Agency budget presentations document big needs
Holcomb to focus on employee pay
Agencies began their budget presentations this week, including INDOT Commissioner Michael Smith. (Whitney Downard/Indiana Capital Chronicle)
Requests for funding are up across the board for state agencies in their budget presentations before the State Budget Committee this week, especially for personnel, construction costs and technology services.
But key budget drafters have their concerns about whether the state can sustain those requests, especially when the forecast predicting the state’s revenues for the next two years won’t be out for another week.
Bremen Republican Sen. Ryan Mishler, who leads the Senate’s budget efforts, noted the various challenges ahead for the two-year spending plan and had concerns about meeting all of the asks.
“(It) all adds up and that’s before we even start talking about K-12 – the biggest part of our budget,” Mishler said. “All of that concerns me when people are asking (for more). But until we get the (forecast) numbers… I’ll feel better about it.”
The state of the state’s reserves
Mishler argued that the state’s estimated $4 billion reserves don’t reflect the state’s actual savings, since three of the reserve accounts – Medicaid, tuition reserve and rainy day – are only available in an economic emergency.
Mishler said he focuses on the roughly $1.7 billion in general fund reserves when talking about places to potentially spend more money – a fund already depleted by the summer’s $1 billion automatic taxpayer refund and $2.5 billion contribution toward the unfunded pre-1996 teacher retirement fund.
“We’re really down to $700 million,” Mishler said. “We already know we’re a billion short on the (capital improvement) projects from 2021. So we start 2023 with needing to budget to do those projects… we’re already negative $1 billion to start.”
Committee members heard in Wednesday budget presentations that inflation had nearly doubled some project estimates, ranging from a 20% increase to a 94% increase on state-owned buildings. The biggest increase, for the Westville Correctional Facility in northwest Indiana, will need $1.2 billion to construct – a 200% increase from its initial $400 million allotment.
The state’s general fund reserves filled up as revenues came over projections repeatedly in the last year, but Mishler warned that the great economy pushing those revenues won’t last forever.
“I am concerned about the cost overruns and I’m concerned that everybody thinks we have all of this money to spend,” Mishler said. “The economy looks like it’s slowing down a little bit so that’s another concern. I guess I always take the pessimistic approach and look at the worst-case scenario for the budget.”
Asks from agencies, the governor
This comes as Gov. Eric Holcomb is expected to push for salary increases across the board for state agencies, especially following the loss of hundreds of employees throughout the pandemic – 10% of high performers with an overall turnover rate of 25%.
Holcomb, in an email to the Indiana Capital Chronicle, said the State Personnel Department conducted a year-long analysis to draft a new compensation plan for civil service employees that wrapped up in October.
“It’s imperative for the state to remain competitive in attracting and retaining high-quality public servants. The state of Indiana, like many businesses, has experienced high turnover and lost many high-performing employees over the past two to three years,” Holcomb said. “We are covering the cost of increases for the remainder of the fiscal year with existing funds, and my budget request for the next biennium will include the cost of the new salaries.”
The State Budget Agency in their budget presentations detailed a 5% average increase in salaries in 2022 but a compensation study suggests more is needed – with a General Fund share of a $160 million for a total of $253 million. Technology costs will increase by 5%, driven in part by increased licensing fees from Microsoft.
Other governor priorities include funding another round of READI grants for Indiana communities and $243 million for public health. The first round of READI grants were funded using federal COVID-19 dollars, a source that has dried up.
Some agencies forecast additional funding challenges in the near future, especially as polluting emissions decline and drivers pivot to electric vehicles.
The Indiana Department of Transportation has especially struggled with supply chain and inflation-related cost increases, reporting increases in commodity prices in its budget presentations for things like hot dipped galvanized steel (up 143%) and concrete pipe (up 20%).
But losing fuel tax revenues as electric vehicle use increases could cost the agency $2.55 billion over 15 years.
“That’s why we’re talking about it now. Because by (2035) we’ll need some adjustments to be made,” Joe Gustin, the agency’s chief financial officer, said.
Decreased emissions, while good for the environment and overall health of Hoosiers, cuts into the funding that the Indiana Department of Environmental Management gets from fees. The agency will need to restructure its program or risk a federal takeover of the Title V air program, Commissioner Brian C. Rockensuess told committee members.
Several of the state’s biggest agencies have yet to make their budget requests, including the Department of Child Services, the Department of Education and the Family and Social Services Administration. Those agencies will present on Wednesday at 10:30 a.m.
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