INDIANAPOLIS – In a live TV address Monday night, Gov. Mitch Daniels revealed the broad strokes of a new two-year budget plan that includes increases for public education and spends about $300 million of the state's surplus.
The use of reserves is a major departure for the governor, who has prided himself on spending no more than state coffers take in. This change would clear the way for an unbalanced budget for the first time under Daniels.
But he said overall state spending will be reduced by almost 3 percent.
"Across state government, nothing, and I mean nothing, goes up," Daniels said during a rare five-minute live speech. "When your income drops by 8 percent, you can't increase your spending on anything."
The governor's full proposal - including how it will affect individual school districts - will be released today when administration officials give a presentation to a bipartisan legislative budget committee.
Lawmakers failed to pass a new state budget on the last night of the regular legislative session, making overtime necessary.
And since they left, state tax collections have continued to plummet, meaning lawmakers have $1 billion less to spend than they previously expected.
Lawmakers have until June 30 to act - which is when the current state budget runs out. A special session is tentatively scheduled for June 15.
Reaction from lawmakers Monday night was limited as they wait to hear details, but Rep. Phil GiaQuinta, D-Fort Wayne, said he came away feeling hopeful that an agreement can be reached.
"I'm glad (Daniels) realizes we have some tough financial times to tackle. I think it's a good thing that he is willing to compromise and willing to work on some things," he said. "But I didn't hear much about job growth."
Sen. Marlin Stutzman, R-Howe, said he liked that the governor emphasized education, controlling spending and avoiding tax increases.
"I thought it was really good," he said. "If you are going to use reserves, it should be on education. And it's a huge olive branch to Democrats."
During the regular session, the main area of contention was the level of spending.
Daniels wanted to hold education funding flat and cut other areas of state government while preserving the $1.3 billion in state reserves.
House Democrats sought an increase for public schools and wanted to authorize hundreds of millions of dollars in university capital projects to spur job growth.
GOP lawmakers were split, with the Republican-majority Senate passing a final compromise version of the budget that held onto the reserves but mostly sided with the Democrats on spending priorities.
House Republicans refused to provide even one vote for that version, saying it spent too much and would lead to a tax increase in the future.
The governor's use of the reserves is a major concession in the budget battle, but it has limits. He said the surplus should not drop even one penny below $1 billion - which would run state operations for only 26 days.
"If legislators want to spend more on some favorite cause, that's fine as long as they offset it elsewhere," Daniels said. "Add a dollar, cut a dollar. And of course, no gimmicks and no tax increases."
Democratic House Speaker Pat Bauer said if the governor had been willing to cede on the reserves originally, a special session might have been avoided.
"Overall he's made some movement. He's made some progress," he said. "I wish he had been as flexible at the end of session as he is being now."
The governor's new plan would also provide a 2 percent increase in funding for public education over the two-year budget period and 3 percent increase for student financial aid. Specifically, he said every school district would receive more per student than it did last year.
It was unclear how much of the new education money would come from general state tax revenues as opposed to federal stimulus dollars the state is receiving.
"These last couple years, Indiana schools have been among America's luckiest, fully funded through the downturn while other schools in other states were clobbered by massive cuts," Daniels said. "Our goal is to keep it that way, although in times this tough, no sector has a right to demand business as usual."
And he proposed that if the economy improves and state tax collections increase, then one of every two extra dollars would go automatically to schools.
Bauer said he would need to examine the school funding formula to ensure that urban and poor, rural school districts aren't hurt.
"We have to see who the winners and losers are," he said.
In other areas, Daniels said he would cut higher education by 4 percent. Similar cuts would be levied in other areas of state government, such as 11 percent for the Department of Environmental Management; 8 percent for state parks and 12 percent for the state Department of Health.
Funding for the Indiana State Police and the Indiana Department of Correction would remain the same. In Daniels' previous budget proposal, public safety saw increased funding.
And in another concession to Democrats, Daniels would approve $450 million in higher education capital projects.
"Our legislature has done a good job of helping us live within our income these last few years, while other states spent themselves into catastrophe," Daniels said. "By working together again, we can protect services, taxpayers and our pro-jobs business climate, positioning Indiana to lead economy recovery as it begins."
Senate President Pro Tem David Long, R-Fort Wayne, said Daniels set the right tone and put the state's problems in perspective.
"Given the national economic calamity and falling state revenue projections, our caucus stands united in controlling government spending, protecting education funding and avoiding general tax increases - now and in the future," he said in a written statement.
See for yourself
To read the entire speech as prepared, verbatim, please check out The Scoop.
