Michigan City who is a member of the House Ways and Means Committee.

Daniels said the administration was looking into how the money went unaccounted for so long, but he also tried to minimize the amount that went untouched by comparing it to the state's entire yearly budget, which is about $14 billion.

But Senate Appropriations Committee Chairman Luke Kenley, a Republican from Noblesville, noted that adding just $120 million to the state coffers would be almost equivalent to opening two new racinos, which are horse racetracks with slot machines. Kenley said he hasn't had much time yet to ponder how such a large sum of money could go missing.

"I was so glad to see the money I guess I haven't worried about that part much," he said.

The issue arose in the state's e-filing tax system for companies. Money collected through that system wasn't moved to the general spending account. The problem started in the 2007 budget year and wasn't found until after the end of the 2011 fiscal year.

As more companies started using the e-filing system, the amount of money that went untouched increased. The amount missed in the first year was a relatively minute $4.7 million, but by the most recent budget the state had left untouched $140 million in corporate tax receipts — an amount equivalent to roughly 10 percent of expected collections.

An auditor in the Indiana Department of Revenue discovered the problem late last month while tracking a $25,000 tax check through the state's tax collection system.

Daniels said he had chalked up reduced tax collections to wild fluctuations in corporate profits during the recession.

In the last two years, lawmakers have cut education spending by $300 million. But the state also has been able to build a $1.2 billion nest egg — one of the reasons Republicans both in Indiana and nationally sometimes hold up the state as an example of fiscal responsibility and proper management.

"This wasn't just an accounting error. Children got hurt by this, families have suffered. And it all could have been avoided," Senate Minority Leader Vi Simpson, a Democrat from Bloomington, said in a statement.

Daniels didn't say whether he thought the money should be spent or banked, which would trigger automatic taxpayer refunds under a plan he pushed through the Legislature earlier this year.