Indiana budget woes put new focus on ‘reversions’

(WISH Photo/Ron Nakasone)
(WISH Photo/Ron Nakasone)

INDIANAPOLIS (AP) — When is a budget cut not a cut? In Indiana, it’s when it’s a reversion.

Budget cuts, via reversions, were at the center of a pair of big decisions last week, putting the tactic used by both Democratic and Republican governors in the spotlight.

State Budget Director Brian Bailey told members of the State Budget Committee Thursday that the state’s universities would have to withhold 2 percent, or $27.5 million, of their budgets if the state’s tax collections continue to flag.

A day earlier, Gov. Mike Pence announced the state would pay subsidies to adoptive families who had sued the state for unpaid support dating from 2009. At the center of the lawsuit was the allegation that the state padded its cash reserves — now roughly $2 billion — while breaking a promise to support the roughly 1,400 families.

Reversions themselves are routine across all government budgets; it’s a term for what happens to the money that’s left unspent at the end of a budget year. The amount is typically minor when compared to the entire budget.

But forced reversions are somewhat unique to Indiana when it comes to tools for slicing, chopping and otherwise chipping away at spending. The tactic was a favorite of former Gov. Frank O’Bannon’s, who used them as the state crawled through the recession in 2001 and 2002. It also gained attention as former Gov. Mitch Daniels used it to carry Indiana through the latest national recession.

Democratic lawmakers, now in a distinct minority in both the House and Senate, have long complained about the tactic, saying it allows governors to subvert the will of the General Assembly. In particular, they hit Daniels for cutting roughly $300 million in education spending.

John Ketzenberger, president of the Indiana Fiscal Policy Institute, said the use of reversions is a “two-way street” for lawmakers and governors. On one hand, lawmakers lose some say in how the state spends its money, but on the other hand, they can also leave tough budget cuts to the governor to deal with.

“You have diminished influence (from lawmakers), that’s for sure, but the Legislature has also deferred a lot to the governor,” he said.

He noted that throughout the recession, Daniels made a lot of the tough budget calls, sparing lawmakers that political quagmire.

As The Evansville Courier-Press reported last month, the reversions are already set for the rest of the 2015 budget year, with most agencies expected to cut 3 percent from their budgets — the same amount cut in the recently-ended budget year.

The dance is already well underway as state leaders prepare for another budget-crafting session, which begins in January.

Senate Appropriations Chairman Luke Kenley, R-Noblesville, gave soft notice to Bailey and the governor’s office at last week’s budget committee meeting that reversions would be under the microscope.

Rep. Terry Goodin, D-Crothersville, asked whether the governor’s office was using those reversions to build a cash savings large enough to trigger the state’s automatic tax refund — something that could be used to great political effect in 2016.

“It’s great to give money back. I’m all about that as well, but I don’t know if that’s being fiscally responsible,” Goodin said.

Kenley said that question and others will be vetted in the budget debates.

“That will become a question next year when we adopt the budget, about where we want to go and how we want to handle that and what we want to do,” Kenley said. “And it will be a question for the governor and his people as well.”

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