A report by the Indiana Fiscal Policy Institute warned that legislators would have to consider a tax hike next year unless the state sees a quick economic rebound.
Indiana could face a $1.3 billion structural deficit heading into the fiscal 2012-2013 budget year if revenues continue on their current track, the report said. Lawmakers will begin crafting the new two-year budget in January.
A big part of the problem is the state’s increased reliance on sales and income taxes, which are considered volatile revenue sources, according to the institute.
“Barring a rapid turnaround in the economy, the General Assembly will face tough choices when it begins work on the next two-year budget in January,” said institute president John Ketzenberger. “No one likes the prospect of additional spending cuts or tax increases, but that may be the reality during the next session.”
It has been 30 years since the state faced a similar fiscal challenge, the report said. Indiana’s tax revenue fell 1.1% in fiscal 2009 and 5.8% in fiscal 2010.
Gov. Mitch Daniels has vowed repeatedly not to raise taxes. He has required all state agencies to make cuts over the last two years, which the report said have mitigated the size of the deficit.
Chris Ruhl, director of the state’s Office of Management and Budget, said in a written statement: “We’ve proven time and again we will make the reforms and decisions required to live within our means and keep Indiana in the black without raising taxes. … The institute’s suggestion of a general tax increase on Hoosiers is a terrible and unnecessary idea and one the governor firmly opposes.”