Taxpayer refund has to survive 2012 session

By his own account, Gov. Mitch Daniels never expected his automatic taxpayer refund to kick in while he was in office.

Now a state tax processing error resulting in $320 million more in the bank for the state and improved tax collections could put a nominal amount back in Hoosiers' purses and wallets next year. But a bi-partisan thirst to restore education funding and pay down state debts that languished during the recession could just as easily take that refund away.

"I respect all the arguments," Daniels said. "I'm not stuck on implementing it in the full level. But you won't be surprised that we're not going to have any spending sprees, either."

In order to trigger the refund, state cash reserves have to exceed 10 percent of the state's planned spending. Half of the money above that threshold would go to taxpayers and the other half would be used to pay down teacher pension obligations, which threaten to cost the state upward of $1 billion annually in the future.

Based on the $1.8 billion budget leaders estimated the state will have on hand at the close of the current budget, Daniels says every Hoosier would get $50. But that's if nothing changes over the next eight months, and a legislative session filled with lots of hungry lawmakers stands between now and then.

House Speaker Brian Bosma, R-Indianapolis, said the found money has thrust the tax refund issue in front of lawmakers sooner than many expected. "If there is any additional spending, my preference would be to focus on early education initiatives or restoration of some of the restrictions we have placed on education funding," he said.

He also noted that the 10 percent threshold is hardly sacrosanct and could be tinkered with next year.

"It was not handed down off Mount Sinai. It was cobbled together at the end of the [2011] session. Now that it's staring us right in the face, I think we need to take a good hard look at it to make sure it's the wisest use of state dollars," Bosma said.

The composite of years of cuts to education and other services followed by an unexpected cash infusion could make for a bittersweet victory for Daniels, who spent much of his second term in office pushing the refund before winning approval earlier this year. Still, he says he's happy with the "principle" of refunding some amount to Hoosiers.

"I do think the refund principle is important and I think it would be great to have at least one as a demonstration that in Indiana, taxpayers come first," he said. "I said the last time I wasn't sure 10 percent was magic."

Even during a budget off year, the money question will linger in the background of an already contentious 2012 legislative session likely to be filled with battles over "right to work" and efforts to fast-track legislation ahead of the Feb. 5 Super Bowl.

House Ways and Means Committee Chairman Jeff Espich, R-Uniondale, said any attempt to re-open the state's biennial budget to spend some of the found money could become a feeding frenzy among lawmakers looking to spend on pet projects.

"I hope we don't fritter away a little bit here and a little bit there," he said.

When asked about the refund, House Minority Leader Pat Bauer, D-South Bend, asked an aide to grab a list of the cuts that have been made to state spending. While looking over the paper, he stopped at a bullet point that showed $212 million in cuts for disabled and low-income Hoosiers.

"I don't say you should restore all of this, but you should certainly look at who they put in jeopardy," Bauer said.

Bauer would like to see the state maintain between $800 million and $1 billion in cash reserves, which could free up to $1 billion. But Indiana Democrats are heavily outnumbered in the both the House (60-40) and the Senate (37-13), making any Democratic plan a hard sell.

Senate President Pro Tem David Long, R-Fort Wayne, says lawmakers remain cautious about spending more money, even with a large cash surplus sitting before them.

"I don't think anyone can give you a crystal ball on how it will turn out, but it will be discussed," he said. "I think it's all on the table."