1. 9/9/2010 Indianapolis Business News - Latest Indi…
Report: State must cut spending, hike taxes
or both
Francesca Jarosz September 9, 2010
State officials next year will have to make more spending cuts, increase taxes or both as they face the
most challenging fiscal outlook in 30 years.
Those were the conclusions of an Indiana Fiscal Policy Institute report released Thursday detailing the
impact of the recession on the two-year budget that goes into effect July 1, 2011.
Dwindling tax revenues will cause a projected $1.3 billion budget gap as the state enters its next budget,
which would have an estimated spending base of $14.6 billion, according to the report.
That deficit equals the amount needed to pay for government functions such as prisons, police, parks
and the General Assembly—essentially everything but education and social services.
To make up the gap, the state will have to look at increasing sales or income taxes, eliminating services
or a combination of both, said John Ketzenberger, the Indiana Fiscal Policy Institute’s president.
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2. 9/9/2010 Indianapolis Business News - Latest Indi…
“Their only choices are to make cuts and hope that the economy grows enough that cuts and growth
offset the deficit—and there’s really no sign the economy is going to grow at a rate that’s enough to
make that happen—or make cuts and look at increasing revenues through taxes,” Ketzenberger said.
The state has faced tough economic times for the last two years in the midst of a long-lasting recession.
A high unemployment rate—now at more than 10 percent—and slow gross domestic product growth
have made sales and income tax revenues volatile.
That’s a problem, the report says, because those two taxes make up 80 percent of Indiana’s revenue.
The result is apparent: The state’s revenue collections in 2010 were more than $900 million less than in
2008.
But in the last few years, a $2.7-billion boost from federal stimulus programs and about $3 billion in
spending reductions by Gov. Mitch Daniels’ administration helped the state survive the losses.
The stimulus and many of the governor’s tactics, however, aren’t sustainable. And the economy is
hardly expected to rebound next year.
That means the next budget, according to the report, will require “some creative thinking and tactics.”
If there is good news in the report, it’s that Indiana is hardly alone. The national Center on Budget and
Policy Priorities reports that 46 states faced shortfalls in their 2009 or 2010 budgets.
Compared with states such as Illinois, Ketzenberger said, Indiana is faring well.
“But tough times are on us,” he said.
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