Indiana’s Revenues May Be Better Than Expected
February 27, 2021 at 12:44 a.m.
Indiana’s Revenues May Be Better Than Expected
By David [email protected]
He and fellow Republican Sen. Blake Doriot provided their prognoses on the state’s economy near the tail end of the hour-long, virtual Third House Session legislative review Friday, hosted by the Kosciusko Chamber of Commerce. Because of the COVID-19 pandemic over the past year, there has been some concern the state’s and local budgets would take hits of 15% or more in 2022 and 2023.
Asked how does the state funding for the next two years look at this point and how that will affect county and city budgets locally, Doriot responded, “I think our funding is looking better and better. ... We thought originally we were going to be 15% shy and then it went to 8. I think we’re getting closer to 5%.”
He said Elkhart and Kosciusko counties “have been doing their best to prop up the state coffers. But you have areas like Indianapolis that are so based on the service industry that COVID has pretty much destroyed a lot of their monies coming in. But I think we’re going to be close.”
Mishler said Indiana stopped the bleeding from the pandemic, but the state is just now starting to “go back up the uptick.”
“So after the forecast, we found about $100 million in structural surplus in year one, which in a $36 billion budget is basically flatline. And then $250 (million) in year two. So, here’s where the numbers kind of got me a little bit,” Mishler said.
He said they saw a chart that showed back in March and April of 2020, personal income “took a huge jump when all of these people went on unemployment.” He wondered if it was fair to say that the jump was because people on unemployment made more than when they were working, and Mishler was told yes.
“So then the next statistic showed that the sales tax revenue was real flat during that period. Then right after that, sales tax revenue went sky high. What happened? People took all that extra money that they got from unemployment,” Mishler said. There also was a moratorium on evictions and people didn’t think they had to pay their rent so they spent that money, not realizing that they had to pay that rent later.
“So, spending went sky high, and so we had a ton of sales tax revenue. And so, what we did with that additional unemployment is we created – well, the federal government did, I should say I was against that extra $600 – we created that behavior. So people made more money. We extended out their paying their rent, and then they spent more money,” Mishler said.
On the flip side, he said the state’s numbers weren’t as bad as it was thought they were going to be because “they’ve got to pay income tax on their unemployment,” so income tax revenue is going up and sales tax is going up for the state.
Mishler said he had been telling local governments that they were going to take a big hit on their local option income tax (LOIT). They got an increase this year, but the revenues are a year behind so Mishler told them they’d take a big hit next year.
“Well, if these numbers hold true, and people actually did make more money, then that LOIT won’t take a dump like we thought it would,” Mishler said. “So, the numbers aren’t doing exactly what we thought they would. So, they’re much better than what we expected. Don’t get me wrong, they’re still down ... but our recovery is much greater than others primarily because we had the $2.4 billion in the bank, and we used a billion of that, and we took some money from Medicaid and we backfilled” and that helped get Indiana back on track.
He said the state is on a good pace, but Indiana can’t get crazy with spending by any means.
“I don’t think the locals are going to get hit as bad as we thought they would. Where they’re going to take the big hit is the food and beverage taxes and the hotel/motel taxes because that is the one industry ... manufacturing, these RV places, had their best years ever in this pandemic. But yet, the hospitality industry is the one industry that’s really tanked and that’s why we’re trying hard to really help them. And no fault of their own. A lot of it is because of the mandates that they had to close and all these other things,” Mishler said.
He said Michigan had it worse than Indiana with the mandates, so its residents came to Indiana for the restaurants, shopping and more. Michigan’s businesses, especially restaurants, have been devastated.
“So in a way I feel bad for these people. They’re friends ... but I’m ecstatic that Indiana is getting all this extra revenue because of what they do on the other side,” Mishler said. “I would say we’re better off than we thought, but I’m still going to take a cautiously optimistic approach when we do” our budget, Mishler said.
Revenue in the House went up about $150 million because of the cigarette tax, Mishler noted. He said it was raised for road funding and education.
“The Senate is really reluctant to do a cigarette tax unless it’s for healthcare. So, you’re probably going to see a little more reluctance on the Senate side if it’s not used for healthcare, and we’re not seeing that huge need yet. We were kind of saving that for when the federal government gives us a big hit in our healthcare plan,” he said.
“So I would say we’re better than we thought, but we still have to be cautiously optimistic.”
He and fellow Republican Sen. Blake Doriot provided their prognoses on the state’s economy near the tail end of the hour-long, virtual Third House Session legislative review Friday, hosted by the Kosciusko Chamber of Commerce. Because of the COVID-19 pandemic over the past year, there has been some concern the state’s and local budgets would take hits of 15% or more in 2022 and 2023.
Asked how does the state funding for the next two years look at this point and how that will affect county and city budgets locally, Doriot responded, “I think our funding is looking better and better. ... We thought originally we were going to be 15% shy and then it went to 8. I think we’re getting closer to 5%.”
He said Elkhart and Kosciusko counties “have been doing their best to prop up the state coffers. But you have areas like Indianapolis that are so based on the service industry that COVID has pretty much destroyed a lot of their monies coming in. But I think we’re going to be close.”
Mishler said Indiana stopped the bleeding from the pandemic, but the state is just now starting to “go back up the uptick.”
“So after the forecast, we found about $100 million in structural surplus in year one, which in a $36 billion budget is basically flatline. And then $250 (million) in year two. So, here’s where the numbers kind of got me a little bit,” Mishler said.
He said they saw a chart that showed back in March and April of 2020, personal income “took a huge jump when all of these people went on unemployment.” He wondered if it was fair to say that the jump was because people on unemployment made more than when they were working, and Mishler was told yes.
“So then the next statistic showed that the sales tax revenue was real flat during that period. Then right after that, sales tax revenue went sky high. What happened? People took all that extra money that they got from unemployment,” Mishler said. There also was a moratorium on evictions and people didn’t think they had to pay their rent so they spent that money, not realizing that they had to pay that rent later.
“So, spending went sky high, and so we had a ton of sales tax revenue. And so, what we did with that additional unemployment is we created – well, the federal government did, I should say I was against that extra $600 – we created that behavior. So people made more money. We extended out their paying their rent, and then they spent more money,” Mishler said.
On the flip side, he said the state’s numbers weren’t as bad as it was thought they were going to be because “they’ve got to pay income tax on their unemployment,” so income tax revenue is going up and sales tax is going up for the state.
Mishler said he had been telling local governments that they were going to take a big hit on their local option income tax (LOIT). They got an increase this year, but the revenues are a year behind so Mishler told them they’d take a big hit next year.
“Well, if these numbers hold true, and people actually did make more money, then that LOIT won’t take a dump like we thought it would,” Mishler said. “So, the numbers aren’t doing exactly what we thought they would. So, they’re much better than what we expected. Don’t get me wrong, they’re still down ... but our recovery is much greater than others primarily because we had the $2.4 billion in the bank, and we used a billion of that, and we took some money from Medicaid and we backfilled” and that helped get Indiana back on track.
He said the state is on a good pace, but Indiana can’t get crazy with spending by any means.
“I don’t think the locals are going to get hit as bad as we thought they would. Where they’re going to take the big hit is the food and beverage taxes and the hotel/motel taxes because that is the one industry ... manufacturing, these RV places, had their best years ever in this pandemic. But yet, the hospitality industry is the one industry that’s really tanked and that’s why we’re trying hard to really help them. And no fault of their own. A lot of it is because of the mandates that they had to close and all these other things,” Mishler said.
He said Michigan had it worse than Indiana with the mandates, so its residents came to Indiana for the restaurants, shopping and more. Michigan’s businesses, especially restaurants, have been devastated.
“So in a way I feel bad for these people. They’re friends ... but I’m ecstatic that Indiana is getting all this extra revenue because of what they do on the other side,” Mishler said. “I would say we’re better off than we thought, but I’m still going to take a cautiously optimistic approach when we do” our budget, Mishler said.
Revenue in the House went up about $150 million because of the cigarette tax, Mishler noted. He said it was raised for road funding and education.
“The Senate is really reluctant to do a cigarette tax unless it’s for healthcare. So, you’re probably going to see a little more reluctance on the Senate side if it’s not used for healthcare, and we’re not seeing that huge need yet. We were kind of saving that for when the federal government gives us a big hit in our healthcare plan,” he said.
“So I would say we’re better than we thought, but we still have to be cautiously optimistic.”
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