Meeting with Mitch: Governor Daniels talks state finances and federal deficits

NEW ALBANY — When Gov. Mitch Daniels took office he met with his administration and set a daily goal to look at ways to raise the net disposable income for Hoosiers then leave as many dollars in people’s pockets as possible.

What Daniels and his administration didn’t expect, was for the country to be mired in a recession that would strain the state’s finances and force major budget cuts.

But while the country has waded through its fiscal crisis, his handling of the state’s budget has raised Daniels’ name as a potential Republican candidate for president in 2012. Daniels, though, said he was not positioning himself to run for the office.

“The only reason I would even think about it is because I am really, desperately alarmed about the condition of the country,” he said, acknowledging that Indiana’s financial state is probably the source of him being considered in the national arena.

On Tuesday the governor sat down with the editorial boards of The Evening News and The Tribune to discuss the status of the state and how he is addressing a stagnant national economy.

Daniels has lauded the fact that he has made cuts to the state’s budget, maintaining its position in the black, without raising taxes.

“Our whole view is to find a way to get through this thing without doing that,” he said in reference to raising state taxes. “Number one, it’s no time to be pinching the budgets of families, many of whom are having trouble making ends meet now. Number two, I want us to be more competitive for jobs than anybody else. Every time one of these other states raises a tax and we don’t it improves our chances of getting the next investment.”

Two reports that have been released covering January through July have ranked Indiana number one amongst states in terms of private sector job growth.

“We’ve added 56,000 jobs this year, which is 2.4 percent,” Daniels said. “That’s four times the national average which is 0.6 [percent]. We are 2 percent of the American population, but we are 9 percent of all the new private sector jobs this year.”

He added that the growth was not enough and the state is looking to position itself to capitalize on an economic recovery.

“One thing a state could do about a recession is try to handle itself in a way that was a little better than other states and therefore improve its competitive position,” he said. “So, that when the economy did start to grow again we might hope to benefit a little more or a little faster.”

Indiana addressing shrinking revenues

Until the economy begins to recover, Indiana is addressing losses in revenues by trimming the state’s budget.

Daniels said the state has cut its debt 40 percent, but will be faced with starting its new budget with less money than the state has had in five years.

Addressing the revenue shortage started with adopting a budget that was realistic, he said. Instead of digging into a deeper hole the state needed to change its behavior.

Two figures presented by the state’s legislation as a budget figure, if adopted, would have caused the state to be broke already.

“If we spent to the budget [adopted] when the revenues fell we would’ve been broke last month,” Daniels said. “If the house budget happened we would have been broke last December.”

With revenues down the governor realized the $1 billion he was hoping to carry into this year was not going to be possible.

“That’s not going to happen because the revenues are so much less,” he said.

The state is expecting improvement on its revenues this year, but it is not expecting a big bounce back because the state relies on sales tax revenues. Indiana is still relying on its reserves to make it through from year-to-year because it will not be able to generate enough money to fund the budget solely on revenues.

When the budget was adopted the majority of the spending was dedicated to K through 12 education.

Daniels said it was the first time K through 12 was more than half of the state’s budget and when higher education was added to the mix, education consumed two-thirds of the state’s dedicated funds.

The remaining third has also been the focus of the cuts being made.

“This third is where we’ve been finding most of the savings,” Daniels said referring to the remaining portion of the budget. “That third has delivered 61 percent of the savings so far.”

Daniels also said the state has eliminated payment delays that formerly caused local governmental entities to seek short-term loans to cover costs until the money from the state arrived.

To cover those costs, local governments were losing money because they were paying interest on the short-term loans.

“Everybody gets paid on time now,” Daniels said.

The Clark County Sheriff’s office however may disagree.

The office is awaiting payments for housing Indiana state prisoners, with the last payment from the state coming in February.

Added to income tax revenues being down across the state some local officials feel they have been forced to implement taxes to fund operations.

Passing the buck?

With property tax caps looming as a possible amendment to the state’s constitution, the limits on funding locally could further limit the ability for local entities to fund themselves. But Daniels said the property tax caps aren’t a way for the state to pass the buck — forcing some local governments [including Clark County] to pass additional taxes and user fees on a municipal or county level — but instead said it is the responsibility of local officials to be able to fund their own operations or live within their means.

“If they don’t want to take responsibility for saying to their citizens ‘we want to provide this amount of service and it’s going to cost this much,’ they shouldn’t have run for office,” he said.

“It helped local taxpayers,” he said of the tax caps. “What [the local officials] are saying is they couldn’t extract as much money from local taxpayers. That was the idea. Local units were accustomed to a situation ... where first they decided what they want to spend then they can just tax to that amount. Now taxpayers are at least protected by the ceilings. We have cut spending in state government probably five times or more what any local unit has been required to do by the caps.”

Daniels said local government units are being forced to act like many families in the state and “tighten their belts” and live within the revenues that are brought in, not to raise their revenues to meet expenses.

He added that there is still room in the legislation to address a funding shortfall.

“Local taxpayers should decide whether they think that’s a good idea or not,” Daniels said. “We left plenty of room for local control in the property tax bill. All you have to do is go have a referendum. If you can make a good case to the taxpayers of New Albany, or Jeffersonville or somewhere for more money then you can go above the caps. It’s just now that you have to ask the taxpayers. Before they just did it.”

Daniels said there have been 30 referendums statewide to raise revenues outside the caps and about half of which have passed.

“The act of ‘08, I think is an unqualified success,” Daniels said.

National debt and stimulus round two

What the state’s governor has viewed as an unmitigated failure is the federal government’s ability to control the increasing debt and its plan to spur job growth in the form of the stimulus package.

“Most people’s common sense that I’m bumping into these days, they know something’s deeply dangerously wrong,” Daniels said of the deficit. “I think people have some real sense that this thing is out of control and it is very dangerous. If people needed any reminding about the dangers of debt a lot of them got a very personal searing reminder or experience with it in recent years.”

“At the most personal level I think people understand its a threat to them, their future and their kids’ future,” he said. “If we go broke as a country there’ll be fewer jobs than there are now and if we don’t make some significant changes to rescue Social Security, Medicare and these programs, there’s going to be a lot of people left without a safety net.”

The situation the federal government finds itself in is not insurmountable, Daniels said.

“I am not prepared to concede that we can’t make major changes nationally,” he said. “In a way I can site Indiana ... we’ve made a lot of change in this state in the last five years.”

On the horizon is another possible round of stimulus funding that Daniels believes is being applied in the wrong way.

While the governor said he was not opposed to the first stimulus package, in it being an effort to stimulate the economy, he was opposed to the way in which it was it was implemented.

“I’ve always said I didn’t think the way they were doing it was any good,” he said. “Now a year-and-a-half has gone by. It hasn’t worked. You have to be a blind zealot to say that this thing has done any good. It’s trickle down government is the best way I can describe it.”

Instead of spending money on government, Daniels said the money should have gone to grow private businesses, which is where the governor said job growth occurs.

From Daniels’ perspective he hopes to continue to keep the cost of business down and cost of living lower, so the state will spread its expenses out more equally and entice companies into the state to improve growth.

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Meeting with Mitch: Governor Daniels talks state finances and federal deficits

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