The Proposed Balanced Budget Amendment for the Indiana Constitution

Early voting has started in Indiana, and voters will see a constitutional amendment question on their ballot. The question asks whether the Indiana Constitution should be amended to require the General Assembly to adopt a balanced budget, unless two-thirds of the House and Senate vote otherwise.

The amendment would add to Article 10, Section 5 of the constitution. The text defines revenues and appropriations, then says that the total appropriations enacted by the General Assembly can’t be more than the estimated revenues during the two-year biennium. It goes on to say that if revenues fall short of estimates, the shortfall must be made up in the next biennium. And there’s that clause about the two-thirds vote requirement to make exceptions.

There also are clauses requiring pension liabilities to be fully funded and forbidding courts from ordering the state to raise revenues or cut spending.

So, how would this change the way Indiana makes budgets?

Maybe not at all. As it reads now, Article 10, Section 5 of our constitution forbids the state from authorizing debt. If we can’t be in debt, we can’t spend more than we take in. The Indiana General Assembly has always acted as if the constitution requires balanced budgets.

Back in 1987 the old Advisory Commission on Intergovernmental Relations ranked Indiana among the states with the most stringent balanced budget requirements. The National Conference on State Legislatures also says Indiana requires a balanced budget.

On the other hand, the National Association of State Budget Officers thinks that Indiana does not have a balanced budget requirement. They’re looking for something explicit, rather than the implied debt restriction. The amendment probably would satisfy NASBO.

Perhaps the amendment wouldn’t change what we do now, but it could prevent potential problems. Future pensions would have to be fully funded. Court orders for taxes or spending would be restricted. The current constitution allows debt for “casual deficits.” The General Assembly never takes advantage of this possibility. Under the amendment they probably couldn’t.

But maybe the amendment would change what we do now. Sometimes it makes sense to pass a budget with appropriations that are more than expected revenues. The 2017 budget was like that. In the budget bill passed in April 2015, general fund appropriations were $15.8 billion. Estimated revenues, including taxes and fees, totaled $15.6 billion.

The budget was balanced under our current constitution. Reversions — money that is appropriated but not actually spent — were one reason. The General Assembly knew there would be enough reversions so that actual spending during the fiscal year would be covered by expected revenues. At the end of the fiscal year the budget was balanced.

The amendment requires that the budget be balanced at the start of the fiscal year. The budget as enacted must be balanced. Reversions are known for sure only at the end of the fiscal year. Would the 2017 budget have been permitted under the amendment’s procedures?

At the end of the 1990s, the economy was doing so well that revenues came in above estimates year after year. The extra revenue accumulated in state balances. Balances got bigger than necessary, so the General Assembly enacted budgets to use those balances, for tax cuts and added spending. But that meant, for those years, enacted appropriations were greater than estimated revenues. Would this be allowed under the amendment’s procedures?

In 2013, the legislature used excess balances for pension stabilization and tax refunds. In 2017, legislators used excess balances for road construction. If this spending was counted as appropriations, they would have exceeded estimated revenues. Perhaps excess balances could be counted as revenues, but the amendment doesn’t say how balances should be treated.

Maybe we already have a balanced budget requirement. Maybe we don’t. The General Assembly has always acted as though we do. So maybe the proposed amendment will have no effect. Maybe it will prevent problems in the future. Maybe it will change the way we do things now. Maybe it will stop us from doing some sensible things that we’ve done in the past. Maybe we’ll need some court decisions to clarify what we can and cannot do.

If the amendment passes, maybe we’ll find out.