While 31 states are still struggling with budget shortfalls related to the recession and excessive spending habits of the past, Indiana is facing a different challenge: how to deal with the $2.15 billion surplus, the largest in state history, left in the state treasury thanks to the policies of Gov. Mitch Daniels over eight years.
As Indiana Policy Review member Andrea Neal points out (see column elsewhere on page), the state’s fiscal health is shaping the debate in the governor’s race: “Instead of arguing over what services to trim or which taxes to raise, as in some states, John Gregg and Mike Pence will be debating which tax cuts to make and whether some programs deserve more money.”
So far, plans are to put some money away in the rainy-day fund, apply about $250 million to unfunded pension liabilities and give another $360 million back to taxpayers under terms of a 2011 automatic refund law. The state is in a remarkably healthy condition given how dire the situation seemed just a few years ago.
But state officials – not to mention the gubernatorial candidates – can’t afford to simply bask in the spotlight of reflected glory.
For one thing, challenging new costs are coming. Neal reminds us that increasing Medicaid coverage, which the Obama administration tried to mandate but states can now make an independent decision about, would cost $2 to $3 billion a year – this year’s surplus and then some.
For another, Hoosiers need to hear the candidates’ ideas. How Pence and Gregg would choose from among those tax-cut and program-spending options will tell us much about where each would take us over the next four years.
And there is still more: This surplus offers an unprecedented opportunity for Indiana officials to deconstruct state government down to the core, examine all the parts and decide how to put them back together again.
A fiscal crisis is a good test of leadership. As our leaders respond, we can determine if they make wise, sober choices, as Daniels and the General Assembly did here, or foolish ones, as leaders in Illinois and other states did in making the situation worse by raising taxes. And we can tell if we’re learning from our mistakes or are likely to commit the same sins all over again.
We should consider good fiscal health as the same kind of test. Merely toughing out the bad times and then enjoying the good times is riding the waves, not planning the trip. Now, when we don’t have to do anything, is the time to decide what we really want from state government and what we are willing to pay for it. And Pence and Gregg should lead the examination.