The Difficulty of Restoring Structural Balance: The Case of Indiana, 2001–2007

Abstract

The State of Indiana has faced a steadily deteriorating fiscal condition since the turn of the 21^st century. The root problem has been state leaders' failure to recognize the weakening of Indiana's economic base in the wake of the recent recession, evidenced by significant employment losses since 2001, particularly in the manufacturing sector. State spending has continued apace, and even accelerated in the case of certain “big ticket” item. In response to the fiscal shortfall, the state has pursued its time-worn budget balancing tactics of drawing down cash reserves, raiding extra-budgetary funds, and delaying payments to municipal governments, school districts and universities. The debts that the state owes to these other units have mounted. Meanwhile, five years after the onset of the April 2001 recession, the state economy has not recovered sufficiently to repay these debts, as it had been able to after the two most recessions. This leaves Indiana highly vulnerable to another national recession.

Keywords:

• state budgets
• structural deficit
• property tax relief

Notes

¹Most of the recipient governments currently are carrying these payments on the books as receivables.

²The enacted budget is House Enrolled Act 1001 - 2005 (HEA 100 - 2005). Parenthetically, the governor's proposed budget would have been more restrictive, limiting appropriations increases to 2.1 percent in FY2006 and 1.2 percent in FY2007.