State government agencies must reduce spending by at least 15% to adjust for the sharp drop in state revenue associated with the coronavirus pandemic.
Gov. Eric Holcomb on Friday directed the State Budget Agency to initiate plans for cutting state agency appropriations at the July 1 start of the new state budget year.
"It will be imperative that we effectively manage our resources," Holcomb said. "This is the first of what is likely to be a number of steps we'll take to rein in state spending while we continue to provide critical government services to Hoosiers without interruption."
According to Cris Johnston, director of Indiana's Office of Management and Budget and a Crown Point native, state agency leaders will craft strategic budget management plans ranking agency programs and projects from most important to least.
"We want to absolutely deliver high quality services with great customer service," Johnston said. "But it is going to be prioritizing those initiatives that have the greatest impact to Hoosiers and making sure we deliver on that commitment."
The Republican governor noted that during 2008-09 Great Recession the state's General Fund revenues came in nearly $3 billion less than predicted.
Holcomb said the State Budget Agency now estimates the revenue miss compared to the state's spending plan could be even larger during the 14 months remaining in Indiana's current two-year budget period.
"By taking immediate action to tighten our belts across state government, we will maintain maximum flexibility to navigate a still very uncertain economic picture," Holcomb said.
"Obviously, we're not going to do anything that's counterproductive in terms of our COVID-19 response."
State agencies already were ordered in April to freeze the hiring of new employees and to conserve funds and reduce spending wherever possible, particularly in regard to operations, office space, travel and promotional items.
"We are not cutting those essential services that Hoosiers need," Holcomb said. "But this is an ever-evolving situation, and we're trying to take the responsible steps right now, in consideration with the federal help we're receiving."
To that end, the governor said Friday he's halting $291 million in university construction projects — none located in Northwest Indiana — for which lawmakers this year approved cash funding, instead of borrowing, in House Enrolled Act 1007.
Holcomb said bonding still may be used to move the projects forward at a later time.
To conserve cash, Holcomb additionally no longer plans to distribute $65 million appropriated in the 2020-21 state budget for Next Level Trails grants, and will postpone spending $110 million on deferred maintenance projects, including $70 million targeted for state parks.
"All options are on the table, and as we approach tax filing deadlines and better understand all of the federal funds available to Indiana, we will make more precise adjustments ahead of crafting a budget for next biennium," Holcomb said.
The governor's office said the state agency spending reductions do not apply to state support for local schools that provide instruction to students in kindergarten through 12th grade.
Johnston said the Holcomb administration plans "to continue the existing appropriations and funding for schools" through the 2020-21 academic year.
"This is an evolving process and there are going to be different steps that we take over time as we learn more about the revenue picture, the extent of federal assistance, as well as any flexibility to the existing assistance that we've already received," Johnston said.
"It's going to be a combination of spending cuts, using our reserves, and then also using the federal assistance to get to the other side of this."
Indiana collected $1.2 billion in General Fund tax revenue in April, a whopping $964 million, or 44%, less than predicted by the state's revenue forecast, and $1.04 billion, or 45.7%, below the state's April 2019 revenue total.
The April revenue miss compared to the forecast puts Indiana's tax collections for the 2020 budget year, which runs from July 1, 2019, through June 30, at $931 million, or 7%, below expectations — with more shortfalls to come.
In particular, the drop in sales tax receipts — Indiana's biggest revenue category — is likely to grow in subsequent months, even as businesses gradually reopen, since there generally is a four- to six-week lag between when a consumer pays sales tax at a cash register and when it's recorded on the state's balance sheet.
So the full effect of Gov. Eric Holcomb's March 23 stay-at-home order on sales tax collections won't be known until the May state revenue report is issued in early June, Johnston said.