State to cut spending 15%, sideline several projects to deal with budget shortfalls

Indiana Statehouse

Indiana Gov. Eric Holcomb announced Friday morning that he will cut state agency budgets by 15% in fiscal year 2021 to help deal with huge drops in state revenue resulting from the COVID-19 pandemic economic shutdown.

In addition, Holcomb said the state was sidelining $466 million in planned projects in an effort to balance the books.

Holcomb said the State Budget Agency is estimating that Indiana could take in $3 billion less than expected during the last two months of fiscal year 2020—which ends June 30—and fiscal year 2021.

“This is the first of what is likely to be a number of steps we’ll take to rein in state spending while we continue to provide critical government services to Hoosiers without interruption,” Holcomb said in a written statement. “It will be imperative that we effectively manage our resources. During the last economic downturn, the state’s general fund revenues were nearly $3 billion less than forecasted. SBA estimates we could face an even greater loss of general fund revenue in the final 14 months of this biennium.”

During that previous downturn, the state cut agency spending but also funding for K-12 schools and universities.

To combat the current downturn, the governor said the State Budget Agency in April began looking for cost savings in several areas, including operations, real estate, travel and hiring.

The governor said the state would not move forward with several previously announced capital project expenditures:

– Use of $291 million in reserves to pay for several capital projects approved in the 2020 legislative session. He said bonding authority might be used to move forward with those projects down the line.

– About $65 million in Next Level Trails grants.

– $110 million of deferred maintenance projects, including $70 million for state parks.

State tax revenue came in almost $1 billion lower than expected in April, with a significant decrease in individual income taxes accounting for the largest portion of the discrepancy.

The April revenue report, released May 8, showed individual income tax collections were nearly $669 million lower than projections, missing the mark by about 58%. Income taxes make up the second largest revenue stream for the state, accounting for nearly 40% of state tax collections.

In addition to record-high numbers of individuals filing for unemployment, the decision to delay the income tax filing deadline from April 15 to July 15 caused lower-than-expected collections.

Other revenue sources also were lower than expected in April. Sales taxes, which represent nearly 50% of state tax collections, were $103.3 million below the monthly projection. Corporate taxes were $135 million below projections, and other taxes were $8.3 million below monthly expectations.

The state received zero income from gambling taxes because the state’s riverboat casinos and horse-track racing casinos have been closed since mid-March. Projections showed the state should have collected nearly $48 million from casinos in April.

Overall, tax revenue was 44% lower than predicted. The state estimated it would collect nearly $2.2 billion in revenue in April this year, but it only received $1.23 billion, for a difference of $964 million.

In March, after revenue was 6% lower than expected, the state budget still managed to be slightly ahead of estimates for the year. But through April, the budget was about 7% below estimates for the fiscal year.

Year-to-date, the state expected to have collected $13.57 billion through April, but only collected $12.6 billion.

All of the estimates are based on the budget forecast from December.

“By taking immediate action to tighten our belts across state government, we will maintain maximum flexibility to navigate a still very uncertain economic picture,” Holcomb said. “All options are on the table, and as we approach tax filing deadlines and better understand all of the federal funds available to Indiana, we will make more precise adjustments ahead of crafting a budget for next biennium.”