LARRY DeBOER: A conservative revenue forecast for Indiana

2013-01-08T00:00:00Z LARRY DeBOER: A conservative revenue forecast for IndianaBy Larry DeBoer
January 08, 2013 12:00 am  • 

Starting today, the Indiana General Assembly will craft a budget for the state that covers state services from July 1, 2013, through June 30, 2015, fiscal years 2014 and 2015.

To create the budget, legislators need to know how much revenue they're going to have. On Dec. 17, Indiana's forecast committee offered its best guess: a bit more than a billion dollars above current revenues.

A billion dollars is a lot of money. But this is a conservative forecast.

Indiana's revenue forecast is done in two parts. A forecast committee creates equations that link Indiana revenues to the economy. Then Global Insight Co. provides a forecast of the economy through 2015. The economic forecast is plugged into the equations to come up with the revenue forecast for the state's general fund. You can see the forecast documents on the Indiana State Budget Agency's website.

The committee put 2013 revenue at $14.34 billion. The forecast for 2014 was $14.66 billion, an increase of about $320 million. For 2015, the committee forecasts $15.09 billion, an increase of $750 million over 2013. For the two-year biennium, the General Assembly will have $1.07 billion more than it will have in 2013. That sounds pretty good.

But revenues are forecast to grow 1.5 percent in 2014 and 2.9 percent in 2015. Global Insight says inflation will be about 2 percent per year. Indiana's population has been growing by about 0.6 percent per year. This means the added revenue will just about cover the cost of providing current state services at higher prices to a larger population.

That probably means no added services from the current revenue stream. And it probably means no additional tax cuts without cutting the services the state provides.

Why so little added revenue? It's a conservative forecast.

The forecast has Indiana income growing 4.4 percent in 2014, which is more than it grew in 2012 or 2013.

Sales tax revenue is projected to grow 3.7 percent in 2014 and 4.1 percent in 2015. It's the other revenue sources that create the drag.

State income tax growth is reduced because the budget agency will establish a reserve for local income taxes.

Corporate income tax rates are coming down, and we're phasing out the inheritance tax.

In the next biennium, some of the cigarette tax revenue will go to the retiree health-benefit trust fund.

And gaming taxes are likely to drop. Casinos and racetracks seem to have reached market saturation. Also, more competition from casinos in neighboring states will reduce Indiana's gaming revenue.

All this assumes no recession from the fiscal cliff or European financial collapse, or due to slower growth in Asia. If those things happen, this revenue forecast will be too optimistic.

This time, the April forecast revision might be more important than ever.

Larry DeBoer is professor of agricultural economics at Purdue University. The opinion expressed in this column is the writer's.

Copyright 2014 All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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