[r72] A Clere view of the Statehouse: Good news suggests better times (8/30/2010)

Monday, August 30, 2010

Start Date: 8/30/2010 All Day
End Date: 8/30/2010

As I was preparing to write this column, I was reminded of the wisdom of two chairmen.

The first was former Federal Reserve Chairman Alan Greenspan, who cautioned against "irrational exuberance." I'm going to share news about Indiana's improving revenue situation, and, until I thought of the former chairman's cautionary words, I was planning to open with lines from the Beatles:

"Little darling, it's been a long cold lonely winter,

Little darling, it feels like years since it's been here,

Here comes the sun, here comes the sun,

And I say it's all right."

June was another good month for state revenues. After missing revenue targets for 17 consecutive months, total revenue exceeded the forecast in March and April. May was almost flat, and June again beat expectations. Here comes the sun, but let's be careful to avoid irrational exuberance. Sustained economic sunshine is still a long way off, and we'll have to weather some stormy days to get there.

Indiana operates on a two-year budget. We ended the first year June 30 with $830 million in the bank. We will need it to get through the second year. Even after cuts made in response to declining revenue, we have been spending an average of $50 million a month in reserves.

The two-year general fund budget was approximately $27.7 billion. After reductions, we still plan to spend about $13.6 billion in the second year of the budget, which started July 1. We only expect to take in about $12.9 billion. Unless something changes, the gap will eat up more than three-fourths of our $830 million reserve, leaving a balance of about $188 million when the current budget cycle ends a little less than a year from now.

At present spending levels, state operations require about $35 million a day from the general fund, so $188 million would only keep us going for about five days. A prudent reserve would be about 10 percent of our annual budget - $1.4 billion, which is the amount we had on hand at the beginning of the budget cycle. It's a good thing we had it. Unlike most other states - 29 so far this year - we haven't raised taxes. And other states aren't just raising taxes; they're also slashing programs and services.

Even in a best-case scenario, the next budget will be very difficult. In addition to lower revenues, federal stimulus money that helped cushion the current budget is unlikely to be available next time. I return to the Beatles, and the lines that tempered my exuberance:

"Little darling, the smiles returning to the faces,

Little darling, it seems like years since it's been here,

Here comes the sun, here comes the sun,

And I say it's all right."

Not everyone is smiling, and the sun is not shining everywhere. There is peril in macroeconomic celebration that ignores microeconomic suffering. In other words, Indiana's economy as a whole may be recovering, but many individual Hoosiers and families are still hurting. It's OK for us to breathe a sigh of relief, as long as we remember that many among us are not breathing easily.

The sun is not shining on the 10 percent of Hoosiers who are unemployed - and hundreds of thousands of others who are underemployed or who have given up looking for work. The Wall Street Journal reported that Indiana led the nation in private-sector job creation in the first five months of this year. Indiana has only 2 percent of the nation's population, but Hoosier companies created 10 percent of all new private-sector jobs in the United States. Our focus on jobs is paying off, but we can do more. And as long as there are out-of-work Hoosiers who are willing and able to work, we must do more.

The sun is not shining on the approximately 20 percent of children in Indiana who do not graduate from high school in four years - a persistent reality that cannot be attributed to the recession or any spending cut. In fact, there have been recent improvements. We must continue to prioritize public education and view it as an investment in our future - a bright, sunny future if we invest wisely.

The sun is not shining on families struggling to pay for college or vocational education. I know the feeling. In two months, my son will be 13, and college looms ever closer.

The sun is not shining on Hoosiers who are hungry, homeless or hurting in some other way. Vulnerable members of our society are the first to suffer in an economic downturn, and we must not forget them - now or later.

At the beginning of this column, I mentioned two chairmen. Alan Greenspan was the first. The other was Frank Sinatra, the Chairman of the Board, who said, "Fear is the enemy of logic. There is no more debilitating, crushing, self-defeating, sickening thing in the world - to an individual or to a nation." He was speaking in the context of the Cold War, but his words are as relevant today.

We must not let fear get in the way of progress. While economists debate whether the recession is over and its shape on a graph, we can continue to make real progress in Indiana. It won't be easy, but we can't afford to miss the opportunity. Tough times force tough decisions, and we have the potential to emerge leaner and stronger, but only if we cast away the darkness and allow the sun to shine.