A Look at Indiana State Budget Estimates

19145168The monthly revenue estimates referenced in connection with Indiana’s state budget and commonly used to evaluate how Indiana is doing can be confusing because they change periodically and result in different baselines. First, there are the estimates on which the budget is formed – those established by the revenue forecasters in mid-April each year that a two-year budget is put together by the Legislature. And then there are the most recent revised estimates – updated by the forecasters each December.

If you look closely enough at the reports from the budget agency each month, you can discern the differences. Appropriately, the budget agency compares the actual monthly collections to the most recent updated estimate. But if you go beyond their summary, commentary and main chart you can find out how the monthly revenues compare to the original numbers on which the budget was formed.

Since we are now into the last month of fiscal year 2015 and the last month of our current two-year budget that was written in April of 2013, it seems a good time to look at just how well those forecasters did. While the numbers fluctuate considerably from month to month, with 11 of 12 months actual collections known, they are off by less than 1% (just .8 of a percent.) They projected collections of $13,152,600,000 and actual year to date collections were $13,042,800,000. They were off by $109.8 million, or eight-tenths of a percent, statistically as good as anyone can reasonably expect. In fact, it is pretty extraordinary and the forecasters are to be commended for such accurate work. Good, reliable projections are important to the fiscal integrity of our state.

And our fiscal picture doesn’t look bad at all right now. The collections now stand at $211.3 million or 1.6% above the revised/updated projections (those made in April of this year.) But it is not the estimates that are the real indicator of how the state is doing. It is a comparison of actual year-to-date collections that show actual growth. Those same monthly reports also show how the current fiscal year-to-date collections compare to the actual collections through the same period of the prior fiscal year. With the fiscal year nearly complete, Indiana is 3.6% above the prior fiscal year collections. And most encouraging is the 4.4% year-to-date growth in sales tax (our biggest revenue stream) and the 6.9% growth in individual income tax (the next biggest).

Boiling all this down there are two points: (1) the state forecasters do a great job, and 2) the present fiscal picture of the state looks good.

Chamber’s Bill Waltz: State Budget Holding Steady for Now

There are plenty of ways to parse the revenue collections over the first 10 months of the current (2014) fiscal year. Officially, the general fund numbers are 0.5% below the most recent (December 2013) forecast. But they are 1.7% below the 2013-2015 budget based targets. Neither percentage warrants great concern, representing in dollars $61 million (0.5%) and $194 million (1.7%), respectively. But the last two months of fiscal year 2014 will be worth noting for the purpose of identifying trend lines. The March and April numbers came in very close to the December forecast, but the problem is the December forecast adjusted the predictions downward from the April 2013 forecast on which the budget is based.

Last month’s actual collections were 6.4% below the original forecast. So there is a need for the May and June collections to be close to the revised forecast amounts, or else the budgeting going into the second fiscal year of this biennium will get trickier. If those collections drop off, the forecasters and budget-makers will be looking at less than desired numbers going into the new budget making session next year. Sales tax revenues are the real key since they make up 49% of the collections. The sales tax numbers are not bad, but are very modest, showing 1.5% growth over last year. Corporate revenues remain stalwart, 14.5% above target for the year. On the other end, gaming remains down, 7.1% below target. All in all, the budget is in an alright place, but there is a lot to be determined in the coming months as far as expectations going into the next biennium.

Stay Tuned for Real Interim Action on Tax Issues
Nothing is happening just yet, but things are in the works: This will not be an ordinary interim for tax matters. The Pence administration is currently busy organizing a major event for next month. The initiative, dubbed the Indiana Tax Competitiveness and Simplification Conference, is set for June 24. It will be opened by Gov. Pence and feature a few nationally recognized speakers. There will also be panel sessions on a variety of tax subject areas. Panelists will have a work group type format. This is a “by invitation” conference. More details will be reported next month.

Dovetailing the Governor’s conference to some degree will be the Blue Ribbon Commission established by SEA 1-2014. It is expected that his body will begin to take shape in the coming weeks.

The Legislative Council has recognized the commission (referenced as the Commission on Business Personal Property and Business Taxation) in conjunction with the other interim committees sanctioned for interim activity (via Council Resolution 14-01). Senate Pro Tem David Long will name one of his Senate colleagues as the chair and Speaker Brian Bosma will name one of his House colleagues as the vice chair. Four other legislators will likewise be appointed, while the Governor will have a designee. And the remaining seven members will be laypersons representing various interested parties, including the Indiana Chamber, the Indiana Manufacturers Association, the Realtors Association, agriculture and local governments.

Bauer, Bosma, Long and Simpson Set the Stage

The 2010 legislative session might officially begin Tuesday with Organization Day. The discussion started today, however, at the Indiana Chamber’s Central Indiana Legislative Preview. The four caucus leaders had plenty to say during an hour-plus dialogue. Just a few of the highlights:

  • Plenty of debate and disagreement over the property tax caps. House Speaker Pat Bauer (D-South Bend) tried to insert some ABCs into the 1-2-3 argument, with his main point being that assessment problems still need to be fixed. Senate President Pro Tem David Long (R-Fort Wayne) warned of constitutional challenges (lawsuits) if the caps are not passed. Senate Minority Leader Vi Simpson (D-Bloomington) offered that "we really don’t know if 1-2-3 are the right numbers" and said there should be no exemptions for any counties
  • State budget: House Minority Leader Brian Bosma (R-Indianapolis) says there are two priorities for his caucus — no new taxes and no additional spending. Long: "Any bill that has spending in it is more than likely dead on arrival."
  • Party lines were clearly at play on federal health care reform, with Long "scared to death about what they’re talking about in Washington," while Simpson is "all for a national health insurance plan that insures more people." Bauer arrived in time to add that a fortune could be made and debt problems resolved if a 25% premium charge was placed on every advertisement both for and against health care reform
  • Local government reform: Simpson says exemptions for certain counties or areas have no place in such legislation; Long sees much duplication in township services in urban areas, but not necessarily in rural places; and Bauer gave arguments on both sides of the question before asserting that reform "must take place in steps and some steps will be taken this session."
  • Support of delay in unemployment insurance tax increase on employers: Bosma said "yes" to delay or even permanently postpone; Bauer adds that modifying those increases should take place in conjunction with a jobs program; and Simpson notes her caucus will "undoubtedly support a delay" but also believes that reforms in the hearings and appeals processes should be part of the equation
  • Education reform was addressed with Long contending that while some say Superintendent of Public Instruction Tony Bennett is a bull in a china shop, "I say we need a bull in a china shop. He needs to continue to push the envelope." Simpson says Democrats are more open to these discussions due to the efforts of President Obama. Bauer wants the focus more on students, expecially those struggling in inner cities, than teachers. Bosma sees the coming decade as one of "examination and action" on education, but that will not be the case in the 2010 General Assembly session

Bottom line: Excellent discussion; there will be plenty of issues in play during the short two-month session; and no one really knows what the outcomes will be.