Editorial: The temptation to spend state’s record surplus

Fort Wayne Journal Gazette

Indiana ended its fiscal year June 30 with $6.1 billion in reserve. The amount is unprecedented – $1.24 billion more than anticipated – and helped Gov. Eric Holcomb sway lawmakers to return $200 to each taxpayer during a special legislative session in August.

“I plan to present a biennium budget that will address more support for our public health system, salary increases for state employees, additional funding in K-12 education and another round of funds dedicated to the READI program to help local communities improve their overall quality of life,” Holcomb said of the coming legislative session in a statement July 15.

Even with extraordinary reserves, lawmakers will face a large funding hole while building the 2023-24 state budget, says Michael Hicks, a Ball State economist and director of the university’s Center for Business and Economic Research.

“The problem with Indiana’s rainy day fund – funds, actually – is that they are mostly the result of money illusion that accompanies inflation,” Hicks told The Journal Gazette. “The state passed a two-year budget (in 2021) that assumed 2.1% inflation. In reality, inflation over the biennium will be closer to 15% or higher.

“So, we enter the budget session in January with a large surplus that is a mirage,” he said. Indiana has enough in its rainy day funds to finance state government for 33 days.

Moving forward, Hicks said, public services will need a huge injection of cash.

“The quickly spreading ‘teacher shortage’ is one example of the problem,” Hicks said. “There’s almost no job a college graduate could take that pays worse than teaching in Indiana. So, filling vacant slots or keeping existing teachers on staff is already a crisis-level event across many school corporations, and will be a statewide problem by August next year.”

Besides the governor’s preference for funding increases in public health and K-12 education, higher salaries for state employees and additional quality-of-life funding for Hoosier communities, state lawmakers have spending priorities of their own. House Speaker Todd Huston, R-Fishers, said last month that Rep. Greg Steuerwald, R-Avon, will author a bill in the coming session to address mental-health funding.

Also on the table is a multimillion-dollar upgrade to the Bureau of Motor Vehicles’ operating system and high construction costs for multiple ongoing capital improvement projects, the Indiana Capital Chronicle reported in October.

The nation’s economic future remains uncertain. Inflation is high, federal COVID aid won’t be renewed and 50% of firms anticipate layoffs within the next six to 12 months, according to a PricewaterhouseCoopers survey of 722 U.S. executives in August.

There might be temptation in the Statehouse to use the inflation-generated surplus for one-time expenditures in the next two-year budget. Lawmakers and the governor, together, must prioritize spending needs and share them with taxpayers. The top of the list should be investment in education.