The financial world is in turmoil, the economy is fragile, and the future is unknown. These national issues will come home to Indiana as the legislators work on the next biennium budget for the coming session. In a recent article, Purdue economist and professor, Larry DeBoer, asked the question: "Is Indiana’s Budget Ready for Recession?"
While Wall Street shockwaves ripple through the economy, Indiana budget-makers are in a particularly precarious spot. House Enrolled Act 1001-2008 puts a host of new obligations (demands and challenges) on the state. Under the reform legislation, the state assumes the full expense of school general fund operating levies and must pay for county welfare programs for the first time in this budget. These are big dollar expenses that have steadily increased by significant amounts. The plan was for the additional one cent sales tax increase to cover these newly assumed obligations. But sales tax revenues are of course closely tied to the state of the economy. If it goes south, so does the ability of the state to pay the bills or increase education funding.
Indeed, Dr. DeBoer points out how quickly state reserve balances can dwindle. Projections already have us $140 million short going into 2009. Fortunately, those projections also show us recovering, anticipating a $1.3 billion balance by the end of fiscal year 2009. However, that recovery is entirely dependent on a stable economy. In perspective, the state has pulled itself back into a position to better deal with tough times if the economy does get uglier. This makes last resorts, like expanding taxes, less likely. But to echo the concluding sentiments of Prof. DeBoer’s article, let’s just hope the budget-makers simply don’t have to face a recession.