Half a billion dollars paid by Indiana taxpayers over five years languished in bank accounts doing nothing while the state was cutting programs to balance the budget -- under an administration that promised disciplined financial management.
By Phillip Swarts
INDIANAPOLIS -- Hoping to convince voters they are better fiscal stewards than Democrats, Republicans called on Indiana Gov. Mitch Daniels to give the nationally televised rebuttal to President Barack Obama’s State of the Union Address earlier this year.
“The problems are simply mathematical,” Daniels declared, offering his own recipe in January for ending Washington’s massive deficits and America’s economic malaise.
But at that very moment, auditors back in Daniels’ home state were in the midst of unraveling a stunning discovery: His administration had somehow misplaced $526 million in state tax dollars over the course of five years, depriving struggling residents and their local counties of potentially valuable funding during the recovery from the recession.
The auditors found that Indiana’s Department of Revenue had left $320 million in corporate tax collections and $206 million in tax collections earmarked for counties languishing in separate bank accounts rather than moving them into the proper state accounts. The computer errors left the funds out of taxpayers’ pockets but unavailable for use by the state or county governments.
For a governor prominent because of his strong reputation for budget management, the back-to-back discoveries of the computer errors could be damaging.
“The bottom line is that there was a mistake, the mistake was caught, it’s been corrected and we’ve been forthcoming with the error and moving forward,” said Jane Jankowski, spokeswoman for Governor Daniels. “The state of Indiana is in the strongest financial shape it’s been in in many, many years.”
The controversy also has ensnared another of Indiana’s self-described fiscal conservatives, State Treasurer Richard Mourdock, who is legally responsible for the proper handling of tax monies collected by the state. A Tea Party favorite, Mourdock has been campaigning to unseat longtime Sen. Richard Lugar in Tuesday’s GOP primary.
Daniels could be on the list of potential vice presidential candidates Mitt Romney considers this summer. He served as George W. Bush’s federal budget chief before running for governor in 2004, and flirted with the idea of running for president in 2012 but decided against it.
“It will reduce the confidence that some people have in his administrative oversight,” says Elinor Ostrom, an Indiana University professor and winner of the 2009 Nobel Prize in Economic Sciences. She says Indiana residents are still coming to grips with the magnitude of the budget mistakes and their consequences on real people.
The Office of Management and Budget has already launched an internal review to determine how the computer errors were made, and an outside review will be started soon, Jankowski said.
The financial mistakes center around the Department of Revenue, the Indiana equivalent of the IRS, where three people have already resigned or taken early retirement.
According to documents released by the state government, auditors discovered in December that $320 million in tax money had been accumulating in an orphaned bank account since 2007. The money – electronically collected corporate tax receipts – was never moved to state revenue accounts because the department’s computers had not been programmed to make the automatic transfer, spokesman Robert Dittmer said.
Then, last month, the state found an additional $206 million that had been earmarked to be distributed to Indiana counties, but never was. The money had been accumulating since January 2011 and was sitting in another account due to another computer error by the Department of Revenue.
The mislaid state funds, over the course of five years, represent less than one quarter of one percent of the state budget. The county funds, out of reach for just over a year, are about six-tenths of one percent of local government spending on the state. Indiana’s state budget for 2011 totaled $26.5 billion, and local government spending in the state totaled $32.8 billion, according to the non-profit Sunshine Review.
In a dead heat with Mourdock, Lugar’s campaign has been running ads suggesting the state treasurer was asleep at the switch, failing to provide adequate oversight of taxpayer funds.
Indiana law declares that the Treasurer’s office “shall receive, account for, and pay over all moneys which are required by law to be paid into the state treasury.” That legal requirement has given Lugar the opening to attack Mourdock’s stewardship.
Mourdock’s staff says the duty of tax collection has been left in Indiana to the Office of Management and Budget. Daniels created the office to bring better fiscal management to the state. The office reports to the governor and supervises the Department of Revenue, where the programming errors took place. The treasurer shouldn’t be held responsible for funds he wasn’t told about, Mourdock spokesman Ian Slatter said.
“Unfortunately, some have wrongly suggested that State Treasurer Richard Mourdock was involved with this problem,” Mourdock’s office added in a recent press release. “This is not true.”
Andrew Downs, director of the Mike Downs Center on Indiana Politics at Indiana University-Purdue University Fort Wayne, said the computer errors that led to the moneys being misplaced occurred outside of Mourdock’s office and “there’s not really a whole lot of effect that it should have on the Senate race.”
Such comments haven’t stopped scrutiny of Mourdock’s performance in office, where his responsibilities include presiding on or over several financial boards that have oversight of state funds.
A review of board-approved minutes by the Washington Guardian showed that between Jan. 1, 2010 and Oct. 1, 2011, Mourdock attended only 42 of 119 meetings for which the records are available, a 35 percent attendance rate.
Mourdock says that he always has designated an appointee to attend the meetings in his place. The Guardian review found a representative from the Treasury Department was present at every meeting Mourdock did not attend himself.
Discovery of the missing money and disputes over who is responsible provide little solace to Indiana residents, who have long prided themselves on having a balanced budget but are struggling with hard times.
“It blows my mind that our state misplaced that much money,” says Erin Ford, 31, a former worker in the Hamilton County Assessor’s Office, who was let go in 2010 because the county didn’t have the funds to pay her.
Even before being let go, Ford says she was being asked to do double the work, since the office was understaffed from a previous round of layoffs.
Other areas of state government have been hit hard as well. Deep cuts have been made to the state’s education department, and local districts have been forced to lay off teachers.
“To wind up having 35 students in a class is crazy when you didn’t need to lose a teacher,” Ford said.
Jankowski said the cuts in education were a last resort, made after reductions in other areas of the state.
“We had a deficit of about a billion dollars in 2008 and 2009 and we’ve done the fiscally responsible thing and reduced spending in state government,” she said.
Indiana collects its taxes through its Department of Revenue, which functions at the state level much like the Internal Revenue Service does at the national level. The Department of Revenue is part of the Indiana Office of Management and Budget, which was set up by Gov. Mitch Daniels to improve the state's financial management.
But under state law, the state's treasurer is responsible for taking in and keeping track of tax collections -- and making sure they get into the state's treasury.