Indiana Looks To Tap Deposit Insurance Fund For Revenues

Indiana bankers are steamed about the state's attempt to use money from a fund for insuring public deposits to help balance its budget. Under a bill passed by the Indiana House of Representatives on Feb. 20, the state, which faces an $850 million shortfall in fiscal 2003, would withdraw $50 million from the Public Deposit Insurance Fund for its general operating fund. With $297 million, the insurance fund is flush, but bankers say tapping a fund set up almost 70 years ago to protect local governments could set a bad precedent.

"The state never paid a dime into it, and they want to take the money to shore up the budget," said Kerry B. Spradlin, the vice president of government relations for the Indiana Bankers Association. "That is our top-priority issue right now-to get that money out of the budget."

The measure was originally included in Gov. Frank O'Bannon's budget proposal, which would have required an audit of the insurance fund to ensure that the withdrawal would not render it unsound. But that requirement had been removed in the House version.

The insurance fund was created in 1937 to cover deposits of municipalities not covered by the FDIC. Indiana is only one of a handful of states that have a designated public deposit insurance fund. To date the fund has only paid out about $1.6 million.