'Fiscal Conservatism...Comes With Its Own Costs,' Times Warns Indiana

Michael Powell and Monica Davey urge readers to look behind the curtain of Indiana's economic health: "The state also serves as a case study of the often large tradeoffs required to balance the books when political leaders take the possibility of raising income taxes off the table. Fiscal conservatism, in other words, comes with its own costs."

'Fiscal conservatism, in other words, comes with its own costs.' That sums up the lead story in Thursday's National section by Michael Powell and Midwest bureau chief Monica Davey from Indianapolis, 'The Indiana Exception? Yes, but...A State Averts the Worst of the Recession, But Its Success Comes at a Steep Social Cost.'

It's a major story, packed with statistics and charts and interviews, clocking in at 2,500 words, which suggests the idea to bring Indiana Gov. Mitch Daniels a peg was being bandied about back when Daniels seemed about to enter the Republican presidential race (he declined on May 22, citing family concerns).

Gov. Mitch Daniels sits in his grand cave of a Renaissance Revival office and reviews Indiana's economic fortunes, his self-effacing manner not entirely disguising satisfaction. The state's pension funds are relatively healthy, the unemployment rate is dropping slowly and per capita income is ticking up, slowly.


Because recessionary winds have not toppled Indiana's house, this state is often overlooked in the news coverage of budget crises across the nation - particularly since its next-door neighbor Illinois offers such an outsize example of the financial ills afflicting state and local budgets.

But Indiana is no world apart, even if Mr. Daniels would like to suggest it is. Large cracks have opened in its economic foundation, a sign of just how severe the downturn remains.

Mr. Daniels alone cannot take all credit or shoulder blame for the health of Indiana's economy. But it is his work here - and his reputation as a cost-cutting, tough-on-labor conservative obsessed with fiscal problems - that fueled interest in his presidential ambitions before he announced that he would not run because of family considerations.

The state also serves as a case study of the often large tradeoffs required to balance the books when political leaders take the possibility of raising income taxes off the table. Fiscal conservatism, in other words, comes with its own costs.

'Much like the rest of the country, we did not survive unscathed,' said Jessica Fraser, a research analyst with the Indiana Institute for Working Families.

Hundreds of thousands of Indiana residents are unemployed and underemployed. Although the state's unemployment rate is slightly better than that of its neighboring states, a striking number of people here - a significantly greater percentage than in Illinois or Ohio - have simply left the work force altogether since the dawn of the recession.

For the second year in a row, Hoosiers ranked fifth nationally in personal bankruptcies, at 7.1 people per 1,000 residents. (Illinois came in 11th.) Indiana's median family income is just 86 percent of that of the rest of the country.

The reporters strained to locate a dark side to Indiana's fiscal restraint.

Indiana is perhaps best understood through the different path it took from its more free-wheeling neighbor Illinois on two issues. Governors and the Legislature in Illinois have for several years skipped making full pension payments and taken all manner of ill-advised risky investments to cover the shortfalls. But a state transportation worker can retire on a livable $35,000 or so a year.

In Indiana, leaders typically strive to make annual pension payments. But benefits are more modest. An employee earning $30,000 a year retires after 25 years with an annual pension of less than $10,000.


Indiana, under Mr. Daniels, slashed the state's work force. After hitting nearly 40,000 workers in 1992, the number of people working full time for the state is now fewer than 29,000.

Such fiscal restraint has helped the state bookkeepers - Indiana's new budget envisions $1 billion in reserves in two years. Many residents, however, struggle with a different reality.

One in three Hoosiers qualifies as low-income now, compared with one in four a decade earlier. And 58 percent of unemployed Indianans have burned through their benefits.

Powell and Davey interviewed a cavalcade of local Democrats to criticize Gov. Daniels, focusing on low taxes and the stubborn refusal of Hoosiers to vote for new hikes.

Indiana's property tax caps limit bills to 1 percent of the gross assessed value of owner-occupied homes, 2 percent for farms and rental buildings, and 3 percent for businesses. Local authorities can ask voters to break the caps for projects like new schools and jails; so far, the results are mixed, with rejected resolutions outpacing accepted ones.


Even with all the relentless budget cutting, more than a few residents say that vanishing businesses - not tax caps - are the real problem, and that local governments need to become leaner and more efficient.

The Times concluded by restating its premise: Fiscal conservatism will break Indiana.

Tom Galovic, a barrel-chested former school principal and now chief financial officer for the Greater Clark County Schools near Louisville, shakes his head. He is a fan of Mr. Daniels over all, he said. But he sees a self-fulfilling prophecy taking shape around public education - the same problem that many others see with Indiana's intent focus on the cost side of fiscal restraint.

'If you cut and cut,' he said, 'you erode the system to the point that it snaps.'