JULY
2003

 

By
Larry DeBoer
 
Professor of
Agricultural Economics
Purdue University

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07-24-03

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Closeout Day


The State House in Indianapolis is quiet on most summer days. The General Assembly adjourned months ago, so the loudspeakers don't bark, and the roar of the lobbyists doesn't echo in the rotunda.

But on one day each summer, the State House is the place to be. Thursday, July 17, was closeout day. That's the day that the governor and his budget director report on what happened to state revenues, expenditures and balances as of the end of the fiscal year. Since the fiscal year ends on June 30, the closeout always happens in July. You can see the closeout statement on the Budget Agency's Web site, at http://www.in.gov/sba/budget/closeout.

Closeouts since July 2000 have been unhappy affairs. Each year, the Budget Agency reported that revenues had fallen short of forecasts, and that budget balances had declined. In the past two years, revenues were less than they were the year before, something that had not happened in decades. The effect of the recession on state revenues was more severe than anyone expected.

The closeout this year was not quite so bad. Tax revenues were $9.9 billion, which was a 14 percent jump over 2002. That was mostly because of tax restructuring-especially the increases in sales, cigarette and riverboat taxes-but, even without restructuring, revenues would have grown for the first time since 2000.

Budgeted appropriations are the amount that states agencies are authorized to spend by the state's budget. The number was $11 billion for fiscal 2003, $1.1 billion more than tax revenues. How did the state manage to spend that much with revenues that small?

It didn't spend that much, for one thing. There were $323 million in reversions, which are appropriations that are authorized but not spent. The governor asked state agencies not to spend their full appropriations, and they didn't.

There were $337 million in payment delays. This is a budgeting trick that works because the state's fiscal year goes from July to June, while the local government fiscal year goes from January to December. The state owes local governments payments for property tax relief. If the state delays the June payment until July, the locals still get their money, but the state doesn't count the spending until the next fiscal year.

The state got some unexpected help because property tax reassessment is taking so long. Local governments have delayed issuing property tax bills, and that delayed another $101 million in state tax relief payments.

That's a saving of $761 million on the expenditure side. On the revenue side, the state transferred $397 million from other funds to the general fund. A lot of this came from the Build Indiana Fund, which ordinarily would be used for local infrastructure projects. Instead, it will support state spending.

The state received an unexpected windfall from the federal government, when Congress passed the Jobs and Growth Tax Relief Reconciliation Act of 2003. That's the President's tax bill. It included some aid for state governments, and Indiana's share was $103 million.

That's an extra $500 million on the revenue side. Combine that with the $761 million in lower spending, and the $1.1 billion dollar budget gap is more than filled in. In fact, for the first time since 1998, the state's balances increased. That helps, because balances in the state's checking and savings accounts were getting dangerously low.

One fiscal year ends, and another starts. Closeout day reports on the fiscal year just ended, but also projects what will happen in the future. That news was not so good. Appropriations still exceed projected revenues in the next two fiscal years. More transfers from other funds will be needed. More reversions are expected. Balances are likely to fall. And, looking beyond 2005, someday we'll have to move those delayed payments forward, and that will cost more than $750 million.

We're really, really hoping that the state's economy will start growing faster, so that revenues exceed forecasts. If all we get is forecast revenues, the budgets for the next two years will be very tight.

 

 

 

Writer: Larry DeBoer
Editor: Olivia Maddox