State Budgets

State of the State: Indiana

Governor Holcomb should continue the legacy of his predecessors

Governor Eric Holcomb enthusiastically informed Indiana legislators, “The state of our state is sound!” He continued, “Because we’ve created one of the best business climates in the country, we’ve become national leaders in business growth. Businesses and jobs that a dozen years ago were going to Austin or Boston or the Silicon Valley are now coming to Indiana.” He was sure to assign part of the credit for the surging Hoosier economy to his two predecessors—Mike Pence and Mitch Daniels.

To continue the expansion, the governor unveiled “five pillars” of “transformational priorities.” The goals of the plan are noble; cultivating a diverse economy, developing a workforce to meet those demands, and funding infrastructure.

This momentum is real. Thanks to reforms such as an end to forced unionization in 2012 and a slashing of income tax rates, Indiana’s economic outlook rocketed from 20th in 2010 to 6th in 9th annual ALEC report, Rich States, Poor States.

Although the phase-in of tax cuts continues, the governor is right to be wary of complacency. Certainly, the “five pillars” of the governor’s agenda promise further improvement. But as the saying goes, the devil is in the details. Unfortunately, the details portend higher taxes and perhaps cronyism.

The governor wants to “start with strengthening and diversifying our economy,” further stating “Our job is to make sure that when they’re making those [investment] decisions they [global companies] see Indiana as their sweet spot.” And he correctly notes “businesses from around the world are coming to Indiana now because our costs of living and doing business are low and the quality of our workforce is high.”

To expand economic growth, Holcomb seeks to “make available $1 billion over the next 10 years to make Indiana the capital of innovation and entrepreneurship. This will include the Next Level Indiana Fund, the 21st Century Fund and a new grant program to support innovation and entrepreneurship initiatives among higher education and in our local communities.” That’s an expensive price tag for just two vague sentences—more than $150 for each resident of Indiana.

Politicians enjoy taking credit for the visible jobs created by this favoritism, but tax handouts for one company result in other businesses or individuals picking up the slack. Instead, state bureaucrats take it upon themselves to invest the wealth created by someone else. The Indianapolis Star has documented some of the concerns.

The governor also hinted at tax increases, asking that Hoosiers “invest a little” more as “existing sources of revenue are just not keeping up” with infrastructure needs. Perhaps cost-effectiveness should be addressed first. As the governor said, “Every time you ask a taxpayer for a dollar, you better be darn sure you need it and are going to use it effectively for its intended purpose.” But the Reason Foundation’s latest annual highway report ranks Indiana a dismal 36th for performance and cost-effectiveness. Capital and bridges disbursements in 2013 totaled a whopping $137,003 per mile—a 62 percent premium over the weighted national average of $84,494. Maintenance costs proved even more egregious at $62,485 per mile—a 140 percent over the weighted national average of $25,996.

Efficiency problems aside, just last year, under the guise of buttressing transportation funding, Indiana enacted legislation allowing the gas tax to increase by $0.11 per gallon, and these fuel taxes will now be indexed to inflation. This represents possibly another $183 million per year in tax increases. In addition, county governments are now authorized to levy additional motor vehicle license and wheel taxes—upwards of $260 million annually in additional tax revenue. The state also doubled cigarette taxes to $1.995 per pack-another $276 million in annual taxes.

Governor Holcomb should continue the legacy of his predecessors by ensuring a phase-in of the tax cuts, expanding educational choice and minimizing intrusive regulations. But attempting to short-circuit organic jobs growth by redistributing tax dollars from the state’s venture capital slush fund strays from good government principles. Doling out favors to politically connected businesses and attempting to centrally direct sector growth is not reflective of free enterprise. Indiana is well-positioned to benefit from previously enacted reforms. Now is the time to build on this progress rather than engage in transformative retrogression.

In Depth: State Budgets

Smart budgeting is vital to a state’s financial health. The ALEC State Budget Reform Toolkit offers more than 20 policy ideas for addressing today’s shortfalls in a forthright manner, without resorting to budget gimmicks or damaging tax increases. One way to stabilize budgets over time is to embrace…

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