Interview: In Indiana, As Revenue Drops, So Does Spending
Spending within one’s means might be a quaint notion to many in government these days, but in Indiana state government it’s become the standard way of doing business.
Gov. Mitch Daniels (R), who took office in 2005, insists on fiscal discipline. One of his chief fiscal disciplinarians is Budget Director Christopher Ruhl. Budget & Tax News Managing Editor Steve Stanek recently spoke with Ruhl about the Indiana budget and how the state has been coping with declining tax revenues, a problem plaguing most states.
Stanek: Indiana is in much better fiscal shape than some of its neighbors, including Illinois, Michigan, and Ohio, which are bleeding red ink. Why are you doing so much better?
Ruhl: When we started in 2005, we inherited an $800 million deficit. The only way we saw out of that was to dramatically reduce spending growth, which had been growing faster than revenues. We were able to achieve that in every pre-recession year. We quickly turned from a deficit to a $1.3 billion surplus.
Stanek: What’s happened to the state’s revenues since the recession began?
Ruhl: For us, spending restraint wasn’t new. Last year revenue was down about 7.5 percent. This year it’s on pace for about another 7.5 percent decline, although in the last couple of months we’ve started to get toward break-even.
All our attention has focused on how to align spending with revenues. We started December 2008 with an initial 10 percent cut. That was met mostly through not filling open positions and a pay freeze for state employees. We made the cuts permanent in the budget we adopted last year.
Then last July we did an additional 10 percent cut. For the budget starting this July, another 5 percent cut. A lot of agencies have seen cuts of about 20 to 25 percent.
Stanek: How has this affected state services?
Ruhl: We’ve been reviewing that. We’ve been through about 80 percent of our agencies, and in most instances there’s been no impact on services. This has been an opportunity to focus on priorities and core functions. We have suspended some low-priority items and have redirected savings to other areas, mainly education and public safety.
It’s surprising how much money we’ve found we could recover from fees and other dedicated revenues from things like state parks and motor vehicles. We’ve had some ability to move money around to various agencies.
In the past there wasn’t as much scrutiny of spending and revenues in the non-General Fund agencies. We’re applying the same discipline to them as we apply to General Fund agencies, and we’re seeing some real benefits.
It’s not been without some challenges, though. We were able to make it about a year and a half before we did modest layoffs. We laid off between 100 and 200 in a workforce of 30,000.
Stanek: What was the state workforce when you became budget director?
Ruhl: In 2005 there were between 35,000 and 36,000 employees. We’re down to about 30,000, the lowest level in roughly 25 years. We’ve been strategic about filling open positions. We’re diligent about not filling positions that don’t need to be filled and about trying to fill positions at a lower salary than the previous person had.
We’ve been able to see good service levels and hit performance measures with a lower headcount and lower costs. We’ve been able to manage our way through this so far by targeting where reductions can come from and prioritizing education and other areas where we haven’t had to cut so deeply.
Here’s why it’s so important to prudently manage your money, so you don’t have to ask for more of it when people and businesses are struggling: We’re one of just nine states with Triple A ratings from all three major rating agencies.
Stanek: What do you hear from Indiana residents about all of this?
Ruhl: The public cares most that we’re being good stewards of their money. They recognize that government ought to take the same attitude they have to take in tough times, and that means government should tighten its belt. Sometimes this means sacrificing some services.
People know times are tough, and they see what’s going on across our borders in Illinois and Michigan and Ohio. They see those states piling up debts, losing jobs, and raising taxes, and they don’t want us to get into a position where we have to borrow and raise taxes and end up with the problems that result.
Stanek: What do you hear from the agency directors who have to cut the budgets?
Ruhl: I’ve been heartened by the response of our agency directors. The governor holds them accountable to be responsible for their budgets. They know there are consequences to poorly managing the money that has been entrusted to us by the people of this state. They know even when times are good, we need to focus on the bottom line and on delivering services in the most efficient way.
It’s really been ingrained in us. It’s become a way of life.
Even some of the agency directors who initially were reluctant to take it upon themselves will now say, “Here’s an idea to do this more efficiently,” or, “Here’s something we can outsource to private business.”
It’s a mindset we have now.
Steve Stanek (sstanek@ heartland.org) is a research fellow at The Heartland Institute and managing editor of Budget & Tax News.