Statehouse Update

Session Ends

The 1998 Indiana General Assembly session wrapped up on February 27 with no progress on tax relief or any off-year budget considerations. With the lackluster session behind them, the efforts and energies of legislators now focus on fall elections and the 1999 session.

It's clear that Indiana's tax structure and the dollars that have accumulated in the state treasury will dominate political discussions in the Hoosier State through Election Day and into the next General Assembly. The surplus was left largely untapped during this session, essentially because there were no additional spending measures approved. That reality, and the fact that state coffers continue to fill at a rate greater than the optimistic December fiscal forecast, have set the stage for several months of healthy debate on the state's fiscal future. Let the rhetoric begin!

The (Fiscal) Check, Please

It likely will be several days before the State Budget Agency reports on the total fiscal impact of legislation that passed, but it's safe to say the impact will be minimal.

Revenues continue to remain substantially ahead of the earlier forecast, although January revenues were slightly below target numbers. But tax collections through January were $77 million above the seven-month target. If revenues continue at this level through June, the state will end the year with revenue of $137 million above the December forecast.

That forecast projected a $1.6 billion state reserve by the end of the 1999 fiscal year (June 30, 1999). If revenues for the 1999 fiscal year do exceed the current projections by $137 million and, assuming that $300 million of current appropriations are for non-recurring expenses, the state's recurring expenditures should be some $250 to $300 million below the recurring revenue base, a very good sign for the future.

What About Purdue Funding Requests?

While there certainly were hopes that some additional state dollars could be invested in the needs of higher education, there was a realization throughout the session that it was unlikely that just Purdue or all of higher education would be singled out for additional funding if the budget was not opened for other considerations as well.

A lack of action on Purdue's requests should not be considered a reflection on their merits. Clearly, members of the General Assembly had repeatedly been contacted by constituents regarding the Purdue programs. There was strong sentiment expressed by many legislators regarding the need to fund programs such as the Cooperative Extension Service and the Technical Assistance Program. It seemed quite likely that if there had been any list of supplemental appropriations approved, these would have been on it.

In the final days of the session, it became more apparent that the energies of the legislators were directed toward the tax debate. It also became clear that if no resolution of that issue was reached, the opportunities for consideration of additional spending measures would be nil. Ultimately, that was the scenario. Tax issues were not resolved, and the General Assembly ended with no action on any spending measure of interest to higher education.

Looking Ahead to 1999

The 1999 General Assembly is likely to be a session that begins with balances in the state treasury greater than at any time in the Indiana's history. It's also quite likely to be a session that will generate greater debate about the state's fiscal future, namely its tax structure, than any in at least the last quarter century.

The issues Purdue will bring to the next session of the Legislature will be familiar to Statehouse Update readers. The requests for the last session were based on our greatest needs -- those that will still be in the forefront a year from now. Keeping pace with the cost of living, struggling to provide access to innovative technology for Purdue students, adequate funding for regional campuses, maintaining services to Indiana families and businesses through programs like the Cooperative Extension Service and the Technical Assistance Program, and related issues will most likely be at the core of Purdue needs for the next biennium.

As the debate about Indiana's future begins throughout the state in this election season, it would be most appropriate for the candidates for the Indiana House and Senate and other state offices to hear from Update readers that it is not merely tax structure that will determine this state's competitiveness in the next millennium. The vitality of Purdue and the other higher education units of this state should not be forgotten in the "Great Debate of '98."

Governor's Tax Commission

In the shadow of that looming debate is the ongoing work of the Citizens Commission on Taxes, whose 33 members were appointed nearly a year ago by Gov. Frank O'Bannon.

The commission's task is to evaluate how state and local governments raise revenue to finance state and local government services. The charge to the commission was to report to the governor by December 1, 1998, any recommendations that would make taxes more fair, simpler to administer and understand, make the state more competitive, and raise the same amount of revenue as the current system. He placed special emphasis on reducing the reliance on property taxes.

The commission has been meeting regularly since last April and conducted ten public meetings throughout the state to receive input. Although members issued a progress report to the governor in December, it contained no recommendations.

Public comments and commission discussions suggest strong interest in reducing the overall level of property taxes and recognizing that the revenue lost must be made up through higher state taxes -- whether individual income, sales, or corporate income or other taxes.

In addition to an overall reduction in property taxes, the commission must be prepared to respond to an anticipated decision by the Indiana Supreme Court on the issue of how property is assessed for tax purposes. If the state is required to change its current assessment methodology, the commission will be expected to evaluate alternative methods and to consider these changes in its overall recommendations.

Several major taxation issues and questions will be considered beyond those suggested by the governor. Among them is the possibility of shifting who bears a greater share of taxes. Businesses currently pay about 60 percent of all property taxes but a far less percentage of state taxes. How much of a shift in taxes from businesses to individuals is realistic? Indiana's individual taxes are more regressive than most states; in other words, lower-income people pay a higher percentage of their income to support public services than do higher-income taxpayers. Should this be changed? How about controls on the future growth of property taxes? Should it be tied to inflation plus a factor that reflects community growth or should that be a local decision? There also is interest in changing current business taxes. If so, what will the impact be on various business sectors?

The tax commission plans to release preliminary recommendations in June or July and to assess public response before finalizing recommendations in December.

And Finally ...

Our thanks to all Purdue advocates for their ongoing enthusiasm and commitment. Your questions and input always are welcome by phone, fax or e-mail. Statehouse Update will return late in the year with a preview of 1999 legislative action.

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