State revenue falls short

State revenue collections fell short of estimates by 8 percent, or $254 million, for the first quarter of fiscal year 2010.

According to the State Budget Agency, revenue figures for the first quarter include $34 million in tax collections that were expected to be received later in the year, so revenue may actually be off by nearly 10 percent.

Budget officials predict that if this trend continues, state revenue will be more than $1 billion off forecast by June of next year.

At the end of fiscal year 2009, Indiana had $1.3 billion in reserves, and $300 million of those reserves will be used in this year’s budget.

Gov. Mitch Daniels said in a press release that he will not raise taxes or make any immediate spending reductions, but he may have to consider budget cuts in the future.
Daniels oversaw a 10 percent budget cut in most agencies last year.

“The job of keeping Indiana above water and solvent is not getting any easier,” Daniels said in the release. “But Indiana remains one of a few states not raising taxes and not cutting vital services.”

Other states have experienced similar revenue shortages, and most have responded by raising taxes or cutting services.

Since the beginning of the recession, 27 states have raised taxes on income, sales, gas, alcohol and tobacco or in other areas, according to the State Budget Agency.
Thirty-five states made cuts in K-12 education programs. In Alabama and California these cuts were higher than 15 percent.

Spending on K-12 education accounts for nearly half of Indiana’s budget.

In a press release from his office, Daniels said he might ask the state revenue technical forecasting committee to revise its model to reflect changing consumer behavior in response to the recession.

David Dukes, senior fiscal analyst for the House Ways and Means committee, who also serves on the technical forecast committee, said he and the other members are discussing that possibility.

He said the committee could change the formula it uses to generate the forecasts, but it has not decided on a specific course of action yet.

The difference between the forecasted collections and actual state revenue means consumers aren’t spending as much as was predicted. Revenue collected in this quarter was about 15 percent lower than what was collected in the first quarters of fiscal years 2008 and 2009.

“It’s a combination of less spending because of less income, and our unemployment rate is 10 percent – people just aren’t making the income,” Dukes said.

He also said consumers appear to be saving the extra money they do make. Whether this is a permanent change in consumer behavior remains to be seen.

“The economy has changed in fundamental ways, but we can’t ignore those changes if we are going to continue to protect taxpayers,” Daniels said in a press release. “The best thing we can do is to continue to build a job-friendly, business-friendly environment so that we ultimately have more taxpayers and help lighten the load on everyone.”