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A new report released Thursday said Indiana lawmakers will likely have to consider a tax increase next year to shore up state government's dwindling finances, a suggestion that drew immediate criticism from legislative leaders.
The Indiana Fiscal Policy Institute, a nonpartisan government research group, determined that the state could face a $1.3 billion deficit in the next budget year if the economy does not drastically improve or if deeper spending cuts are not made.
That budget hole is likely to reach that mark if revenue grows at its historical nine-year annual average of 2.9 percent and spending is essentially kept at current levels in the fiscal year that begins July 1, the report concluded. Gov. Mitch Daniels and lawmakers will write a new, two-year budget during the General Assembly session that begins in January.
"We may get that economic expansion and we may get additional federal dollars, but the reality is they're going to have to very seriously consider raising taxes in order to get through this," said John Ketzenberger, the institute's president.
Daniels' administration and Republican and Democratic legislative leaders balked at talk of a tax increase.
Daniels has already cut state spending by hundreds of millions of dollars, including a projected $600 million in the current budget year. There has been little or no talk among lawmakers about raising taxes.
"We've proven time and again we will make the reforms and decisions required to live within our means and keep Indiana in the black without raising taxes," Chris Ruhl, director of the state's Office of Management and Budget, said in a written statement. "The Institute's suggestion of a general tax increase on Hoosiers is a terrible and unnecessary idea and one the governor firmly opposes."
It is always politically difficult for lawmakers to raise taxes, and the appetite for doing so -- or even talking about the possibility -- is tampered even more by the upcoming November election.
Daniels has left open the possibility of running for president in 2012, and points often to Indiana being in better fiscal shape than most states. And although Republicans are virtually certain to retain control of the state Senate, the narrowly divided, Democrat-led House is again up for grabs this election season.
Indiana finished the 2010 fiscal year on June 30, with $830 million in the bank. The Daniels administration has cut spending and the state used federal stimulus dollars and spent money from reserves to preserve a surplus.
But the state is projected to end the current budget year with only about $188 million in the bank. That would only pay for about five days of programs and services.
Senate Appropriations Chairman Luke Kenley, R-Noblesville, said lawmakers will indeed face tough decisions in crafting a new budget next year. He said deeper program cuts probably will be needed, but said with so many people out of work, it would not be fair to Indiana residents to raise their taxes.
House Speaker Patrick Bauer, D-South Bend, said any talk of tax increases would have to come from Daniels. Bauer said Daniels should do more to create jobs, including securing more federal money for job programs.