As many of you know, there is a big problem trying to put together this year's budget. The reason is simple: the State is out of money. We are officially, as of this writing, approximately $850 million dollars short of the money required to pay for the 2001-2003 budget. Translated, we are taking in $850 million dollars less than we are spending. And while the economy is beginning to show signs of life again, the improvement is not going to get us out of this mess.
The past two years, the State has gotten by with transfers of funds from various sources to bridge the gap. However, that money is now gone, and no gimmicks are going to work this time.
It means some difficult spending cuts will have to be made. The Governor has proposed a budget that basically flat-lines education. Education is far and away the most expensive portion of our State's budget, accounting for over 60% of what we spend ( this includes both K-12 and higher education ). But that won't get us to a balanced budget. As you can see, some very difficult decisions are ahead.
At the same time, we are at a critical moment in trying to modernize our state's economy. Indiana is behind most other states in pushing ahead with 21st century business and technology. Because of that, the recession has hit us harder. Our state government has a role to play in this modernization effort. We can help create an environment that is much more hospitable to entrepreneurship and business innovation. But that takes money, tax credits, etc. So how do we make progress toward these goals in this deficit-strapped budget environment.
The answer is one that is quite controversial with many involved in the tobacco cessation effort: using some of our State's tobacco settlement money to help seed the efforts to modernize the Indiana economy.
Indiana was part of a 45 state class action lawsuit against the tobacco companies that ended with a settlement that will bring approximately $160 million per year for 25 years to our state. This basis for the lawsuit was to recover tax dollars lost as a result of our state and the other 44 having to expend untold millions in Medicaid payments to cover the cost of tobacco related diseases. Thus, the money was a recovery of tax dollars, not a social cause to stomp out tobacco. Our state, however, became the only one in the country to put 100% of its tobacco settlement money toward health care services.
I supported this approach at the time, though I told my leadership I felt that some of these dollars should go toward future economic growth efforts. Michigan, by contrast, has used 50% of its tobacco dollars as an investment in the huge life sciences development effort in the Ann Arbor area and elsewhere in the state. As a result, they are far, far ahead of Indiana in the effort to make themselves a leader in this important technology that will stimulate their economy, create great jobs for their citizens, and cause, they hope, a ripple effect that will make Michigan a shining star in the new economy.
Most states have followed Michigan's lead in using a good percentage of their tobacco settlement dollars to invest in their economy or in their educational systems. I believe Indiana needs to do the same today.
When we invested 100% of those dollars in health related services, we had a $2 million dollar surplus, and times were good. Now, we realize that it will take a major effort by our political, business and academic leadership to help our economy recover. That means taking a new look at whatever opportunities are available to us. Given the tough economic times, the only money that seems to be available is the tobacco settlement money.
I'm not talking about undoing all of our programs supported by this money. Far from it. Many of the very worthy programs, such as a prescription drug support program for senior citizens, will remain and will have my full support. However, we have the ability to invest some substantial dollars in our economic future, and we need to do that, and do it now.
As I said, some very tough choices. But you didn't elect your representatives to run away and hide when times got tough. You expect us to roll up our sleeves and find some solutions, with a view toward the future, and an eye on the bottom line. Hopefully, we can find a bi-partisan solution to our current problems, and continue to set the stage for a strong recovery for our great state.