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Officials Say State Economy Might Never Fully Recover

State budget officials say the state economy will likely never reach the level it might have hit had the recession never happened.

DeBoer image cropped

Photo: Regan McCarthy

Larry DeBoer says Hoosiers will need to significantly increase revenue growth in order to make a complete recovery from the recession.

State budget officials say the state economy will likely never reach the level it might have hit had the recession never happened. Purdue University Professor and state budget forecaster Larry DeBoer said revenues would have to increase significantly as Hoosiers exit the recent recession in order for Indiana to reach the same economic height it once might have.

“We descended into quite a deep hole in this great recession, 2007 to 2009, and now we’re climbing out,” DeBoer said. “But if we’re to get back on the old growth path we have to have a couple years of acceleration, but our forecasters are not predicting that. They are predicting basically normal growth out of the low point of the recession and that means that our state economy and our state revenues end up being permanently smaller than they would have been.”

Deboer said forecasters are predicting revenue growth to be at about 4% for the next few years, adding Hoosiers would need to reach about 6% in order to reverse the effects of the recession. DeBoer also said during a public information session last night that if Governor Mitch Daniels and other legislators are going to make good on their promises not to raise taxes they’re going to have to make expenditures equal only the revenue the state takes in. Dipping into savings, Deboer said, is not an option. He adds state governments need to keep about 5% of their operating budget in reserve, and right now, he said, Indiana has scraped all the way down to having just about 5.2% or about $650 million in the bank.

“That’s what we expect to have at the end of 2011, which implies that there are not more balances to draw upon. We’ve taken about $750 million in balances to shore up spending and prevent tax increases and that sort of thing. We’ve used that up over the last few years. But we’re basically at the rock bottom minimum of balances.”

Chipping away at that 5.2% reserve, DeBoer said, would put officials at risk of not being able to pay their bills for things such as employee pay roll or governmental contracts—a problem DeBoer said, with which our neighbor state Illinois already has experience.

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