INDIANAPOLIS – A last-ditch effort to pass the state budget failed in spectacular fashion late Wednesday when the House defeated a proposed spending plan by a 71-27 vote – a move that will lead to the first special session since 2002.

The Senate passed the measure 37-13, but the issue was moot.

“It is far better that the legislature try again than to have an irresponsible budget that I would have been compelled to veto,” Gov. Mitch Daniels said early today. “It is critical that Indiana avoid the fiscal disaster and massive tax increases that would result from dramatically increasing spending while revenues are falling.”

House and Senate leaders scrambled throughout the day to come to terms on a compromise that could avert a special session, which could cost $75,000 a week.

The key argument was over how to cut $100 million more out of a likely $30 billion spending plan propped up by nearly $2 billion in federal stimulus money.

Senate Republicans wanted the cuts to come from K-12 school funding so that the state reserves at the end of the biennium were left with at least $1.4 billion.

House Democrats wanted to preserve the education funding and give Daniels a $1.3 billion surplus.

But there was fear that Daniels would veto either of the plans.

“We have compromised as far we can compromise without sacrificing our principles,” said Rep. Scott Pelath, D-Michigan City. “We may go into overtime here, but I want this side of the aisle to know it is not from lack of effort. We have given, we have worked with them, we have done all we can do.”

But House Republican leader Brian Bosma of Indianapolis said the budget bill did not go far enough in restricting spending.

“It’s going to be a drain on every Hoosier family,” Bosma said.

His caucus encouraged across-the-board cuts that would trim $200 million to $250 million a year.

“We believe anything short of that puts us in a position to require a tax increase in two years,” Bosma said.

House Republicans also want unlimited growth in charter schools and a scholarship tax credit that some Democrats likened to a voucher program.

Both sides already had made concessions.

The House agreed to a two-year budget after having pushed a one-year spending plan during most of the legislative session and agreed not to use the surplus.

Members also provided funding for two prison expansions they previously left out of the budget.

Meanwhile, Senate GOP leaders agreed to $600 million in higher-education capital projects – a jump from the $400 million they previously passed. The two sides also compromised on allowing local school districts to tap property taxes for insurance and utility costs. That power will be phased out over a number of years.

Daniels has no choice but to call lawmakers back for a special session.

Legislators met in a mini-session in fall 2003 to address property taxes, but the last true special session was in 2002. At that time, Gov. Frank O’Bannon wanted lawmakers to pass a measure that included cutting residential property taxes an average 13 percent after reassessment; repealing several onerous corporate taxes, and giving $1.8 billion to the budget.

nkelly@jg.net