INDIANAPOLIS – In just over a month, tax collection projections for Indiana plummeted nearly $1.1 billion, according to a revised revenue forecast given to lawmakers and administration officials Wednesday.

The report sets up a showdown during the expected June special session to adopt a new state budget. At odds are Republicans, who want to hold state spending flat with possible cuts, squaring off against Democrats, who don’t want to hurt students and teachers.

Gov. Mitch Daniels, who questioned the accuracy of the last revenue report received in mid-April, welcomed the May report as a starting point for discussions.

“I think the forecast is a lot closer to reality. It certainly underscores the need for caution … that the budget they were looking at last month would have been a disaster,” he said. “There will be more than a billion dollars less money coming in than the legislature was pretending at the time. So fine, let’s deal with this unpleasant reality. We’ll have to do it by keeping our spending very much under control, and we’ve got to keep some money in reserve until we know we are beginning to see a recovery.”

Senate Appropriations Chairman Luke Kenley, R-Noblesville, and others acknowledged that lawmakers will have to trim about $1 billion from the final failed budget that was under consideration on the last night of the legislative session to maintain reserves of about $1.3 billion.

“I would say that this is a great forecast for all the people who wanted to take a meat ax to education and job creation efforts,” said Rep. Scott Pelath, D-Michigan City. “There are a lot of folks certainly on the House side that want to keep a reasonable amount of reserves, but they don’t want to gut education just so the governor feels like he has the surplus figure that’s fun to say.”

State budget officials will present Daniels’ budget proposal Tuesday that will include details on school funding, the use of federal stimulus money and likely will outline additional cuts.

Then, a special committee of Republican and Democratic lawmakers will consider the plan in hearings, with a tentative special session date set for June 15. The current state budget runs out June 30.

Wednesday’s updated forecast said the state will take in $444 million less than previously expected during the current fiscal year, ending in June.

In addition, it said, nearly $650 million less will be collected during the next two fiscal years, compared with the April forecast.

Kenley tried to put a positive spin on the situation, saying lawmakers could flatline the budget and use $2 billion in federal stimulus aid to fill in where state dollars would usually go to avoid deep cuts other states are making.

“We have to have the discipline to live on that level basis,” he said.

But Rep. Jeff Espich, R-Uniondale, pointed out that Indiana is expected to take in less money this fiscal year than it did in 2008 – before the legislature raised the sales tax to cover $1 billion in new property tax relief obligations.

And although Espich and other Republicans didn’t trust the April revenue forecast, Democrats now question why the new forecast dovetails so closely to Republican Daniels’ predictions when the session ended.

“Certainly if you do the forecast enough times you end up getting the answer that you want,” Pelath said. “We’ve always had a lot of faith in the forecast process, but the administration started undermining the credibility of it. Now we have a revised forecast that seems to be giving them the answers they want, and naturally we’re going to wonder about how those answers were arrived at.”

The forecast is the consensus of a technical committee made up of Republican and Democratic fiscal staffers. House and Senate leaders this time appointed bipartisan outside fiscal experts to help.

The group added several economic variables to its methodology that haven’t been used in the past to more accurately reflect the deteriorating revenue picture.

“Revenue forecasting is more of an art than it is a science,” Senate Republican fiscal staffer Dan Novreske said. “The old equations didn’t seem to be tracking what we were seeing in actual collections.”

House Ways and Means Chairman Bill Crawford, D-Indianapolis, said he needs to analyze the changes made, but he is uncomfortable with the new forecast.

He said a $1 billion loss is plausible but it has not yet been proved.

“We want to make sure we don’t adopt a hunker-down mentality … and allow our infrastructure to decline unnecessarily,” he said.

nkelly@jg.net