Two weeks ago, Republican state Senate leaders defended their legislation to address the shortfall in Indiana’s unemployment compensation fund, giving the impression it will solve the problem.

Gov. Mitch Daniels signed the bill, resisting calls from businesses to veto it. Then last week, the chief financial officer for Indiana Workforce Development said the bill in fact does not cover the shortfall. So, in addition to paying more in state unemployment taxes, Indiana employers will likely face higher federal taxes as well.

Perhaps it took state officials a week or so to crunch the numbers to realize that the Senate bill – though a major step forward – still wasn’t enough to fill the gulf between the unemployment compensation funds’ payments and revenues. Or perhaps the Daniels’ administration was poking the Senate, which led the way on the bill.

Or perhaps the Senate leaders knew all along that their bill wouldn’t be quite enough.

“Despite critics’ claims that HEA 1379 ‘doesn’t solve the problem,’ conservative estimates anticipate the plan will structurally balance the fund by 2012, begin building a surplus while repaying the federal government shortly thereafter and creating new on-going oversight to prevent future problems with Indiana’s unemployment insurance fund.”

Thus read a news release issued May 14 by four Republican senators: David Long, Senate president pro tem; Brandt Hershman, Tax and Fiscal Policy Committee chairman; Luke Kenley, Senate Appropriations chairman; and Dennis Kruse, Pensions and Labor Committee chairman, who is credited with crafting the final version.

The statement also said the bill is “a bipartisan plan which puts the fund on a path to solvency” (italics mine).

Note that the senators’ statement says the fund will be balanced not within the two-year budget but in 2012. So they blast critics who say it “doesn’t solve the problem” but don’t make a big deal out of the fact that their solution is still three years away.

Indeed, when Daniels signed the bill, he said, “It doesn’t fix the problem, but it’s some progress.”

Veto and override?

With Democrats in charge of the Indiana House, Republicans’ best show of force in the Statehouse is a close alliance between the Republican Daniels and the Republican-dominated state Senate.

But it appears their alliance that has held up during the first four years of Daniels’ administration is weakening this year.

Last week’s revelation from the Daniels administration that the Senate bill may not prevent an increase in the federal unemployment tax did appear to be – intended or not – a yank on the Senate Republicans’ chain.

Most prominently, the Senate adopted a budget that Daniels said he couldn’t sign. Its failure in the House is forcing a special session in June.

Both the Senate and the House wanted to spend more than Daniels. And a special session could still end with the House and Senate agreeing on a budget that the governor vetoes.

But that veto would not necessarily stop the budget in its tracks. Unlike Congress, which needs a two-thirds majority in both the House and Senate to override a veto, the legislature needs only a simple majority.