INDIANAPOLIS | Gov. Mike Pence has directed Indiana budget officials to pay off approximately $66 million in prison construction debt, years ahead of schedule, to avoid having a state budget reserve that triggers the automatic taxpayer refund.
Under a 2011 law, when excess state funds total 12.5 percent plus $50 million of what the state is expected to spend in the current budget year, a portion of that money must be refunded to taxpayers.
The first-ever automatic taxpayer refund was distributed earlier this year when Hoosiers each deducted $111 from their income tax liability thanks to 2012 budget reserves that exceeded the limit.
Pence, a Republican, said he supports the automatic taxpayer refund as a concept, but believes it's more important right now that Indiana reduce its state debt burden.
"It's appropriate for families to pay down their debts, and I believe it's appropriate for our state government, whenever possible, to pay down our state debt," he said.
The $66 million bond payoff for the Miami Correctional Facility, near Kokomo, will save approximately $27 million in principal and interest the state would have paid on the loan over the next two years.
Since July 2012, Indiana has paid off $282 million in debt incurred to build and maintain various state buildings, including the Indiana State Museum in Indianapolis.
Former Gov. Mitch Daniels burned the mortgages for those buildings during an October ceremony at the Statehouse.
The state's tax-funded debt stands at $378.7 million, though Indiana owes billions more for university projects and unemployment insurance loans from the federal government.
If Pence had not used excess revenue to pay off debt, the state's reserves would have topped $2 billion, and the automatic taxpayer refund likely would have gone into effect.
However, a quirk in the law directs any 2013 refund be paid entirely to the state's pension funds, instead of being returned to taxpayers.
The normal 50-50 split of the automatic taxpayer refund between pensions and taxpayers returns for the 2014 budget year and beyond.
Pence said because the state's prepaid pension plans are already more than 80 percent funded — the level pension experts consider healthy — it doesn't make sense to pump even more money into them.
"As I looked at this overall picture my judgment was that our reserve levels ... are adequate and that paying down debt, saving taxpayers millions of dollars in interest payments, is a more effective use of those resources," Pence said.
The governor believes expected growth in the state's economy over the next two years makes it likely state revenue will continue to exceed state spending, which could push reserves to a level in 2015 that again trigger the automatic taxpayer refund.