Indiana's Fiscal Forecast: Is $1.5 Billion a Lot of Money?

The Indiana State Budget Agency has released its latest estimates of state revenues for the upcoming biennium. Using the current fiscal year (which ends June 30, 2007) as a baseline, fiscal 2008 revenues will increase by 4.2%, and fiscal 2009 revenues by 4.5%. Here's the year-by year- projection:

Fiscal year	Revenues	$Growth	%Growth	$Growth Vs. Current Year
06-07 (current)	$12,359
07-08	12,873	+$515	+4.2%	+$515
08-09	13,448	+575	+4.5%	+$1,090

So for fiscal year 2007-2008, which starts next July and ends on June 30 of 2008, it's expected that the state will have $515 million more to play with, with total available revenues increasing from $12.359 billion to $12.873 billion. That's a 4.2% increase. Then for FY2009, revenues are forecast to increase by $575 million, a 4.5% increase. When people say the state will have $1.5 billion in new revenues over the next two years, as the Indianapolis Star does here, they mean that FY08 revenues will be $515 million higher than this year, and that FY09 revenues will be $1.09 billion higher than this year.

So how much of this $1.5 billion, if any, is "surplus" revenue? There are three meaningful questions to ask here.
(1) Is Indiana already adequately funding all the services its residents want? If the answer is "no," then at least some of the $1.5 billion ought to be used to fill these funding holes.
(2) For any given service, whether it's education or health care or transportation, will it cost the state more to provide those services in 2008 than it did in FY2007? If the answer is "yes," (and, of course, it is) then at least some of the $1.5 billion will be needed just to keep providing the same services Hoosiers enjoyed this year.
(3) Where is the new revenue coming from? If it's a one-shot, temporary increase, then this two-year forecast makes things look rosier than they really will be in the long run. On the other hand, if this $1.5 billion all reflects permanent growth in the tax base, then it really is a meaningful long-term number.

These are big questions, and we won't weigh in on them here. The Indy Star takes a quick shot at answering #1 and #2, though:

[M]uch of that $1.5 billion will have to be earmarked for existing obligations, such as increases in Medicaid costs, teacher pensions and property tax relief. School districts statewide also are anticipating at least a modest boost in funding.

All of those commitments leaves little room for anything else.At any rate, the thing for policymakers to remember is that the magic number for the next fiscal year (the one ending in June of 2008), there's likely to be a total of $515 million in "new" revenue available to keep pace with the cost of providing the current basket of services and to pay for any new spending or tax initiatives. That's not a lot, and it's clearly less than the Daniels Administration was hoping for.