State Auditor Tara Klutz met with Johnson County officials Tuesday, sharing updates about the state’s finances, and getting a better picture of how the county is faring during the coronavirus pandemic.
She also offered insight about ways federal CARES Act money can be spent on things such as teleworking and better technology to take public meetings online.
Klutz met with county auditor Pam Burton and treasurer Michele Ann Graves and was happy to hear that Johnson County is in a good place to endure tax revenue declines that stem from the pandemic, she said.
“Auditor Klutz and I discussed how Johnson County is weathering the storm quite well. I stressed how lucky we are to have the support of the state and our local elected officials in our recovery process from the pandemic,” Burton said.
County officials should expect to see a budget shortfall of about $1.5 million in 2022, and $2.3 million in 2023, Mike Reuter, the county’s financial consultant, told the county council last month. However, the county is in a good position to avoid severe budget cuts with its $15 million cash balance, Reuter said.
“The county has prepared for a recession and has sufficient cash to cover some of the revenues that had more of an immediate reaction,” Burton said.
By Tuesday afternoon, Klutz had spoken with or visited seven county auditors. Like Johnson County, most counties are in good financial standing, but will have to be vigilant amid uncertainty surrounding economic recovery and the ongoing pandemic, she said.
“We anticipate that will impact the local distributions in 2021, and possibly 2022. So, if the counties don’t have a reserve or a rainy day fund, that could prove to be difficult to get through,” Klutz said. “But we are finding that the counties have been saving in the past few years when the economy was doing so well. We still believe they are in good shape, but they may have to make some tough decisions if the economy continues to be in a lull or, possibly, keep decreasing.”
With so much uncertainty, Johnson County is thinking about not just this year, but the next two budget years as it plans its budget, Burton said.
“There are a few revenues, such as interest income, food and beverage taxes and motor vehicle highway revenues that were impacted immediately by the pandemic," Burton said. "But property tax is slow to react to such a downturn. We anticipate more of an impact on property tax revenue in 2022. Local Option income taxes will be impacted in the 2021 budget, but we expect more of an impact in 2022 based on how the revenue flows.”
Likewise, the state has been able to weather decreased revenue due to the pandemic with its surplus, Klutz said. At the start of this fiscal year, the state had $2.3 billion in its surplus, but spent about $900 million to offset the costs of deferred income tax payments, according to the state’s year end financial report released last week. This represents a drop of about 37%.
The state is hoping to restore as much of the surplus as possible, depending on how much money comes in from income taxes, Klutz said. The projected income tax revenue for Hoosiers in 2019 is $882 million, she said.
The surplus, which Klutz, a certified public accountant and former Allen County auditor, calls a “reasonable reserve,” is there as a safety net for unforeseen situations such as the pandemic, she said.
“When you have that reserve, (sometimes) people can’t anticipate anything on the horizon. They think it is wasteful for the government and the county to have that money instead of taking care of other known problems. But we always try to explain why the state has a reserve and have tried to be a cheerleader for the counties that have a reserve. Because you don’t know what you don’t know—when there is going to be a pandemic or a crash in the market.”
Eating into that surplus—at the state, county, city and town level—will likely mean putting off projects that were planned with that money.
Besides income taxes, many other state revenue streams fell by nearly $1.5 billion total, including sales tax, gambling taxes and motor vehicle highway taxes, the report shows. The state’s general fund was reduced by 8.4% under the projection for the fiscal year ending June 30.
State officials have not ordered any layoffs of state employees, but have over the past few months implemented a widespread hiring freeze, directed most state agencies to cut spending by 15% for the coming year and told public universities to expect a 7% reduction in state funding, according to the Associated Press.
Like local officials, Klutz said state leaders will do their best to predict the unknown as budgets are prepared.
“I don’t think we’ve seen the full ramifications of our economy slowing down," Klutz said. "So, we just need to make sure that we are being prudent with our money, especially now that we have the balanced budget amendment.”
