Purdue News

STATEHOUSE UPDATE VOL. 4, NO. 2 JANUARY 20, 1997

The 1997 session of the Indiana General Assembly convened on January 7. The long session marks a budget-writing year, so forging a new biennial state spending package is at the heart of legislators' actions. Of key interest to us, of course, is the budget's ultimate impact on Purdue and all of public higher education in Indiana. Let's first look at where things stand early in the session.

Higher Education Recommendation Differences

On opening day, the State Budget Committee adopted the State Budget Agency's recommendations for all elements of the state budget, including state colleges and universities.

The committee's college and university operating appropriation recommendation calls for a 2.1 percent increase in 1997-98 and 3.1 percent in 1998-99, numbers that fall short of the Commission for Higher Education's recommendation of 5.1 and 5.4 percent, respectively. We feel there is a good argument for additional funding to at least match the commission's levels, and that the state's healthy fiscal position can afford it. The difference between the two recommendations is a relatively modest $27 million for the first year of the biennium and $50 million the second year.

The budget committee numbers look like this:

($ Millions)

Growth Growth

1. 98 Over '97 1998-99 Over '98

All Line Items* 141.13 9.8 146.22 3.6

Debt Service** 97.92 16.5 93.88 (4.1)

Total Operating 1,161.09 4.1 1,190.88 2.6

Technology Investment 15.79 ---- 32.27 ----

Capital Cash 57.00 ---- 59.63 ----

TOTAL $1,233.88 7.9 $1,282.78 4.0

* Line items include University line items as well as Student Financial Aid, the Commission for Higher Education and other non-university lines.

** Increases due to completion of buildings authorized in prior years.

We see the recommendation as a reasonable start, but the very modest operating appropriations for each year is a major disappointment at the outset. The committee recommendation does add half of our request for the technology initiative, but as a one-time appropriation, not as part of the continuing budget commitment. That, of course, severely limits how the funds can be used.

The $57 million and $59.6 million in capital cash are for repair and rehabilitation of existing facilities, including part of our request for infrastructure and $22.5 million each year for new buildings. The committee endorsed the commission's cap of $175 million for new capital and recommended that $45 million be cash funded. But the committee did not specify which buildings should be authorized or funded.

The budget committee's operating appropriations recommendation for each of the Purdue campuses breaks down like this:

Percent Percent

Growth Growth

1. 98 Over '97 1998-99 Over '98

North Central 7,541,608 1.4 7,703,082 2.1

Fort Wayne 25,471,661 1.7 26,312,698 3.3

West Lafayette 195,719,809 2.0 202,174,125 3.3

TOTAL $250,458,794 1.9 $259,087,283 3.4

Our technology initiative recommendation does provide for a one-time funding of half of our request on each campus, a total of about $4.5 million in fiscal 1997-98 and $9 million in 1998-99. However, none of the new initiatives in any of the line items (Technical Assistance Program, Statewide Technology or Agriculture) was recommended for increases.

A key date for us early in the session is January 29, when we go before the House Ways and Means Committee for our budget hearing.

State Fiscal Trends

By way of background for looming budget battles, it's likely the state will see substantially slower growth in Indiana's personal income throughout the rest of this fiscal year. That's the gist of official state revenue projections, which the State Budget Committee received on December 19.

Last year, state economic forecasters were expecting growth in Indiana non-farm income in the 5 percent range. Their new figure is 3.9 percent for 1996-97, with modest upturns of 4.1 percent for 1997-98 and 4.4 percent for 1998-99. These conservative growth rates are due primarily to a decline in projected inflation, not lower economic activity. The rates project gross domestic product (GDP) price deflation (a measure of inflation) to gradually increase from its current level of about 1.6 percent to about 2.7 percent by the end of the forecast period. This measure of inflation runs substantially below the consumer price index (CPI).

State Revenue Update

After the economic forecast is made by a panel of economists, their numbers are translated into a revenue forecast by a forecast committee. The modest rate of inflation and economic growth means a 3.1 percent increase in projected revenue for 1997-98 and 3.9 percent in 1998-99:

($ millions)

Growth Growth Growth

FY 97 Over '96 FY '98 Over '97 FY 99 Over '98

Sales Taxes $2,993.2 1.7 $3,102.1 3.6 $3,227.7 4.0

Income Taxes 3,055.5 3.0 3,182.5 4.2 3,329.0 4.6

Corporate Taxes 1,062.5 8.2 1,081.6 1.8 1,134.3 4.9

Other 678.4 9.0 668.5 (1.5) 658.8 (1.5)

TOTAL $7,789.6 3.7 $8,034.7 3.1 $8,349.8 3.9

$ Increases $ 245.1 $ 315.1

The significant numbers to keep in mind for overall budget purposes are total revenue of $245 million and $315 million in added revenue the state has to allocate to an ongoing expenditure commitment.

Other Budget Issues

As in the past, the two areas of the state budget that are consuming a major share of all increased revenue each year are Medicaid and the Department of Correction. Medicaid spending growth is projected to increase by almost 20 percent over the two-year budget period. Correction's operating budget (for prisons) is expected to grow by 17.5 percent. The department also projects a need to accommodate 4,000 new adult male inmates and 350 new juvenile male inmates by 2001. The budget agency recommends new bonding authority of $234 million for the design and construction of three new correction facilities.

The budget committee recommendations left $103 million of projected revenue in fiscal '98 and $128 million in fiscal '99 uncommitted. This will be available for increased appropriations, tax cuts or to add to the accumulated balances. Projected balances for the three years are:

1997 1998 1999

General Fund $ 957.6 $ 744.2 $ 703.7

Tuition Reserve Fund 215.0 215.0 215.0

Rainy Day Fund 461.9 475.2 493.7

TOTAL $1,634.5 $1,434.4 $1,412.4

The decline in the General Fund balance is due to $359 million in one-time appropriations from the balances, including $45 million for higher education capital and $47 million for the technology initiative.

However all these numbers shake out in the weeks ahead, we'll keep you posted. Our next Statehouse Update , on February 3, will report on the early going for bills in the 1997 General Assembly.

To the Purdue News and Photos Page