Rainy days

August 6, 2008

Gov. Daniels wants to give taxpayers a break:

Gov. Mitch Daniels pitched a proposal Tuesday that would give taxpayers automatic tax credits if the state’s banking account and reserves reached a level determined to be safe for weathering an economic downturn.

Daniels said he would push such a plan in the next session of the General Assembly if re-elected in November. He suggested implementing tax credits if money in the state’s main checking account and reserve funds exceeded 10 percent of that year’s budget.

My first reaction was that this is an election-year gimmick like Jill Long Thompson’s proposal for a gas sales-tax holiday, but both are OK with me, since one will let me keep a little of my money in my own pocket, and the other would put a little back.

But then . . .

If I understand current state law (somebody help me if I’m missing something or the law has changed), the rainy day fund is capped at 7 percent of the general fund (anything over that goes to the property tax replacement fund). Are the “general fund” and “state budget” two different things, or is this a sneaky way to increase the rainy day fund by 3 percent?

Anyway, I like this proposal a lot better than the governor’s idea to create a “temporary” 4.4 percent tax bracket to shore up the rainy day fund.

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2 Responses to “Rainy days”

  1. Harl Delos Says:

    Are the “general fund” and “state budget” two different things, or is this a sneaky way to increase the rainy day fund by 3 percent?

    The general fund is the cash the state has on hand. It’s like a savings account at the bank.

    The state budget is a plan that lists income and how you plan to spend money. If you run a deficit, it means you’re going to draw down the general fund. If you run a surplus, you’re going to build up the general fund.

    If you issue bonds (or borrow money short-term), you increase the general fund immediately, but eventually reduce it by a greater amount as you pay back principal and interest.

    Is this a sneaky way to increase the rainy day fund? I don’t know, but an increase from 7% to 10% of the general fund is NOT an increase of 3% – it’s an increase of about 43%.

    I’m not sure if increasing the rainy day fund is a good idea or not. If you need the rainy day fund (and it’s pretty certain that into all state governments some rain will fall), it’s a lot better to have saved up for it, rather than to try to borrow the money at the kind of interest rates you have to pay when you NEED money, rather than just WANT it.

    I’d like to see the state put the “rainy day fund” into something that’s hard to get at. A friend of mine can’t trust herself with credit cards, but she knows she may need one in an emergency.

    She freezes her MasterCard in the middle of a quart of ice. She knows she can’t melt the ice in the microwave or it will ruin the card, so she has to spend an hour running water on the ice to free the card – enough time to think twice or even three times about using the card.

    You’ve probably heard of the “seafood diet” – if you see food, you eat it. With my first wife, if there were canned mushrooms on special for 39c, we’d buy two dozen cans, but then she’d go wild with putting the canned mushrooms in recipes – since we had already bought the mushrooms, they were free, and we’d end up spending $3.90 a week for mushrooms instead of 49c for a single can. I had to keep our family “rainy-day fund” in cash, in a location where she couldn’t find it.

    With my current wife, I use the deep-freeze as a rainy-day fund, because she doesn’t like to go down to the basement and carry food back. With her, though, cash in the checking account means available money, even if there’s only $200 in the account, and there are both light and gas bills that need to be paid soon.

    Not that I don’t have my own bad habits when it comes to spending. Never saw a bookstore, nor a hardware store, that didn’t cry out to me, “you NEED this!”.

    With most state legislatures, the best way to keep the state “rainy day fund” intact until needed would be to fill a warehouse with deposit pop bottles, and make the legislators haul the bottles to the store themselves, to redeem them at 2c each. Too bad deposit pop bottles are a thing of the past. Maybe you could fill a warehouse with empty aluminum beer cans, and make the legislators haul the empties to the recycler in the back of their BMWs to cash them in?

  2. Leo Morris Says:

    Nice catch on the 43 percent; it’s the kind of slip I’ve pointed out in others’ writing, and I go and make it myself. I guess what I was getting at is: Is the governor keeping the playing field the same or changing the rules? Are the 7 and 10 percent apples and apples or apples and oranges? There are actually five funds in the state budget — the general fund being the monster. There are also the much smaller tuition reserve and the Medicaid reserve, and he could be also considering them in the mix. I don’t THINK he can be considering the other two — the rainy day fund and the property tax replacement fund — since one is already triggered by state financial conditions and he’s proposing that the other be.


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