Statehouse Update

Say the Magic Word

"Surplus" is, of course, the key buzzword among legislators and Statehouse watchers as the second week of the 1998 Indiana General Assembly unfolds.

The variety of plans to deal with this pleasant fiscal dilemma focus primarily on ways in which much of the $500 million surplus can be returned to Hoosier taxpayers. And while Gov. Frank O'Bannon and some members of the legislative leadership continue to discourage opening the budget, discussion continues about some additional spending proposals.

To Spend or Not to Spend? Purdue's View

It's very difficult at this point to even begin to speculate about the approach to the state's fiscal picture that eventually will emerge. If it's ultimately decided that there will be some additional spending, Purdue is making the case for several areas of consideration by the Legislature.

Purdue President Steven C. Beering and other members of Purdue's staff have just wrapped up meetings with the leaders of the four legislative caucuses. In a letter Dr. Beering has delivered to each of them, he suggests that if additional spending is ultimately considered, five areas should be explored for the Purdue system:

• Innovative Technology -- The president urges the Legislature to consider converting the current allocation for technology from a one-time to a recurring appropriation to meet student and faculty needs for access to the latest in computing and related technology. Current funding is not guaranteed beyond this biennium. This proposal would have these dollars continue as part of the "base" funding for the University.

• Cooperative Extension -- The request for state money to replace declining federal funds for the Extension Service was an important component of Purdue's budget request last year. The need is greater than ever. We're requesting that the Legislature again consider providing a total of $3.2 million for the preservation of these important programs that have an impact on virtually every citizen of the state.

• Technical Assistance Program (TAP) -- TAP is a major success story in helping Indiana's smaller businesses solve problems and compete more effectively by making hands-on faculty expertise and research available. Due to a change in the way in which the state appropriation was routed to Purdue, this program is earmarked for an appropriation of $1 million for this year, compared to $1.25 million from the state last year. This $250,000 reduction has had a significant impact on the program's ability to service these Hoosier companies. Dr. Beering's letter notes, "The restoration (of the $250,000) is urgently needed in order to continue the level of service to these smaller Indiana companies. In addition, expansion of the program would materially enhance this important sector of Indiana's economy."

• New business incubator -- Purdue is a major contributor to growth opportunities essential to enhancing Indiana's economic future. The University has worked very hard to expand the climate for new business ventures that are created with the talent and technology available on the West Lafayette campus. An integral part of this effort is the incubator facility, which currently houses 28 start-up companies in the Purdue Research Park in West Lafayette. This facility is filled to capacity with a waiting list. Dr. Beering urges legislators to consider contributing $1 million from state funds to aid in the construction of this facility. The balance of the $5 million cost will be raised from other sources.

• Laboratory modernization -- Finally, the president notes that even with the full funding of the repair and rehabilitation formula, keeping abreast of the maintenance needs of a mature campus is a continuing challenge. As an example, the current schedule for renovation of laboratory space at West Lafayette would see some of the labs in their 47th year of use before becoming eligible for upgrading. Since Gov. O'Bannon and some legislators have indicated a willingness to consider some one-time funding initiatives, President Beering suggests an additional one-time supplement to the renovation needs of Purdue laboratory facilities, which would serve as a most appropriate investment in the state's future.

Tax Plans in the Early Going

As legislators ponder the $1.6 billion in accumulated state taxes and annual revenues that exceed recurring state expenditures, all realize that this is an election year -- and the election could decide the fate of the now evenly split House, among other things.

Thus, the various partisan camps have come forward with taxpayer-pleasing plans to spend a significant portion on tax cuts and/or rebates, or on what they believe are high-priority services:

• House Democrats -- In line with the governor's guideline of not making commitments to long-term obligations, this plan focuses on a one-time 1998 tax rebate of $200 to couples filing jointly and $100 for individual returns. Also included is a tax credit of up to $50 for textbooks and materials for the 1998-99 and 1999-2000 school years.

• House Republicans -- This is the most comprehensive plan, and is similar to House Republicans' 1997 proposal. It calls for the permanent shift of all welfare costs from the property tax to the state. The estimates are $133 million in 1998-99 and $278 million in 1999-2000. Also included is a permanent 15 percent state homestead credit, up from the current 10 percent, which would cost $37.5 million in 1997-98 and $75 million in 1998-99. House Republicans also propose a rate freeze on property taxes until the governor's tax commission makes its recommendation. It also ties property tax growth for operating funds of all civil units of government to no more than 4 percent, but tied to inflation if inflation is less than 4 percent. Finally, this proposal would limit future state spending increases to the rate of growth in Indiana's personal income.

• Senate Democrats -- This caucus supports a $1,000 increase in the personal income-tax exemption for all taxpayers and their dependents. Senate Democrats also support the governor's 1997 tax-reduction package, which they believe should be passed as permanent tax relief. While not part of the caucus proposal, Senate Democrats indicate other priorities on the education front. Of particular interest to Purdue? Recurring college/university technology funding; enactment of a two-year income-tax credit equal to 30 percent of parents' contributions to the Family College Savings Plan; and increased funding for the Cooperative Extension Service.

• Senate Republicans -- They support an increase in personal income-tax exemptions from $1,000 to $1,500 for each taxpayer and dependent. Senate Republicans also are proposing limited tax credits for educational expenses of students attending both public and private primary and secondary schools. Included, too, is a proposal to eliminate the business property-tax add-back in calculating Indiana's taxable income. For federal tax purposes, property taxes are deducted from business taxable income, but have to be added back when calculating Indiana's taxable income. This proposal would eliminate this "add back."

We will report on the progress or pitfalls of these plans in our Feb. 2 issue. In the meantime, we welcome your comments or questions.

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