Wall Street Woes and the Upcoming Indiana Session

The financial world is in turmoil, the economy is fragile, and the future is unknown. These national issues will come home to Indiana as the legislators work on the next biennium budget for the coming session. In a recent article, Purdue economist and professor, Larry DeBoer, asked the question: "Is Indiana’s Budget Ready for Recession?"            

While Wall Street shockwaves ripple through the economy, Indiana budget-makers are in a particularly precarious spot. House Enrolled Act 1001-2008 puts a host of new obligations (demands and challenges) on the state. Under the reform legislation, the state assumes the full expense of school general fund operating levies and must pay for county welfare programs for the first time in this budget. These are big dollar expenses that have steadily increased by significant amounts. The plan was for the additional one cent sales tax increase to cover these newly assumed obligations. But sales tax revenues are of course closely tied to the state of the economy. If it goes south, so does the ability of the state to pay the bills or increase education funding.

Indeed, Dr. DeBoer points out how quickly state reserve balances can dwindle. Projections already have us $140 million short going into 2009. Fortunately, those projections also show us recovering, anticipating a $1.3 billion balance by the end of fiscal year 2009. However, that recovery is entirely dependent on a stable economy. In perspective, the state has pulled itself back into a position to better deal with tough times if the economy does get uglier. This makes last resorts, like expanding taxes, less likely. But to echo the concluding sentiments of Prof. DeBoer’s article, let’s just hope the budget-makers simply don’t have to face a recession.

Indiana Legislature Adopts School Choice — By Accident

Analysts are continuing to discover the consequences — some intended and some probably not — of the major tax and fiscal reforms contained in HEA 1001-2008.  Perhaps one of the biggest unintended consequences is that Indiana will soon join over 40 other states in allowing parents to send their children to public schools outside of their own district.

For years, Hoosier parents have been allowed to pay tuition, at a rate determined by a formula in state statute, to attend another public school outside of their home district. That rate has been based, approximately, on the amount of per-pupil general fund revenues that have been covered by local property taxes.  For most districts, that amount has been several thousand dollars per student. 

But under HEA 1001, the state will begin paying all of a district’s general fund revenues in January of 2009.  Thus, when schools calculate the amount of local property taxes to determine parent contribution under a "cash transfer" option, that amount will be zero or something close to zero. 

Some school administrators, most of whom had no objections to the transfer policy when parents had to pay thousands of dollars to do it, are now going bonkers. Indeed, the Indiana Association of Public School Superintendents may consider a new policy statement this summer that would make it "unethical" for members of the association to accept transfer students. Other school administrators are already talking with legislators to seek their support in "fixing" this unintended outcome. 

Parents who are paying tuition under the current policy, along with those who may seek the option this fall, will need to continue paying the tuition level for the first half of the coming school year. But unless those who oppose parent options get their way in brow-beating superintendents to abandon the option, parents will find a much freer set of options starting in January of 2009.