Indiana touts $2 billion in cash reserves while advocates decry persistent austerity

State leaders have been touting Indiana's sizable cash reserves for years now, dubbing the state the "fiscal envy" of the nation, but on the other side of that equation, deep spending cuts have spurred frustration among educators, adoptive parents and others.

Indiana closed out its last budget with more than $2 billion in reserves and an annual budget surplus of $100 million. But state agencies were forced to cut an average 4.5 percent from their budgets in order to cover weak tax collections over the past year.

Advocates who say the stockpile should be released from state coffers cried foul on hearing that Indiana was able to find so much money to put in savings.

"It's sort of like somebody who has 1,400 kids going five years without paying child support and then saying 'Hey, put me on (Lifestyles of the) Rich and Famous because I got a big fat bank account," said Irwin Levin, an Indianapolis lawyer suing the state on behalf of adoptive parents who say the state shorted them on payments.

Levin's clients claim the state has withheld payments for 1,400 special needs children who were promised support. In their suit against the Department of Child Services, they note the department was able to shovel roughly $240 million back into state coffers at the end of the budget years.

The scrimping has earned Indiana accolades from national budget-watchers, especially when compared with states like Illinois and California, which have struggled with crippling debt.

A Pew Charitable Trusts report released Tuesday dug into the mechanics of how states decide to bank money and credited Indiana as one of a dozen states that relies on fluctuations in tax collections ("volatility") when deciding how much money to bank. Brenna Erford, Pew manager for state fiscal health and economic growth, said states that can hold off paying for current programs and services are able to build more stability by socking away money.

"Setting aside money for the future today requires trade-offs. So every dollar directed to a budget stabilization fund is a dollar that can't be spent on public programs or tax reductions or used to pay down long-term liability. But the savings that state's build up can mitigate tough decisions they make during recessions and can help make state budget more stable and predictable throughout the business cycle," Erford said.

Indiana's Democrats and Republicans have battled consistently since the recession about how the state's money should be spent. Going through the recession, then-Gov. Mitch Daniels made cuts in health and education programs among many others. By the time the state began crawling back to normal, like most other states, Republicans decided to put most of that money into savings, pushing the state's reserves up from $1.2 billion at the end of the 2011 budget year to roughly $2.2 billion at the end of the 2012 budget year.

Modest budgeting from state lawmakers accounted for much of the reserves, but Daniels began a habit of cutting agency spending throughout each year, something Gov. Mike Pence continued on taking office.

The most recent cuts were not as deep as in the past, but were still sizable in the cases of the Family and Social Services Administration and the Department of Corrections, which had to trim $27.8 million each from their planned budgets. Spokesmen for both departments said they started the year with plans to trim spending wherever possible.

"FSSA budgeted carefully for fiscal year 2014, which included plans to hold this money in reserve for contingencies. This is not funding that has been held back from any services we provide Hoosiers," said FSSA spokesman Jim Gavin.

Supporters of public education and health programs say they have grown used to either finding workarounds to account for the inflexible budget or simply going without certain services.

Lucinda Nord, a lobbyist for the Indiana Association of United Ways, noted that her members would like to see more teacher training and adult literacy programs, but often do not get their hopes up.

Frank Bush, executive director for the Indiana School Boards Association, said that flat spending on schools over the past few budgets has led local leaders to seek relief in the form of tax referendums. In the May primaries, nine out of 10 referendums were approved by voters.

"My attitude is the state has an obligation to fund the public schools and fully fund the public schools," he said.

Those spending debates will resume in earnest when state lawmakers return for their 2015 budget-writing session in January.