Indiana gears up for long-term budget woes

From Lesley Stedman-Weidenbener in the C-J last month...

It’s been only a few weeks since the General Assembly adjourned for the year, its work presumably finished until 2011, when lawmakers will write the next two-year budget.

But that budget is already on the minds of Gov. Mitch Daniels, legislative fiscal leaders and thousands of school administrators, university officials and others whose futures will be determined by the two-year spending plan.

That’s because even if Indiana’s economy improves, the 2012-2014 budget will be incredibly difficult to write and manage.

State tax receipts have fallen so far so fast that 2010 revenues are projected to be less than they were five years ago — and that’s assuming the current estimates are correct. Already, tax revenues have fallen tens of millions behind for the year....

But because the current $27 billion, two-year state budget is propped up by about $2 billion in federal stimulus funds — money that won’t be available next time — the state could be in worse shape financially next year than now.

Plus, by the time the next budget cycle begins, Indiana will have plowed through all its reserves, leaving the savings account essentially empty — unless Daniels imposes some draconian cuts in some of the most controversial areas....

But if there is frustration now, just wait until next year.

With the stimulus money gone and state revenues still behind the level of five years ago, lawmakers probably won’t be able to maintain the status quo. And it’s not easy to make big cuts when K-12 education spending makes up roughly half the state budget.

University spending is another 13 percent. So is Medicaid, which is generally an entitlement that is particularly difficult to cut. Prison costs are 5 percent of the budget, as are teacher pension costs. Child welfare spending is about 3 percent.

Everything else in state government — state agencies, state parks, environmental regulation and more — makes up just 12 percent of the budget....

The state can’t save big bucks without reducing what it spends on education, universities, prisons and Medicaid. And none of those options would be popular....