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March 11, 2013

DeBoer: Revenue forecast update has special significance this year

Larry DeBoer

Larry DeBoer
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WEST LAFAYETTE, Ind. - An updated assessment of  Indiana's financial outlook in April will be a key consideration for state lawmakers as they decide whether to increase spending over the next two years or reduce the state income tax, or possibly do both,  Purdue Extension economist Larry DeBoer says.

"The April budget forecast looms large," DeBoer said. "It's the thing that could iron out the disagreement that the governor and the House are having at the moment. To a greater degree than usual, we are looking forward to this budget forecast revision."

The General Assembly by the end of April is to pass a new state budget for the next two fiscal years that begin in July. Gov. Mike Pence, a Republican who took office in January, has proposed reducing the state income tax by 10 percent - from the current rate of 3.4 percent to 3.06 percent. But his plan did not make it into a budget passed in late February by the House, which is controlled by his own party. The Senate, where the GOP also holds a supermajority, is now crafting its version of the budget.

A conference committee of lawmakers from both chambers ultimately will deliberate on a final budget bill to propose to the full General Assembly. The committee will look closely at a new state revenue forecast, updated from one in December, that they will receive in mid-April in writing the final budget proposal.

Revenue this fiscal year had been running slightly above December 2011 projections, but the December 2012 forecast revised revenues for the remainder of this fiscal year downward for several reasons. Among them are the reduction in corporate income tax rates, the phase-out of the inheritance tax, and the likelihood of fewer gaming taxes because of more competition expected from a new casino in Ohio and possibly other new casinos in Illinois.  

Although Indiana income growth is projected to average more than 4 percent per year through fiscal year 2015, DeBoer said revenue for the state was forecast in December to grow by only 2.2 percent year.

"Given the conservative revenue forecast in December, you can increase spending modestly, as the House budget does, or you can cut the income tax. But you can't do both," DeBoer said.

That could change depending on the revised revenue projections in April, he said.

"If the forecast revision is for substantially more revenue growth, then they might be able to increase spending and approve an income tax cut, too," DeBoer said.

About 200 community leaders from 57 locations throughout Indiana participated in a Purdue Extension webinar during which DeBoer provided his outlook for the next biennial state budget and how it might affect local government budgets. Participants included county commissioners and council members, mayors and representatives of city councils, town boards, school boards, library boards and townships.

The On Local Government program is offered 3-4 times a year. A link to the webinar on the state budget is at https://gomeet.itap.purdue.edu/p89r7eebozn

DeBoer also writes a monthly column, "Capital Comments," in which he provides his insight into state finances. His column on the state's revenue forecast from December is at https://www.agriculture.purdue.edu/agcomm/newscolumns/archives/CC/2012/December/121227CC.html

Writer: Keith Robinson, 765-494-2722, robins89@purdue.edu

Source: Larry DeBoer, 765-494-4314, ldeboer@purdue.edu

Ag Communications: (765) 494-2722;
Keith Robinson, robins89@purdue.edu
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