Michael Hicks is director of the Center for Business and Economic Research and an associate professor of economics at Ball State University. His column appears in Indiana newspapers.
Over the past few months, two mistakes in tracking tax revenues and disbursements have cast a shadow on Indiana's Department of Revenue.
The first of these, $320 million in funds that were collected over several years but not included in the budget reports, was really nothing more than an embarrassment to an administration that prides itself on strong fiscal management.
The second error, though involving less money, was far more serious. An undisbursed $206 million that should have been directed to county and municipal governments was banked. These are funds local governments needed at a time when the economy could have benefited from the spending.
The first mistake was a software error, which was caught by humans. This prompted a detailed review, which was the right, but politically imprudent, course of action. This led to the discovery of the second error, which was big enough that it should have been previously discovered, by either state or local officials looking at budgets. This prompts the question of whether cuts in state personnel have gone too far in key offices.
It is worth noting that this is exactly the type of error for which it is rare for anyone in government to lose their jobs over. There's no question of ethical lapses, and these are complex jobs. Still, the departure of those responsible sets a good example for all of us in the public sector. There should be more of it. With a thorough external review, Indiana's fiscal oversight will be far stronger in the years to come.
More than a little criticism of the administration is warranted. But most of the loudest protests come from folks have no room for complaint, having fought tooth and nail against any modernization of Indiana's local government.
The $206 million in late payments is about half the total tax revenue our states' woefully mismanaged townships kept sitting in the bank over the past several years. At a time when poverty rates grew sharply, townships banked poor relief. At a time when local governments with actual responsibilities struggled to make ends meet, our unneeded township governments collected half a percent interest on a huge windfall of tax dollars. That is planned mismanagement, not a software glitch.
Moreover, in 2007 the bipartisan Kernan-Shepard Commission recommend some easily implemented changes to Indiana's local government that would have dragged the state into the modern times of the late 19th century. According to my estimates, this step of consolidation would save local governments more than $630 million annually in wasted and redundant expenses, which is four times the annual accounting mistake.
The reform of local government and loss of this patronage was such a fearsome prospect in the legislature that it outweighed the opposition to every other policy step of the past five years. The administration earned criticism with this round of accounting errors and we should prepare ourselves for more bad news. Still, anyone who whines about local budgets but opposes local government reform is simply playing politics with a serious issue. They should be wholly ignored.