The Outlook for Indiana s State Budget,

Transcription

1 Purdue Cooperative Extension Service The Outlook for Indiana s State Budget, Larry DeBoer Department of Agricultural Economics Purdue University December 14, 2006 For more information State Budget Agency: DeBoer s Indiana Local Government Information Website:

2 Indiana State Budget Summary, FY , and the Budget As Passed, 2007 (millions of dollars, updated through July 2006 closeout) Actual Actual Actual Actual Actual Actual Actual Actual Actual Budget Avg. Ann. Change Start of Year Balances 1,844 2,055 1,991 1, ,089 Revenues Sales Tax 3,251 3,396 3,651 3,687 3,761 4,172 4,721 4,960 5,226 5, % 5.0% Individual Income Tax 3,477 3,699 3,753 3,780 3,541 3,644 3,808 4,213 4,322 4, % 3.6% Corporate Income Tax 1,016 1, % -1. 3% Gaming % All Other ,072 1, ,370 1, % 6.6% Total 8,482 8,941 9,200 9,123 8,796 10,049 10,918 11,489 12,434 12, % 4.2% Appropriations K-12 Education 3,464 3,742 3,905 4,182 4,185 4,380 4,247 4,512 4,582 4, % Higher Education 1,190 1,242 1,331 1,390 1,411 1,440 1,474 1,528 1,544 1, % Medicaid ,042 1,144 1,171 1,249 1,266 1,383 1,455 1, % Property Tax Relief ,057 1,154 1,180 1,157 2,097 2,143 2,153 2, % 2 Health & Social Services % Public Safety % All Other 882 1,003 1, , % 9 Total 8,513 9,120 9,718 10,190 10,307 10,898 11,310 11,750 12,075 12, % 1.4% 2.0% 5.0%.0% 5.9% 1.5%.0% 2.8% Current Year Surplus/Deficit (31) (179) (518) (1,067) (1,511) (850) (392) (262) Transfers from (to) Other Funds Reversions Payment Delays (Reversals) (156) (177) Total Adjustments ,135 1, (20) (26) End of Year Balances General Fund 1,319 1, (0) Tuition Reserve Medicaid Reserve Rainy Day Fund Total 2,055 1,991 1, ,089 1,114 Total Balances % of Revenue 24.2% 22.3% 17.8% 10.0% 6.1% 7.2% 4.9% 6.5% 8.8% 8.9% Payment Delay Liability Prepared by Larry DeBoer, Department of Agricultural Economics, Purdue University and Purdue Cooperative Extension Service, July

3 Indiana Revenue Projections and Actual Revenues at end of Fiscal Years, Change in Pct. Chng End of Fiscal Year: Projections Actual Rev First to Last (italics) Revenue ,421.4 Proj ection , , % Year: , ,142.7 (158.9) 2.9% , , ,052.0 (721.3) -1.0% , ,708.9 (820.1) -3.8% 2003(1) 9, ,249.5 (705.3) 2003(2) 10, ,880.1 (371.0) 13.4% , ,619.9 (72.6) 7.5% , , , % , , % , ,348.8 (29.5) 2 TOTAL (2,849.2) Numbers in italics are actual revenues for that fiscal year 2003(1) are projections prior to tax restructuring 2003(2) are projections after tax restructuring, and include the increases in sales, cigarette and gaming taxes. What Did We Do About

4 Indiana State Fund Balances, FY and Budgeted 2007 (millions of dollars) 2,200 2,000 1,800 1,600 1,400 1,200 1, PTRF General Fund Rainy Day Fund Medicaid Reserve Tuition Reserve Indiana State Fund Balances as Share of Operating Revenues, FY and Budgeted % 25% 20% 15% 10% Prudent Range 5% Rule-of-Thumb Minimum 0%

5 What s Fiscal Health and How Do We Get Healthy? Fiscal health before the next recession Have balances equal to at least 10% of the budget o Cash flow o Guard against unexpected shortfalls in revenues o 10% is the minimum suggested by the Indiana State Budget Agency o 10% of budget will be about $1.35 billion by mid-2009 Have payment delays re-set o School aid and property tax replacement credit payments from state to local governments o A monthly payment postponed from one state fiscal year to the next o A fiscal gimmick that helped balance the budget in 1993 and o If we want it available for the next recession, must move a monthly payment forward o Payment delay liability will be $446 million as of June 2007 In total, need to raise about $700 million above spending before the next recession o Starting from balances of $1.1 billion in 2007, 8.9% of the budget o Need $250 million more to reach 10% of the budget by mid-2009 o Need $446 million to re-set payment delays When s the next recession? Nobody knows, but... The last recession ended in November 2001 o If this expansion lasts 8 years, like the 1980 s expansion, the next recession starts in o November 2009 If this expansion lasts 10 years, like the 1990 s expansion, the next recession starts in November 2011 The current biennium ends in June 2007; The biennium after that ends in June 2009 It would be prudent to be ready for the next recession by the end of fiscal 2009 Could a recession come sooner than later? Outlook for the Budget Suppose in o Revenues continue to grow at the predicted rate for 2006 and 2007 o Spending continues to grow at the same rate as the budgets for 2006 and 2007, a continuation of the current tight budget Under these assumptions, payment delays are reset, and balances are 12% of the budget, above 10%--we reach fiscal health by mid-2009 Balances at 12% mean $200 million above the 10% target can fund new spending or tax relief 2006 revenues came in above forecast. The current forecast predicts that corporate tax revenues will fall in If instead they remain unchanged through 2009, balances will be $600 million above the 10% target An estimated $200 to $600 million will be available for added spending or tax relief above the current tight budget, while still reaching fiscal health We ll know more on December 14 today when the revenue forecast for is released 4