INDIANAPOLIS – Progress on the two thorniest issues of the legislative session stalled Tuesday as a final pact on the state’s unemployment fund remained elusive and budget negotiators grappled with the bottom line.

Senate leaders appeared pessimistic after hours of negotiating Tuesday with no deals in place.

“Right now, the whole environment, they are connected but they are not,” Senate President Pro Tem David Long, R-Fort Wayne, said of the two bills. “If we can get one going I think in a final condition, the other has a better chance of trailing along. If we can’t, well then there’s no use in doing either one of them. That’s sort of the attitude right now.”

Democratic House Speaker Pat Bauer seemed a bit more optimistic, saying the unemployment fund agreement “is very close, and the budget is still possible after all these months.”

The session ends at midnight tonight.

Jobless aid fix

The two conferees from the majority caucuses – Rep. David Niezgodski, D-South Bend, and Sen. Dennis Kruse, R-Auburn – early Tuesday agreed to a tentative deal on the unemployment fund legislation, which is House Bill 1379.

The state unemployment insurance trust fund has been running a deficit since 2001, which means taxes paid into the fund by businesses don’t cover unemployment claims paid to out-of-work Hoosiers.

The state ran out of money late last year and has borrowed nearly $750 million from the federal government to pay benefits. That debt is expected to exceed $1 billion this year.

So lawmakers have to make the fund solvent again and start paying back the federal loans.

The agreement had called for $400 million in new revenue from increased taxes on businesses. By increasing the taxable wage base and spreading out the tax rates, the bill would raise the maximum contribution from $392 to $1,020.

In addition, lawmakers hope to save $300 million annually through a variety of measures, including allowing employers to more easily fire employees with bad attendance or who commit crimes at work, and creating a compliance center to catch errors in the system.

“We cannot allow businesses to be pushed over the edge,” Niezgodski said. “What we have to focus on right now is stopping the bleeding.”

But Rep. Dan Leonard, R-Huntington, the House Republican conferee, did not approve of the plan because it leaned too heavily on businesses to solve the problem.

“It without question puts all the burden on employers. There is no shared burden on employees, no changes in benefits or eligibility,” he said.

When word filtered around that House Republicans would not vote for the agreement, the presumed deal started to crumble.

“The unemployment bill is … a very difficult nut to crack right now,” Long said. “We worked on it. We have some tweaks we proposed that hopefully will help us get to ‘yes’ on it, but that by no means is a done deal, either.”

He stressed that every caucus will have to participate.

“All caucuses have to come together, hold their nose and vote on it, with no one being very happy. It’s a very unhappy situation. No one is going to be a winner in this, and no one wants to vote for it, but we must if we want to get out of here on time,” Long said.

“We remain optimistic – more on that than the budget – but in the end, we can’t have one caucus peeling off on this. It ain’t gonna work. We’re all going to have to swim in the same pond together.”

Budget

As of Tuesday night, Senate Republicans and House Democrats were still haggling over how to trim $100 million from the two-year spending plan so the state’s reserves would reach $1.4 billion.

Gov. Mitch Daniels believes there is a gap between the proposed spending and the revenues the state will receive in the next two years, and he has encouraged lawmakers to make cuts.

Senate Appropriations Chairman Luke Kenley, R-Noblesville, said Daniels assured him a $1.4 billion reserve would be enough to halt a veto. And it would leave schools with a 1 percent increase in the first year and 2 percent in the second year.

But Democrats don’t agree with the size of funding increases for schools.

“We remain separated on this issue of reducing the school funding formula by $100 million, and I don’t know what we are going to do to bridge that gap,” Kenley said. “So I would say until that is resolved, we are probably not going to have a budget bill that can be voted on (today).”

Democratic House Speaker Pat Bauer of South Bend said he doesn’t mind finding other areas to adjust to advance the bottom line, “but education is our primary constitutional responsibility, and I don’t think we need to cut that anymore.”

Democrats early in the day removed Rep. Jeff Espich, R-Uniondale, as a conferee on House Bill 1001 and circulated their own conference committee report, which would give an average 2 percent increase to K-12 schools each year.

Democratic leaders also groused that Daniels has stressed during the session that he wanted to preserve the state’s $1.3 billion in reserves, and suddenly he wants to add more to that.

“It seems to be me $1.3 billion was the articulated number, and that’s what we shot for. The $1.4 billion is something just plopped in yesterday,” Bauer said.

“As long as we can keep that definition of reserves somewhat stable, we can achieve it. But if tomorrow is another higher number, then obviously there’s someone somewhere who wants a special session really bad.”

Senate Republicans and House Democrats agreed on some other education provisions in the budget, including additional higher-education capital projects, a less harsh charter-school cap and allowing school districts to tap property tax funds for utility and insurance costs.

nkelly@jg.net