Indiana Budget Crisis

The current economic recession is affecting all of us in one way or another. Maybe your hours have been cut at work, or maybe you’re graduating soon and are having trouble landing job interviews. You’ve probably had to cut back on some of your spending habits over the past several months. In much the same way that the recession affects all of us, it is also affecting the state that we live in. Indiana’s state budget works about the same way as a regular checking account, only on a much larger scale. Just as you look ahead to make sure you’re not going to be in the red before your next paycheck comes in, the Indiana General Assembly forecasts the state revenue every two years and from that prediction they are able to plan the state budget.  

Unfortunately, 2009 was a very bad fiscal year. State revenues fell short by approximately $1.4 billion with the onset of the recession. The government cut a lot of spending in 2009 and adjusted predictions for 2010 and 2011 to spend far less than originally planned. However, this was not enough and as of May 2009, it looked as though the Indiana balances were going to fall into the negatives sometime in 2011. Your bank prevents you from spending more money than you have, and the state constitution prevents Indiana from spending more money than it has. In December, a committee met again to readjust the forecast for 2010 and 2011.Last month they had made enough budget cuts (including those to higher education) to hold balances at zero by June 2011. 

In response to the impending budget crisis, the General Assembly has taken action by examining appropriations, which is spending authorized by the General Assembly itself. The pie chart below breaks down appropriations into six groups: K-12 education, higher education, Medicaid, health & social services, public safety, and all other spending. Professor Lawrence DeBoer of the Agricultural Economics Department here at Purdue has an entire website dedicated to the topic that explains why the General Assembly may chose to make cuts to certain appropriations over others in a time of financial downturn. For example, DeBoer recognizes that although Medicaid eats up 13% of Indiana’s budget, it cannot be reduced easily due to the fact that it is an entitlement program.

 If an individual meets the set standards, he or she cannot be denied from the program. In addition  to not being able to cut Medicaid, it is very hard to cut health and social services and public safety appropriations because they are seen as essentials by the public. That leaves the K-12 education, higher education, and all other categories eligible for cutting. Although the General Assembly could, in fact, cut funds from the “all other” piece of the pie, it would certainly not come near to the total amount needed to be cut. That leaves K-12 education and higher education making up 65% of the total appropriations.  

As you can see, there was not much wiggle room for the GeneralAssembly to make cuts when they took on the budget crisis in late 2009. Before making cuts to education, they did make between 300 and 400 million in cuts on state agencies. Unfortunately, this was not enough, and, therefore, they made cuts in early December for Higher Education. In mid December, they were also forced to make cuts to K-12 Education.

With the loss of $45,474,070.00 in appropriations to Purdue, the million dollar question is whether or not students will see a rise in their tuition in order to offset the massive cut. The Higher Education Commissioner’s office stated that they do not expect an increase in tuition for students in the 2010-2011 academic year, but that after that, it is up in the air. The university’s own website confirms that it has taken steps in order to reduce a projected $67 million deficit, which is partially a product of the cuts in appropriations. Thus far, the university has decided to cut $27 million per year from employee benefits as well as $25 million from costs such as energy. Nevertheless, many are concerned that an increasingly dire economic situation could send tuition on the rise despite Purdue’s attempt to be more efficient with its funds.