Fiscal squeeze

Revenue forecasts highlight state’s budget dilemma

The improving economy continues to pump increased revenues into the state’s coffers, but constitutional limitations likely will reduce how much of that money lawmakers can spend during the 2015 session.

That could make it harder to whittle down the negative factor, the state’s $900 million shortfall in K-12 spending, and to provide more funding for programs like expanded preschool services and full-day kindergarten.

The latest quarterly revenue forecasts were presented to legislative leaders and Joint Budget Committee members Monday morning by economists from the governor’s Office of State Planning and Budgeting and the Legislative Council, the General Assembly’s research arm.

“We did increase our expectations for general fund revenue,” said Natalie Mullis, the legislature’s chief economist. In theory, she said, lawmakers could have $1.05 billion more to spend on the 2015-16 budget than what’s being spent in the current, 2014-15 budget.

“It’s not enough money to fund everything that every interest group is going to bring to you,” Mullis cautioned, to laughter from lawmakers. The basement Capitol hearing room was packed with lobbyists, the very people Mullis was referring to.

The challenge is created by the Taxpayer’s Bill of Rights, commonly known as TABOR, which sets ceilings on the amounts of revenue the legislature can spend each year. The state hasn’t hit the so-called TABOR limit for several years, but now revenues are growing fast enough that Mullis’ team estimates the state will owe taxpayers $120.3 million out of the 2015-16 budget and $620.4 million in 2016-17.

Read the forecasts

The OSPB has similar but somewhat different forecasts, including a projection that a $196.8 million refund will be required from surplus revenues in the current budget, plus $186.5 million in 2015-16 and $269.2 million in 2016-17. (Refunds would be made through a variety of mechanisms, including earned income credits, sales tax rebates and a temporary reduction in income tax rates.)

“We should plan for exceeding the TABOR limit in fiscal year 2014-15,” OSPB director Henry Sobanet told lawmakers. He also warned that the combined budget demands and spending restraints “will combine for an extremely tight environment” in 2016-17 and that lawmakers may not be able to spend much more in that year than they do in 2015-16.

And, a different provision of TABOR also will require lawmakers next year to make a $58.7 million rebate of some marijuana revenues. The mechanism for doing that hasn’t been determined.

The prospect of TABOR refunds worries education advocates, who would like some surplus revenues diverted to further reduce the negative factor. The 2014 legislature made a $110 million dent in the shortfall and stipulated that the negative factor couldn’t grow in the 2015-16 budget. Gov. John Hickenlooper has proposed that the negative factor be trimmed another $200 million in 2015-16 – but that cut would apply only for one year.

School district leaders say they’d be happy with the one-time cut but would be even happier if the negative factor were reduced permanently. A group of superintendents has proposed an additional $70 million in K-12 spending in 2015-16, $50 million focused on at-risk and $20 million for rural districts. Both the governor’s and the superintendents’ proposals have been received somewhat coolly by JBC members, even before Monday’s forecasts were issued.

The legislature can avoid making the TABOR refunds and keep excess revenues, but only by proposing a ballot measure seeking voter approval to do that. Putting a measure before voters requires passage in each chamber, something that might be a long shot, given split party control of the legislature. Hickenlooper also has indicated he supports the refunds, at least for now.

Districts may not get extra money in current year

Legislative economists also told lawmakers that it appears a mid-year adjustment in 2014-15 K-12 funding won’t be necessary because the enrollment projections made last spring were higher than actual enrollment this fall. Total enrollment was only 163 students fewer than expected, and the actual number of at-risk students was down about 4,560 (1.5 percent) from the projection made last spring.

Enrollment is the key variable in the school finance formula, and the actual student count regularly exceeds annual estimates, meaning lawmakers often give schools extra money in February or March.

That isn’t the case this year, and Legislative Council staff said that might give lawmakers the opportunity to make a $14 million mid-year reduction in the negative factor. (See the document at the bottom of this article for more details.

Forecast indicates past K-12 growth rates will continue

The December forecast from legislative staff always includes a two-year projection of K-12 student enrollment trends.

This year’s analysis found that enrollment grew 1.5 percent in the current school year and is expected to grow 1.4 percent in 2015-16 and 1.3 percent in 2016-17. Those rates are similar to the growth seen in recent years.

The largest rates of growth are expected in northern Colorado followed by the Denver metro area, with smaller increases in students elsewhere in the state and even slight declines in some regions.

K-12 enrollment chart

Indiana's 2018 legislative session

State takeover plans for Gary and Muncie could be revived as Indiana lawmakers return in May

PHOTO: Shaina Cavazos
Gov. Eric Holcomb addressed reporters Monday. He's asking lawmakers to return for a special session in May.

Lawmakers will return to the Statehouse this May after an unusual summons Monday from Gov. Eric Holcomb, and it’s possible they could revisit a controversial plan to expand state takeover of the Gary and Muncie school districts.

But Holcomb said the takeover plan should not be pushed through during a special session and should be acted upon next year. It’s been more than a decade since lawmakers held a special session in a non-budget year.

“I would prefer to wait,” Holcomb said. “I don’t believe that it rises to the level of urgency to be dealt with right now.”

The regular legislative session ended in chaos last week, with lawmakers leaving this and several other important bills unresolved when the clock ran out.

Republican lawmakers have been largely supportive of the takeover plan, and so they could revive the issue despite Holcomb’s stance. Holcomb said discussions would happen this week over what issues could be addressed during the special session.

House Bill 1315 sparked heated debate right up until the final minutes of the 2018 legislative session. The bill would have given control of Muncie schools to Ball State University and stripped power from the Gary school board. Another part of the bill would have developed an early warning system to identify districts in financial trouble.

On Thursday, House Speaker Brian Bosma said the bill was one of the important issues left on the table when the legislature had to adjourn.

But Senate President David Long also noted that the bill has been massively unpopular in some circles — Democrats were strongly opposed to it, as were teachers unions and some educators and community members.

Both Republican leaders said in statements Monday that they supported the governor’s special session request. But John Zody, the Indiana Democratic Party chairman, derided the move as wasteful and a reflection of lawmakers’ inability to finish their work on time.

“Republican leadership incompetently steered session into a wall on the last lap,” Zody said in a statement. “Now they’re asking taxpayers to foot the bill for another shot at passing their do-nothing agenda.”

Holcomb said his biggest priorities during the special session would be getting a $12 million loan from the state’s Common School Fund to Muncie schools to deal with financial difficulties stemming from declining enrollment and mismanagement of a bond issue. That loan was originally a provision in the House bill.

State Superintendent Jennifer McCormick said Monday morning that she also would support action to get Muncie schools the money they were promised. McCormick also said the early warning system could be helpful to prevent these situations in the future.

“We want Muncie to be successful,” McCormick said, adding that anything the state can do to be proactive “and get people help so we’re not dealing with more Muncies and Garys” is a good thing.

The special session could come with a steep price tag for Indiana taxpayers. Micah Vincent, director of the Office of Management and Budget, said early estimates for calling lawmakers back into session could be about $30,000 per day. But that cost “is dwarfed by the cost of inaction,” Holcomb said. It’s unclear how long the special session could last.

The governor also said he wanted to prioritize school safety legislation, another measure that didn’t get final votes before time ran out. He is calling for lawmakers to direct $10 million over the next two years to the state’s Secured School Fund. The money would allow districts to request dollars for new and improved school safety equipment and building improvements.

His plan comes in the wake of a shooting in Parkland, Florida, where 17 students and faculty members were killed last month.

The shooting also sparked activism across the country, with thousands of students protesting against gun violence in schools and calling for stricter gun regulations. Last Wednesday, many Hoosier students joined the national movement by walking out of school.

Indiana's 2018 legislative session

Indiana lawmakers OK up to $100 million to address funding shortage for schools

PHOTO: Scott Elliott

Indiana lawmakers agreed to dip into reserves to make up a shortfall to get public schools the money they were promised — and they’re trying to make sure it doesn’t happen again.

Both the House and Senate overwhelmingly voted to approve the final plan in House Bill 1001. The bill now heads to Gov. Eric Holcomb’s desk.

Rep. Tim Brown, a co-author of the bill and chairman of the House Ways & Means Committee, said it was necessary to take the uncommon step and have the state to use reserve funds to make up the gap, but in the next budget year making up that difference will be a priority. Brown said he, other lawmakers, and the Legislative Services Agency will work to make sure projections are more accurate going forward.

“Do procedures need to be changed?” Brown said. “We’re going to be asking those questions” during the next budget cycle.

Estimates on the size of the shortfall have ranged widely this year, beginning around $9 million and growing as new information and student counts came in. Projections from the Legislative Services Agency reported by the Indianapolis Star had the gap at $22 million this year and almost $60 million next year.

The final bill requires the state to transfer money from reserves if public school enrollment is higher than expected, as well as to make up any shortages for students with disabilities or students pursuing career and technical education. The state budget director would have to sign off first. Transfers from reserves are already allowed if more voucher students enroll in private schools than projected, or if state revenue is less than expected.

The budget shortfall, discovered late last year, resulted from miscalculations in how many students were expected to attend public schools over the next two years. Lawmakers proposed two bills to address the shortfall, and the House made it its highest legislative priority. The compromise bill would set aside up to $25 million for this year and up to $75 million next year. The money would be transferred from reserve funds to the state general fund and then distributed to districts.

The bill also takes into account two other programs that lawmakers think could be contributing to underestimated public school enrollment: virtual education programs and kids who repeat kindergarten.

District-based virtual education programs would be required to report to the state by October of each year on virtual program enrollment, total district enrollment, what grades the virtual students are in, where they live, and how much of their day is spent in a virtual learning program. These programs, unlike virtual charter schools, are not separate schools, so it can be hard for state officials and the public to know they even exist.

The report will help lawmakers understand how the programs are growing and how much they might cost, but it won’t include information about whether students in the programs are learning or graduating. Virtual charter schools in the state have typically posted poor academic results, and Holcomb has called for more information and action, though legislative efforts have failed.

Finally, the bill changes how kindergarteners are counted for state funding. The state changed the cut-off age for kindergarten to 5 years old by Aug. 1 — if students are younger than that, they can still enroll, but the district won’t receive state dollars for them. Some districts were allowing 4-year-olds to enroll in kindergarten early, Sen. Ryan Mishler said earlier this month. Then those same students would enroll in kindergarten again the next year.

Despite increases passed last year to boost the total education budget, many school leaders have said they struggle to pay salaries and maintain buildings, which is why funding shortfalls — even small ones — matter. This year’s unexpected shortfall was particularly problematic because districts had already made plans based on the state budget.

Find all of Chalkbeat’s 2018 legislative coverage here.