Purdue Statehouse Update
Purdue Statehouse Update
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VOL. 8, NO. 2 January 29, 2001 What a difference two weeks makeThe first edition of 2001 Statehouse Update focused on Indiana’s fiscal picture and the The situation has now dramatically changed. A combination of factors – softening of the economy, higher than anticipated costs, and tax cuts – finds our state in a deteriorating financial situation. Impact on PurdueThe state budget agency has sent to the House Ways and Means Committee a spending plan for the next two fiscal years that provides very little new funding for any element of state government. It was billed as a "flatline" budget for higher education. In fact, this "flatline" approach would result in a $6.2 million reduction in state appropriations over the biennium at Purdue-West Lafayette and an even larger cut at IU-Bloomington. Expressed in another fashion, Purdue would need an increase of about 3 percent in student fees just to offset the decline in state appropriations. This proposal, and all that it implies for every aspect of state government, hit the Legislature like two tons of bricks. There was no anticipation of budget problems of this magnitude. An indicator of the level of concern came when the budget agency proposal was not adopted by the State Budget Committee – a departure from long-standing practice. By January 20, Representative Patrick Bauer, Chair of the House Ways and Means Committee, had introduced his own version of a budget as a starting point for the budget deliberations – in lieu of the budget agency proposal. While Bauer’s plan still leaves Purdue far from its original proposal or the recommendations of the Indiana Commission for Higher Education, it is at least a step in the right direction. In this proposal, both Purdue and IU see operating appropriations return to current levels, although the budget does not include the non-recurring technology money that has been allocated in recent years. Clearly, it was not the most optimistic of settings when the higher education institutions presented their budget requests to the House Ways and Means committee on the 16th and 17th of January – before Rep. Bauer issued his budget plan. However, the presentations were well received by committee members. There seems to be a growing consensus that higher education will be a major contributor to the state’s future economic health and vitality. In Purdue’s presentation, President Jischke provided Ways and Means members with a glimpse of the enormous potential that exists within the three areas targeted by Purdue for additional state investments. He also discussed the stark reality of the need for increases in basic operating funds to deal with the university’s needs. While Purdue will continue to pursue funding for new investments, the challenge is much more difficult than it appeared to be a few weeks ago. To better understand the changed environment of the state’s fiscal picture, one must first examine the current revenue stream. Here are a few examples to illustrate the current scenario: Total State Reserves
The definition of "reserves" is the combination of the state’s general fund, tuition reserve account and the rainy day fund. We can view them as the equivalent of a checking account (general fund) and a savings account (rainy day and tuition reserve). Taken together, they are considered to constitute the state cash reserves. Here is another measure of this fiscal picture: Reserves As A Percent of Revenue
The speed at which the state’s reserves have been depleted has been accelerated by several factors — both on the revenue and the expense side of the ledger. With the economy’s slowdown, revenue for this year has not been collected at the rate that had been anticipated when this year’s budget was enacted. Compounding the situation has been that the expense of several areas has been significantly greater than originally anticipated. Medicaid, for example, has cost about $79 million more than budgeted. A series of tax cuts have also cost far more than original estimates. Here is the result of the combination of these factors: Projected Annual Revenue & Expenditures — Fiscal 2001
This projected shortfall in 2001 means that, in essence, the state will spend $754 million more than it takes in for the year ending by June 30, 2001. Consider that shortfall against the state’s projected income for the next several years: Projected Revenue
The message here is that this scenario produces about $458 million new dollars in year one of the next biennium and about $529 million in the second year. This means that without any new spending of any sort – a complete flatline of the current budget – the state would be midway through the second year of the biennium before revenue and expenditures were again in balance. OutlookThis will be a very long process with many more versions of the budget yet to come. Many legislators and other officials are hard at work considering remedies for this situation. Many proposals are being discussed and several are beginning to work their way through the legislative process. Readers of Update are encouraged to express your concerns and suggestions to the various members of the General Assembly. The future of education in this state will be at the forefront of many hours of discussion in the legislative process. Voices of concerned citizens do have an impact.
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