Daniels touts tax credit from $2B Indiana surplus

Indiana residents are set to get an additional $100 or so back in taxes next year, as the state closes out a budget marked by continued spending cuts and a tax error that helped pad the state's bottom line.

Gov. Mitch Daniels said Tuesday he expects the state to wrap up its most recent budget with roughly $2 billion in cash reserves. Of that money, $300 million would be credited to taxpayers next year, and the other $300 million would go to cover unfunded pension costs for teachers hired before 1996.

The money will come off of what Hoosiers owe the state in taxes in the next year, which Daniels said typically amounts to about $819 for each taxpayer.

"What we can say today is there will be a double-digit discount for the typical Indiana taxpayer sharing in the economy dividend that comes from a strong state fiscal picture," he said.

The estimated cash reserves accrued because of three major factors: improved tax collections by the state as it continues to crawl out of the recession, a series of cuts to state agencies made over the last few years and a tax error resulting in the state discovering $320 million in a tax collection account.

Democratic House Minority Leader Patrick Bauer called the cash reserves a "magic trick" that glosses over troubles that have grown throughout the state on Daniels' watch.

"We know that the Daniels administration made money disappear from public schools as well as from programs for at-risk children and the poor. Then, 'abracadabra,' there is the reappearance of millions of dollars from the magician's hat, money that seems to be part of the surplus," he said in a statement.

Daniels and his budget leader, Adam Horst, could not say Tuesday how much was cut from agency budgets over the last year. Final numbers are expected in the coming weeks as the state formally closes its books on the 2012 fiscal year.

Most state agencies suffered deep cuts through the last few years, although their funding has brightened some in the last year. The Department of Child Services, which is the subject of a legislative study committee and multiple newspaper investigations over a series of child deaths, was cut by $16 million in the most recent budget, compared to $100 million in cuts in 2011.

State budget leaders are also in the process of hiring an outside auditor to review the state's tax collection system, following the corporate tax collection error and another error which kept $206 million from Indiana counties.

Daniels' automatic tax credit kicks in when the state saves an amount equal to 10 percent of its planned spending for the year. In the most recent budget, that target was $1.4 billion. But state lawmakers made it tougher earlier this year for the Daniels credit to kick in when they raised that trigger from 10 percent to 12.5 percent of state spending.