Thursday, July 17, 2014

News Sentinel Asks Whether State is Hoarding or Being Fiscally Prudent

From the Fort Wayne News and Sentinel:

Despite bringing in nearly $60 million less that the year before, Indiana finished the fiscal year with a surplus of more than $100 million, which pushed its reserves above the $2 billion mark. If that seems like fiscal prudence to you, you must not be a politician whose first instinct is to spend.
Indianapolis Rep. Greg Porter, ranking Democrat on the Ways and means Committee, says it is disgraceful for Republicans to be proud or delighted with such a surplus when they aren’t running “state government in a way that benefits the people of Indiana.” Senate Minority Leader Tim Lanane says those reserves were earned by “hoarding tax dollars instead of spending them” on needed programs.
Well, yes, that’s one way to look at it. But most states have a different name for such “hoarded” money: a “rainy day fund,” which is the money responsible state governments set aside to tide them over in the case of an economic downturn.
All but two states have rainy day funds, and the only proper question to ask about one is whether it is a sensible amount or is too high or two low. States once typically set a rainy day limit of 5 percent of their yearly budgets. That amount proved inadequate during the most recent recession, so some are setting it at 10 percent now; a handful go to 15 percent or even higher.
Indiana’s $2 billion is about 7 percent of its annual budget. Doesn’t that seem about right, neither underfunded nor too well stocked?
The point is not to argue about specific budget cuts the state made. Maybe some were justified and some were too harsh. Those have to be defended or criticized on their own merits.
What’s important is to encourage the political class to have the right first instinct on fiscal matters, and that should always be to look at cutting spending before any other option is considered, especially a tax increase. That is the only way to keep government at a manageable level.