Indiana's $4 billion debt highest in more than a decade

INDIANAPOLIS -- Indiana owes more money than it has in more than a decade, with a tab topping $4 billion for such projects as prisons, government office complexes, university buildings and the Indiana State Museum.\nIt will take taxpayers years to pay it all off, even if lawmakers don't add another dime.\nAs a percentage of personal income, the state's debt is the highest since at least 1992, according to Moody's Investors Service. And while Indiana's debt load is less than that of many other states, some say the state's growing reliance on borrowing is disturbing.\n"It's a glorified credit card -- a super one," said former state Sen. Morris Mills, who spent many of his 32 years in the Legislature helping to write state budgets.\nIndiana's debt has climbed even as the economy weakened, the government's revenue stream slowed and lawmakers were spending more than the state was taking in. The borrowing includes money for university projects and more than $80 million in bonds to help pay for the Indiana State Museum, which opened in 2002 and is scheduled to be paid off in 2020.\nRepublican Rep. Jeff Espich of Uniondale, chairman of the tax and budget-writing House Ways and Means Committee, said it often makes sense to borrow for capital projects because waiting until there is enough cash to pay upfront will mean substantially higher construction costs.\n"I would argue that there is proof that borrowing for major construction is valid," said Espich, who contends the state would not have some of the prisons, health centers and highways it has now if not for borrowing.\nBut Mills and former state Sen. Steve Johnson say those decisions can be shortsighted.\nMills noted that the state paid for prisons upfront during his first 20 years as a lawmaker, but bonds have been floated for the more recent ones.\nJohnson, president of the Indiana Fiscal Policy Institute, agreed.\nHe said lawmakers try to "satisfy the appetite for need" by issuing bonds, assuming the money will be available later to repay the debt. But that's not always the case, he said.\nThe $4 billion Indiana owes would pay for a $1,500, 32-inch, flat-panel wide-screen television for every household in Indiana. Or it would cover the cost of operating prisons at current levels for eight years.\nThe borrowing adds to the load shouldered by property owners, whose taxes already are paying a large chunk of school debt. As of December, schools had an overall debt of about $9 billion, according to the Indiana Department of Education. The money is owed for school buildings, pension and early retirement payments and loans for school buses.\nEven so, Indiana is considered a low-debt state. The state ranked 38th in tax-supported debt per capita and debt as a percentage of personal income, according to a 2005 state report by Moody's.\n"I think it is under control at this point," Espich said.\nNationally, state government debt has increased faster in the past two years than it has in over a decade, according to Moody's. The increase is due in large part to low interest rates, growing capital project needs and state budget woes.\nBut Moody's also found that, overall, debt service accounts for a small percentage of state spending.\nIndiana lawmakers appropriated $488 million in the current two-year budget for debt payments, according to Republican House Ways and Means staff. Of that, $244 million was earmarked for debt service on university projects. Another $18 million in tobacco settlement money was used to make bond payments on regional health centers.\nThe money targeted to debt service accounts for about 2 percent of the $24 billion budget.\nLawmakers also authorized about $230 million in new bonding for university projects, even as they froze property tax relief payments and other funding in hopes of balancing the budget.\nAccording to the Commission for Higher Education, the state's annual appropriation for debt service for colleges and universities rose from $11.7 million in 1976 to $113.4 million in 2003 -- an 864 percent increase. The debt payments now make up about 10 percent of the state's overall spending for higher education -- about twice that in 1976.\nHigher Education Commissioner Stan Jones said that means less money is available for operating costs.\n"The General Assembly says, `Sure, it's more painless to bond,' but ultimately those figures continue to build on themselves," Jones said. "It's a slippery slope."\nRyan Kitchell, the state's public finance director, said Gov. Mitch Daniels opposes "mortgaging the future." But he said the governor and some top credit agencies were not concerned about Indiana's current debt load.\nJohnson, with the Fiscal Policy Institute, said some borrowing for capital projects with long-term value makes sense. He likened it to mortgages people take to purchase homes.\n"But you can't do it all that way," he said. "There's going to have to come a point in saying you're not going to do this ... or raise resources sufficient to pay for it with cash up front, or forgo the opportunity. All of those are very tough choices"