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A Good News Forecast, A Bad News Budget
First, some good news. On Dec. 14, 2004,
This looks like a turning point in the state's revenue outlook. It's
the first revenue forecast since December 1999 that increased predicted
revenue. Every forecast between then and now showed a decrease. That's
five years of falling short. Over five years, that's about $3 billion,
which we thought would arrive and wrote into state budgets, that didn't
show up. You don't have to look much further than that to see the reason
But on Dec. 14, forecasters increased the revenue prediction for fiscal year 2005, the current fiscal year, which ends June 30, 2005. It's not just a guess, either. In the first five months of the fiscal year -- July through November -- the state received $188 million more than expected. The $311 million prediction is pretty conservative compared to how we've been doing. There will be a forecast update in April, right before the end of the legislative session. Don't be surprised if fiscal 2005 revenue is increased again. (You can see these numbers at the Budget Agency's Web site, http://www.in.gov/sba/budget.)
The budget is the reason for the forecasts, of course. Starting in January, the General Assembly will write a spending plan for the 2006 and 2007 fiscal years. That's looking forward all the way to June 2007. Legislators need to know how much revenue the state will have in order to figure out how much to spend. So, the revenue forecast not only revised the prediction for fiscal 2005, but made new predictions for 2006 and 2007.
There was good news in those predictions, too. We should get $400 million more in 2006 than in 2005 and a billion dollars more in 2007 than in 2005. That's $1.4 billion in new revenue.
Unfortunately, the good news stops right there.
Medicaid is a health care program for low-income people. It's an entitlement program, which means that the state must pay whatever people are entitled to receive under the rules. Medicaid spending has been growing about 6 percent a year. That's more than $200 million over the next two years.
Even if we find a way to avoid paying so much Medicaid, we'll have to contend with property tax relief. Under the current rules, state spending for property tax relief will rise by more than $200 million over the next two years.
We've just spent our last $200 million twice. And we haven't yet asked whether local schools should get more aid -- even to cover inflation -- or whether universities should get more, or the state parks or state prisons or anything else the state government does.
What are our choices? We could decide to cut spending like never before. We could decide to raise taxes. We could decide to try to solve the problem over more than one biennium, postpone building balances or resetting payment delays, and hope (really hope!) that the next recession holds off.
And that's the bad news.