Indiana State Budget Agency Director Chris Ruhl was kind enough to join our VP of Taxation and Public Finance Bill Waltz on this morning’s monthly First Friday Call.
During the call, Ruhl discussed the state’s current budget and the impending federal stimulus plan.
"It’s certainly a dramatic proposal just because of the magnitude of it," he said. "It’s likely going to be over $900 billion."
Ruhl explained the importance of using the state’s stimulus funds for one-time expenditures. He says that Indiana should avoid just plugging gaps in state operating budgets because that would cause problems in two years when the money runs out. Ruhl asserted the remaining shortfalls would not be able to be made up in state tax dollars. This is why the state plans to remain focused on infrastructure investments and tax reductions to grow the economy.
He also stated that while the state would receive $4-5 billion, that number could be deceptive as the distribution of that money must be formulaic in many cases, meaning the state wouldn’t have total autonomy or leeway to maneuver the money around.
Ruhl added that Indiana is one of the 10 best financially positioned states, and that states like California and Michigan are really struggling.
"California has an annual deficit that’s three times larger than our state budget," he noted. "Things are much worse in other states, because they spent heavily in the good times and spent all their reserves. Now the only way out is stimulus dollars and tax increases — we saw that in Michigan."
According to Ruhl, the best way to aid businesses — both large and small — is to control spending, reduce taxes and preserve existing economic development tools (like the 21st Century Fund).
He also emphasized the importance of maintaining the state’s budget reserves. While some are advocating spending the Rainy Day Fund now, the unanswered questions remain: How long will it rain and how hard will it rain? While the budget forecasting panel typically does a good job in their semiannual projections, they were $1 billion off this time around, Ruhl points out. In today’s economy, one must recognize at least the potential for a similar shortfall. If reserves are exhausted now, tax increases will be the only option left.
If your company is an Indiana Chamber member and you would like to register for the March 6 First Friday Call on local government reform, please sign up via our web site.