Grim budget picture shapes up for Indiana lawmakers

"The fiscal fog is thick" has become a favorite line for Republican House Speaker Brian Bosma heading into the next session of the General Assembly, and with good reason.

State tax collections—the lifeblood of the budget and everything from road-paving to classroom sizes—could remain stagnant as the state continues to crawl out of the recession.

Pent-up demands from groups and agencies cut over the last four years are already meeting with intense skepticism from lead budget-writers. And money from Indiana's expansive gambling industry, the third-largest source of money for the state, is dropping amid competition from neighboring states, which have legalized gambling as a means to patch their own budget holes.

Senate President Pro Tem David Long wryly noted last week that the best tax dollars are another state's tax dollars, pointing out that Indiana had feasted on gambling profits from residents of Michigan, Ohio, Illinois and Kentucky for two decades now. But that feast is almost at an end.

"Gaming revenue is under assault right now. If you look at what happens when you stand up and take other people's money, it was a smart way to go about it, and we got Michigan's, Ohio's, Illinois's, and Kentucky's money, and we weren't ashamed of taking it," Long told an Indiana Chamber of Commerce forum last week.

Now Ohio has built four casinos near the Indiana state line and Illinois is poised to add one more near Chicago to draw business from northwest Indiana. That makes it less likely those tax dollars will cross the state line.

Even though lawmakers and governor-elect Mike Pence come into 2013 with a state flush with cash reserves worth an estimated $2 billion, they're facing programs starved for support—including the Department of Child Services, which told lawmakers it has trouble holding caseworkers because of low salaries—and a continued economic drag.

Indiana's university presidents heard the bad news from Senate Appropriations Chairman Luke Kenley, who said that tax collections could grow by a paltry 1.5 percent over the next year, leaving lawmakers with little wiggle room when they write the next biennial budget.

"I would guess that if it's projected at more than 1.5 percent a year, that's kind of a hopeful thing and that's not a very high forecast," Kenley told Indiana University President Michael McRobbie at a recent hearing.

And to the extent anything is available, Gov. Mitch Daniels' administration put the kibosh on any state agencies trying to jump up and grab it in a July 27 letter to state agency heads.

Departing budget director Adam Horst's budget-drafting orders to state agencies this summer included two significant requirements: Any request to raise the ceiling on spending must first be approved his office before being formally submitted, and cuts ordered by Daniels in the current budget represent the new "baseline," or floor.

"It remains the top priority of this administration to continue to protect Hoosier taxpayers by spending within our means, by addressing our challenges without borrowing from the future or using other reckless gimmicks, and by ensuring that Hoosier families and businesses keep as much of their hard earned income as possible through low taxation," Horst wrote, outlining how the department heads would submit the documents that are ultimately collected into the state budget presented to lawmakers.

Newly appointed House Ways and Means Chairman Tim Brown, a Crawfordsville physician tapped by Bosma earlier this month for his expertise on health policy, said he'll be waiting to see the December revenue estimates laid out by legislative and state budget staff before worrying one way or another. The dwindling pool of gambling money is not surprising, however, he said.

"I think we always look at pressure from competition, and yes, you can't discount that our neighbors are coming later to the game that we've been at for 20 years. So it will impact what happens in our state," Brown said.

Add to this mix cuts in the corporate income tax and a phase-out of the state's inheritance tax and apprehension about Pence's call for a 10 percent cut in the personal income tax—which comes with a roughly $500 million price tag—among top Republican lawmakers becomes understandable.

Bosma, who has cautioned that the Pence proposal might not make it through his chamber, pointed out that Indiana has increasingly relied on the sales tax to hold the budget aloft.

"So that is not a balanced approach and, as some of our other taxes—gaming, income—take additional hits or proposals for additional cuts, that throws that even further (out of balance.) So (it has to be a) balanced approach, it has to be sustainable and conservative," Bosma said.