Indiana Gov. Mitch Daniels (R) ordered all state agencies to cut budgets by 5 percent after receiving word 2008 state revenues could be $231 million less than expected.
The 5 percent spending cut includes 2 percent Daniels had already requested agencies not spend.
“We thought it was important months ago to develop a contingency plan in case something like this happens,” said Chris Ruhl, director of the State Budget Agency.
To avoid cutting spending for vital state services such as pensions, Medicare, and education, the Daniels administration put together a series of contingency plans several years ago in case tax revenues dropped.
$100 Million Savings
The cost-cutting measures are expected to result in a spending reduction of between $90 million and $100 million, according to the governor’s office. Savings will come from cutting overhead, leaving vacant jobs unfilled, and delaying projects.
Additionally, Daniels’ staff is creating a list of projects that will be delayed until the state’s economic forecast improves. This is expected to save another $12 million.
Daniels still intends to seek property tax reform in the upcoming legislative session. Speaking at a campaign fundraiser, he said the state’s budget situation should act as an incentive for legislators to consider cutting property taxes.
“I think it’s appropriate that we’re going to try and cut spending and give it back to Hoosiers at a time when they need it,” said Ruhl.
Daniels found grounds for optimism in the state’s economic forecast: His office released figures citing worse economic forecasts for Indiana’s neighbors. Illinois has a projected $3.1 billion deficit, and Michigan faces a projected $1.8 billion shortfall.
Economic analysts cited several reasons for the lower-than-expected revenues, including higher energy costs and problems in the subprime mortgage market. The state will end its budget cycle with $91 million in the bank, instead of the $332 million expected when the biannual budget was passed last year.
Nick Baker ([email protected]) is legislative specialist for budget and tax issues at The Heartland Institute.