Chesterton Tribune

Daniels says state has found $300 million that sat untouched as schools faced cuts

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By Lesley Weidenbener

Franklin College

Statehouse Bureau

INDIANAPOLIS – Gov. Mitch Daniels’ administration has found $288 million in corporate tax revenue that had not been appropriately moved from the Department of Revenue to the state’s main checking account since 2007.

That new revenue – combined with tax receipts that have been beating state estimates – means that taxpayers might receive a state government refund next year.

Daniels said Tuesday it probably wouldn’t be much.

And estimates from Budget Director Adam Horst showed a refund could be roughly $50 per person – if revenue trends continue. But the governor said it would be another sign that the state’s fiscal condition is strong.

“Christmas came early,” Daniels said. “There’s a very good possibility that we’d been in the zone triggering an automatic refund to taxpayers next year.”

But Democrat Rep. Scott Pelath of Michigan City said the problem is a serious one that should not be celebrated but further investigated.

“This is a lot different than finding change behind the couch when you’re scrounging for pizza money,” said Pelath, who serves on the budget-writing Ways and Means Committee. “This is a very serious problem and I believe the governor needs to conduct his own investigation immediately and – if necessary – cause heads to roll.”

He said the Daniels administration might have been able to avoid cuts to schools and other programs if the corporate tax revenue had been appropriately moved to the state’s main checking account.

“The people of Indiana have been asked to sacrifice for several years,” Pelath said. “And now there’s a credibility issue because people were asked to sacrifice but the need might not have really been there.”

Daniels, though, downplayed the mistake, saying the state always had control of the money and its discovery is now a “bonus” for Hoosiers.

The General Assembly passed a law earlier this year creating the automatic taxpayer refund. It applies when the state’s reserves equal more than 10 percent of the following year’s budget. That calculation will next be made on June 30.

State Budget Director Adam Horst said in a memo the state could have $1.7 billion in its checking account and reserves at that time.

The law would apply half of the excess revenue – which could be about $300 million – to the state’s underfunded teacher pension accounts and half to a taxpayer refund, which would be applied to the taxpayer’s return the following year. That would mean an average refund of roughly $50.

It’s “better that it stay in the pockets of those who earned it than burn a hole in the pocket of government,” Daniels said.

An auditor discovered the problem with the Department of Revenue funds. It stemmed from a software programming omission that left some corporate tax payments – those made through a system called e-check – in an agency fund, rather than being transferred to the state’s general fund.

The money, which accumulated slowly, earned interest and was properly credited to the companies that had paid it.

The money has now been transferred to the general fund, creating a one-time gain for the state’s budget. But Daniels said it’s also a sign that corporate tax revenue has been somewhat stronger than budget officials had thought.

Senate Minority Leader Vi Simpson, D-Ellettsville, said lawmakers should launch “an investigation immediately to determine how this ‘mistake’ occurred and how the people of Indiana can be assured that this will never happen again.”

“The first question we should be asking is, How did this happen?” Simpson said. “Was this incompetence or were the people of Indiana intentionally misled?”

State budget officials also said Tuesday that state tax receipts are generally running ahead of targets. In November, sales, income and other tax receipts were $10 million ahead of projections made last spring.

Through the first five months of the 2012 fiscal year, state general fund revenues are now more than $117 million ahead of target.

Horst said he expects the next revenue forecast, which will be presented later this month, to raise the state’s projections.

“My projections are based upon stronger than anticipated revenues during the last few months of FY 2011 and stronger than forecasted revenues during the first five months of FY 2012,” Horst wrote. “These factors have increased the state’s base revenue, meaning that even slower economic growth rates can produce sufficient revenue to meet or possibly exceed the April 2011 forecast.”


Posted 12/7/2011