Pence’s potential income tax cut buster: Transportation

Gov. Mike Pence’s budget – the major focus of his State of the State address Tuesday night – would pump state dollars into transportation and infrastructure only after Indiana’s surplus tops 12.5 percent of what it spends in a year.

Pence’s budget team estimates that would be worth $347 million over the next two years, but state legislative leaders said they’re more likely to deal with transportation funding in the actual budget, rather than through a trigger mechanism using the surplus.

Pence’s proposal “gives me a bit of pause,” said House Speaker Brian Bosma, R-Indianapolis. “Many of us that have been through this for a while see that we have larger needs than just to rely on a surplus. … Personally, I hesitate to just rely on expected reserves on that because it relies on economic growth.”

Senate President Pro Tem David Long, R-Fort Wayne, said he is similarly wary about Pence’s transportation funding plan.

“We need to find a permanent, sustainable course,” Long said. “I’d like to see a more permanent source for that funding if we can find it.”

Bosma added: “You can’t declare yourself the Crossroads of America without investing in transportation and infrastructure.”

Pence is pushing hard for a 10 percent cut in Indiana’s individual income tax rate. While lawmakers have said they desire to fund education at a higher level than the governor is proposing, transportation funding could be its most significant obstacle.

Pence proposes lean budget that includes tax cut

Gov. Mike Pence is asking state lawmakers to consider a lean budget that includes slight bumps in education spending and more than a half-billion dollars worth of individual income tax cuts.

Chris Atkins, Pence’s budget director, is unveiling the two-year, $29 billion spending plan that the new administration is proposing at a State Budget Committee meeting on Tuesday – Pence’s second day in office.

The document would set into motion a number of Pence’s goals, including the tax cut, efforts to improve the state’s vocational education programs and new financial incentives for schools to achieve high standardized test scores and graduation rates.

“Our budget is honestly balanced, funds our priorities, holds the line on spending, returns excess revenues to hard-working Hoosiers, and builds our reserves,” Pence said in his budget’s executive summary.

“This budget sends a strong message that Indiana’s public servants will use only those resources necessary to keep Indiana moving in the right direction – and not a penny more.”

His proposal increases public K-12 education spending by a total of $190 million. That starts with a boost of 1 percent, or $63 million each year.

In the second year, the spending plan includes another $64 million to divide among the state’s highest-performing schools. That money would be divvied up among schools that achieve As or Bs on the state’s A-through-F school rating system, graduate more than 90 percent of their students and have 90 percent of their third graders pass the I-READ3 exam.

The budget proposal also increases universities’ funding by 1 percent – far short of the 7 percent boost that the Commission for Higher Education had suggested – and sets aside $19 million for universities to repair and improve buildings.

In both cases, those funding increases would not keep up with the 10-year average of 2.5 percent annual inflation.

Overall, 65 percent of the state’s budget is dominated by K-12 education and higher education. Increased spending there and on Medicaid, as well as the tax cut, will eat through most of the state’s new revenues.

Pence’s budget projects that the state will collect $518 million more in taxes than it spends in the next fiscal year, and $759 million more than it spends the year after that.

Most of that would be used to chop Indiana’s individual income tax from 3.4 percent down to 3.06 percent – a central plank of Pence’s campaign. That would cost Indiana about $742 million in revenues over a two-year period.

After 12.5 percent of the state’s annual spending is set aside in reserves, what’s left would be divided evenly between former Gov. Mitch Daniels’ automatic income tax credits and a new state transportation and infrastructure fund.

Pence’s budget estimates that $347 million would be pumped into that infrastructure fund over the course of the two-year budget.

The most dramatic spending increases come in Medicaid. The health insurance program for the poor is receiving $1.65 billion from the state’s general fund this year, but is projected to need $2.1 billion by 2015 in order to keep up with new enrollees’ costs.

Those increases come even though Atkins said Pence’s administration did not include in its budget any money to expand the Medicaid program to include 500,000 more Hoosiers, as envisioned under President Barack Obama’s health care law.

Largely due to those Medicaid funding increases, the state’s overall spending would grow about 1.4 percent under Pence’s spending plan.

Most state agencies, though, would see their funding frozen at current levels – with a few exceptions.

Pence’s budget proposal also boosts the Department of Child Service’s budget by 7 percent – or $35 million – to implement its plan to add more caseworkers and revamp its much-maligned statewide hotline.

It includes $6 million over two years to launch regional workforce councils that he plans to task with developing vocational and technical education curricula for their areas’ high schools.

And it pumps an extra $18 million over two years into improving the adult workforce, $12 million into a high school dropout prevention program, $6 million into grants for high-performing teachers and $3 million into an effort to more closely link universities with Indiana’s life sciences industry.

Only one area – the horse racing industry – would see its funding cut dramatically under Pence’s budget proposal. It would eliminate a subsidy worth more than $40 million and pump that money into Medicaid.

Pence’s budget would also shift $4 million away from a tobacco prevention council and devote that money to Medicaid.

Pence on mass transit: ‘I have an open mind but not an empty mind’

Gov.-elect Mike Pence expressed some skepticism Thursday on a proposed mass transit initiative that would link Indianapolis and its northern suburbs, saying he has “an open mind but not an empty mind.”

“My door is open. There’s a lot of good thought that’s gone into this. But my question is one of sustainability,” Pence said.

“If there is to be an investment in mass transit of some type, my understanding of demographic population projections and utilization all suggests that we can determine whether or not that kind of investment over the long haul can be sustained by the people that will be benefitting from it.

“My only airbrake on this is I don’t want people who live in far-away places across Indiana paying for investments that are benefitting people in another part of Indiana.

“But as I said, I have an open mind, I’m willing to lesson, and I have a lot of respect for both the people in public life and in the private sector that have been involved in these discussions.”

INDOT announces new positions

The Indiana Department of Transportation is handing new responsibilities to two of its deputy commissioners — and their job titles are a nod to the state’s broader effort to find outside-the-box methods for funding expensive construction projects.

Sam Sarvis, who has be leading the construction of the 142-mile Indianapolis-to-Evansville Interstate 69 extension, is the new deputy commissioner for capital program management.  He’ll lead a team that coordinates major projects and construction as well as utilities and railways.

Jim Stark, who’s been leading INDOT’s Seymour district, is the new deputy commissioner for innovative project delivery. He’ll focus on I-69, the East End bridges near Louisville, Ky., and the Illiana Expressway, among other major projects.

“Sam Sarvis and Jim Stark have delivered two of the nation’s largest project infrastructure projects, Interstate 69 and the Ohio River Bridges Project, on schedule and below budget,” INDOT Commissioner Michael B. Cline said. “They will apply this experience to enhance the delivery of INDOT’s entire capital program, including large, innovative projects.”

As transportation funding dries up, the state is using public-private partnerships to build the bridges and the Illiana Expressway. It’s also considering hiring a contractor to handle a new portion of the I-69 extension, from design through construction and maintenance.

Transportation funding key in upcoming session

In case you missed it over the holidays, state Senate Appropriations Committee Chairman Luke Kenley, R-Noblesville, is saying that Indiana should think about instituting a license plate tax of $20 to $50 per car.

It’s one idea — and more are likely to follow it — to increase the amount of cash the state can spend on transportation and infrastructure now that the $3.85 billion the state got in 2006 through the 75-year “Major Moves” lease of a northern Indiana toll road is spent or at least allocated for specific projects. The bottom line is, very few people think the state’s 18-cents-a-gallon gas tax will be enough to meet Indiana’s state- and local-level needs moving forward.

Here’s a quick quote from the story:

“At a minimum, we have to start the discussion on the transportation infrastructure needs,” Kenley said. Expanding Medicaid and education funding top lawmakers’ agendas for 2013, but Kenley said, “I’m hoping that next in line is the transportation discussion.”

Not surprisingly, Kenley’s idea met some initial resistance. Aaron Smith, the Lebanon, Ind. resident and founder of Watchdog Indiana, blasted out an email Tuesday night suggesting that the state instead ought to look at using sales taxes collected on gasoline for transportation.

He also points out that only about 12.8 percent of the state’s 18-cents-a-gallon gas tax is currently being spent funding infrastructure. The rest of the pie is being divvied up between the Indiana State Police, the Bureau of Motor Vehicles and a few more places. The idea has been that since those agencies’ jobs are so closely and clearly linked to transportation, they ought to be funded through user fees — that is, gas taxes. Now, though, some lawmakers are looking at funding those agencies through the state’s general fund instead.

Says Aaron Smith: “State Representative Jeff Thompson is ‘fine tuning’ Preliminary Draft No. 3509 to author a bill during the upcoming General Assembly session that stops diverting Gas Tax dollars to non-transportation uses and increases annual transportation funding to counties, cities, and towns about 40 percent.”

Smith is calling for the state to guarantee that at least 8 percent of its money is spent on transportation and infrastructure. That’s a mark Indiana has hit in 17 of the last 25 years, thanks recently to Major Moves. But unless lawmakers act, Indiana could soon dip below it.

In the upcoming legislative session, and also once Gov.-elect Mike Pence appoints a blue-ribbon panel of his own to look at transportation funding, this will be an important issue to watch.