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June 11, 1999
As required by Indiana Code 4-12-1-12, the State Budget Agency hereby transmits to Governor Frank O’Bannon, Auditor of State Connie Nass and each member of the Indiana General Assembly:
The revenue forecast for the 1999-2001 biennium projects that revenue growth will be slower than the 5.4% average annual growth for fiscal years 1998 and 1999. Revenues are expected to grow by 5.1% each year of the biennium. The forecast reflects the expectation that the national expansion will continue over the biennium. (The forecast does not take into account 1999 enacted tax cuts, which are explained below.)
The General Assembly passed several tax reduction measures that will reduce revenues during the biennium. The income tax deduction for dependent children was raised from $500 to $1,500 and the earned income tax credit for qualifying taxpayers was replaced by a refundable tax credit. (This is expected to help the State meet the Maintenance of Effort (MOE) requirement under the Temporary Assistance for Needy Families (TANF) program.) The renters’ deduction was increased by $500, and an income tax deduction of $500 was enacted for taxpayers age 65 and over with incomes of $40,000 or less. An income tax deduction for certain long-term health insurance premiums was enacted. For Indiana income tax purposes, businesses will no longer be required to add back federal deductions for property taxes paid. An income tax deduction for property taxes paid up to $2,500 was enacted for individuals. These tax cuts will reduce revenues by an estimated $219.0 million in FY 2000 and by $228.4 million in FY 2001.
Education. For elementary and secondary education, the largest component of the budget, the General Assembly appropriated $3.9 billion for FY 2000 and $4.2 billion for FY 2001. Total state and local school formula support will increase by $223.0 million (4.7%) in calendar year 2000 over 1999 and another $233.6 million (4.7%) in 2001 over 2000. The new school formula changes the method of calculating the Prime Time and Vocational Education Distributions. Prime Time is included in the school formula (in the past it was a separate line item) and is based on the revenue per student a school receives instead of the number of teachers hired. The Vocational Education Distribution for calendar year 2001 changes from the 1975 formula to a new formula that provides greater funding to areas that have projected employment deficiencies.
The budget contains funding for the state payment of PSAT tests and remediation for students who failed the graduation test.
The General Assembly appropriated $250.0 million for the biennium to reduce future state obligations to the Teachers' Retirement Fund.
Higher Education. Total state appropriations for higher education, including cash-funded capital projects, increased by $113.8 million (8.7%) for FY 2000 and by an additional $64.0 million (4.5%) for FY 2001. Through increased state appropriations and assumed student fee increases of 3.5% per year for Indiana residents (except at Ivy Tech State College and Vincennes University, where resident tuition rates were frozen for the biennium) and 4.5% for non-residents, total higher education expenditures, including one-time capital expenditures, are expected to increase by $142.6 million (6.9%) for FY 2000 and an additional $94.0 million (4.2%) for FY 2001. The budget includes $81.9 million in one-time funding over the biennium for technology support. The higher education budget also includes $2.0 million for community college start-up costs, $6.2 million for tuition freezes at Ivy Tech State College and Vincennes University, $9.9 million for Internet2, $2.8 million per year to make up lost federal funding for Agricultural Extension, and $4.0 million to cover the costs of adding students in postsecondary proprietary institutions to the Higher Education Award program.
The budget includes $264.3 million for new, state-funded university construction projects. Of that amount, $88.3 million is appropriated for cash-funded projects, while the remaining $176.0 million consists of bonding authority projects.
Economic Development. The General Assembly provided $50 million for Governor O'Bannon's 21st Century Research and Technology Fund.
Health and Human Services. State appropriations for health and human services totaled $1.8 billion for FY 2000 and $1.9 billion for FY 2001, with the Family and Social Services Administration (FSSA) receiving nearly 95% of these funds. Compared to the FY 1999 funding levels, FSSA’s appropriations grew by $152.7 million (9.9%) for FY 2000 and $218.1 million (14.1%) for FY 2001.
The Medicaid program received appropriations of $1.0 billion for FY 2000 and $1.1 billion for FY 2001, including first-time funding for the Children’s Health Insurance Program (CHIP). General Fund appropriations for Medicaid obligations increased by $5.9 million (0.6%) for FY 2000 and $54.4 million (5.6%) for FY 2001.
The Division of Family and Children received an additional $53.8 million (27.7%) for FY 2000 and $56.2 million (29.0%) for FY 2001, which includes funding to remove two welfare tax levies from local property taxes. Including a contingency fund, an additional $24.0 million was appropriated over the biennium to meet the Maintenance of Effort (MOE) requirement for the federal Temporary Assistance to Needy Families Program. An additional $22.0 million was appropriated for child care and adoption initiatives.
Within the Division of Disabilities, Aging and Rehabilitative Services, an additional $39.3 million will be available for services for the developmentally disabled. Also, an additional $10.0 million was appropriated for the CHOICE Program, and an additional $2.9 million was appropriated for vocational rehabilitation.
Appropriations for mental health increased by $22.9 million (12.1%) for FY 2000 and $25.3 million (13.3%) for FY 2001, with additional funding being provided for substance abuse treatment and for services for the seriously mentally ill.
The Indiana State Department of Health and special institutions administered by the Department received state funding of $106.7 million in FY 2000 and $106.0 million in FY 2001, representing increases of $6.5 million (6.5%) for FY 2000 and $5.8 million (5.8%) for FY 2001.
State funding for the Department of Veterans Affairs was increased by $1.1 million (158.8%) in each year of the biennium including funds for operating and managing the Veterans Cemetery in Madison, Indiana.
General Government. General fund appropriations for General Government for FY 2000 are $324.1 million and $357.3 million for FY 2001. This includes $75.0 million for the Personal Services/Fringe Benefits Contingency Fund and $12.0 million for an Employee Recruitment and Retention Fund to provide salary increases for public safety employees. Appropriations also include $10.0 million for the Teachers’ Retirement Fund and the Public Employees’ Retirement Fund to jointly build a new computer system, $15.9 million to complete the State’s Year 2000 effort, and $3.1 million for additional magistrates and judges authorized by the General Assembly. The General Assembly also increased the distribution from gaming revenues from $10.0 million to $30.0 million for the Police and Fire Pension Relief Fund.
Public Safety. A total of $1.1 billion was appropriated for the operations of the state correctional system in the 1999-2001 biennium as well as $78.8 million for maintenance and construction expenditures. This is an increase of approximately 21% over the previous biennium. The increase will support incarceration of 24% more prisoners. Additional funds were appropriated for the operation of several new facilities including the Miami Correctional Facility, the New Castle Correctional Facility and the Pendleton Juvenile Facility. In addition, funds were appropriated in the amount of $146.1 million to enable the Department of Correction to increase the number of beds supplied by private contractors by 1,270.
A total of $246.4 million is appropriated for the operations of the State Police in the 1999-2001 biennium and an additional $1.9 million for maintenance and construction expenditures.
Conservation and Environment. A total of $461.0 million was appropriated for the operation of conservation and environmental programs in the 1999-2001 biennium, and $112.3 million was appropriated for maintenance and construction expenditures. This is an increase of approximately 32% over the prior biennium.
Transportation. A total of $2.2 billion in general and dedicated funds was appropriated for the Department of Transportation for the 1999-2001 biennium. This is an increase of approximately 84% over the previous biennium. Twenty-one percent of the increase is from additional revenue and proceeds from the sale of bonds under the Crossroads 2000 program. Thirty-five percent of the increase reflects additional funding from the federal government.
Capital and Construction. Capital appropriations for the 1999-2001 biennium include $600.3 million for repair and rehabilitation and new construction, $124.0 for lease rentals, and $35.5 million for preventive maintenance for state agencies. Not including the lease rentals, which in previous budgets were included in the Department of Administration operating budget, this represents an increase of $137.9 over the 1997-1999 biennium. Appropriations primarily are targeted at repairing existing facilities and infrastructure.
Capital appropriations include $81.3 million to fund the repair and rehabilitation formula for university buildings and $88.3 million for several cash funded university projects, including $50.0 million for Indiana University Medical Centers, $10.0 million for new construction and renovation at Lafayette Ivy Tech State College, and $6.0 million for the technology building at Vincennes University. The budget authorizes bonding to finance $176.0 million in new construction for universities and also authorizes bonding to finance construction of Phase II of the Miami Correctional Facility and the Evansville State Hospital.
Distributions. The budget contains a monthly appropriation from the general fund of $8,333,333 to the Local Road and Street fund to be distributed to local units of government. This will result in counties and local units of government receiving a total of $100.0 million annually.
Combined state balances (General Fund, Property Tax Replacement Fund, Tuition Reserve, and Rainy Day Fund) are projected to be $2.0 billion on June 30, 1999, $1.7 billion on June 30, 2000, and $1.3 billion on June 30, 2001. These amounts represent 22.8%, 18.1%, and 13.2%, respectively, of General Fund operating revenue for each of those years. Although this budget "spends down" the surplus over the biennium, it does so by making targeted, one-time investments that return the State’s excess reserve funds to its citizens while not committing the state to increased spending in future years.
The surplus will remain above 12.5% of operating revenue, a level consistent with the sound fiscal policies of the State.
The Rainy Day Fund is projected to remain essentially at its statutory cap, and the state's economic forecast does not project its use during the next biennium.
Appropriations include funding for a number of new or expanded programs that were authorized by outside acts. Funding for 14 acts is incorporated into the line items included in Section C of this report. Appropriations also include $3.5 million for FY 2000 and $22.0 million for FY 2001 to fund outside acts for which funds were not included in line items in Section C.
Several tax reduction acts will increase expenditures. Elimination of local levies for welfare funds and welfare administration funds will require replacement funding of $21.8 million in FY 2000 and $46.4 million in FY 2001. Providing a state-funded tax credit against personal property taxes on the first $12,500 of assessed value will require expenditures of $41.2 million in FY 2000 and $84.2 million in FY 2001.
This budget reflects a tremendous amount of work by Governor O'Bannon and his staff, staff from all state agencies and universities, the State Budget Committee, the House Ways and Means and Senate Finance Committees, and the Indiana General Assembly, the caucus fiscal staffs and the Budget Agency staff. My grateful thanks to all.
State Budget Director