Pence: Budget will maintain Indiana's strong balance sheet

The Republican said last week the state spending proposal he'll submit to lawmakers in December will follow the same "fiscal responsibility" principles he campaigned on in 2012 and enacted in his first budget in 2013. The state's next two-year budget takes effect July 1, 2015.

"We're in the process right now of beginning to build that budget proposal, but I promise you it's going to be built on our commitment to an honestly balanced budget, to living within our means, to promoting the kind of policies that will create jobs and opportunities for Hoosiers," Pence said.

The current $30.6 billion budget kept spending increases for most state agencies below the inflation rate, in effect reducing their spending since employee and equipment expenses have grown faster than agency revenues. 

Agency spending has been further cut by the governor's "reversions," which are mandatory kickbacks to the state's General Fund aimed at preserving Indiana's $2 billion budget reserve.

Democrats repeatedly have criticized Pence for taking back money lawmakers intended agencies to spend, though every state budget approved by the General Assembly in recent years has contained provisions explicitly authorizing the governor to revert agency funds as he sees fit.

Pence said he will continue to use reversions, as needed, to maintain Indiana's top "AAA" credit rating and preserve the state's fiscal integrity, which he declared "is the foundation of our prosperity."

"Tough decisions that we've made since I became governor to make sure that we live within our means, that we maintain the kind of reserves that will ensure that strong fiscal foundation (have) been a priority for our administration and will continue to be," Pence said.

The state's largest spending item -- education -- also likely won't get a big bump in the next budget, in part because Indiana probably won't have the money to boost school spending.

State spending for classroom instruction in elementary and high schools grew 2 percent during the 2014 budget year, which ended June 30, and is up 1 percent more in the current budget year.

However, about 12 percent of that additional education money went to pay religious and private school tuition for students who never previously attended public school, as part of a Pence-backed expansion of the state's private school voucher program.

The Republican-controlled Legislature is expected next year to try to make even more Hoosier students eligible for vouchers, thereby redirecting at least a portion of any additional school funding they may approve away from public schools.

At the same time, Pence's repeal of the state's inheritance tax and a 1 percent cut in the corporate income tax over the past two years have reduced state revenue well below expected growth.

Revenue during the 2014 budget year was less than the state took in during 2013, the first year-over-year revenue decline since the Great Recession.

State revenue could continue falling in years to come as the corporate tax rate drops from 7 percent to 4.9 percent by 2021, under a tax cut plan Pence signed March 25, and the personal income tax cut that was the centerpiece of Pence's election campaign finally takes effect in January and that rate falls to 3.3 percent from 3.4 percent.

Since the state is required to balance its budget, any revenue reductions likely will prompt further spending cuts, since Pence has ruled out ever increasing taxes. Nearly 60 percent of Indiana's budget is spent on education.

On the other hand, Pence remains confident the state's lower taxes will attract new businesses and people to Indiana, which will, in turn, result in higher revenue for the state.

"I have to tell you, every time I'm out selling the state of Indiana -- telling our story -- the fact that we have a strong balance sheet, strong reserves, that we live within our means, even while we're making the important investments in infrastructure, education and in other areas is a real selling point, and it means jobs and opportunities for Hoosiers," he said.

Pence was noncommittal when asked if his next budget will include additional business tax cuts, but he seemed open to the idea.

"We're looking at a broad range of options for how we can promote an environment that will invite investment and invite growth," Pence said. "It's important to me that we seize every opportunity to make Indiana more competitive and more attractive for the kind of investment that will put Hoosiers back to work in northwestern Indiana, southwestern Indiana and all over our state."

The governor failed to win approval in the last legislative session for his plan to phase out the business personal property tax, an annual assessment on business and manufacturing equipment that provides more than $1 billion a year in revenue to schools and local governments.

Some version of a business personal property tax repeal is expected to again be considered by the General Assembly next year.