Plunging tax collections caused by the coronavirus pandemic have delivered an $850 million hit to Indiana’s state budget reserves, and a top state official said Thursday he anticipates possibly steep spending cuts in the coming years.
Indiana closed the 2020 fiscal year June 30 with about $1.4 billion in reserves — a drop of 37% from the state’s nearly $2.3 billion a year ago, state budget officials announced.
That stems from a $1.5 billion, or 23%, drop in tax revenue for the four months since widespread business closures and other restrictions prompted by the coronavirus outbreak started in March.
Officials have not ordered any layoffs of state employees but have over the past few months implemented a widespread hiring freeze, directed most state agencies to cut spending by 15% for the coming year and told state universities to expect a 7% reduction in state funding.
Cristopher Johnston, director of the state’s Office of Management and Budget, said no quick turnaround was expected.
“We will most likely need more austere budgets,” Johnston said. “We will mostly likely need greater (spending cuts) to manage the uncertainties ahead.”
Indiana’s budget figures largely do not incorporate the $2.4 billion designated to the state from the federal coronavirus relief package, said Johnston, who is Republican Gov. Eric Holcomb’s top budget adviser.
Congress has restricted that money for coronavirus-related spending and is not allowing states to use it to replace lost tax revenue, but Johnston said the state was holding back on decisions in case that changed.
The top Democrat on the budget-writing House Ways and Means Committee sent a letter this week to Holcomb urging more public discussion about spending the federal funding.
Rep. Greg Porter of Indianapolis said the state needed to direct money toward actions such as buying personal protective equipment for schools, local government and home health care workers, covering the expenses of expanded mail-in voting and assisting minority communities disproportionately hit by COVID-19 illnesses.
“As the state continues to develop new plans, policies and programs to prepare for the current and foreseeable impacts of COVID-19, I encourage you to rely on fellow lawmakers and community leaders to establish an equitable and sustainable funding framework for Indiana,” Porter wrote to Holcomb.
State government could see some financial improvement as it tallies income tax payments coming in since the federal and state tax returns deadline was pushed back from April 15 until July 15.
Nearly 60% of Indiana’s tax revenue shortfall came from lower-than-anticipated personal and corporate income taxes, although Johnston did not want to estimate how much of that could eventually be collected.
“I think I would be foolish to speculate that we’re going to get 100% collections,” he said. “We are certainly hoping for the best.”