CHICAGO - One month after Indiana lawmakers adjourned amid a budget impasse, Gov. Mitch Daniels is calling them back to work for a special session beginning Monday on a new two-year state budget that reflects a $1 billion drop in anticipated revenues.
Daniels outlined his plan to address the $1 billion deficit in a speech televised Monday evening, and on Tuesday he appeared before the legislature's special budget subcommittee to make his formal presentation and announce the special session.
The new panel is made up of 12 members representing all four legislative caucuses. Daniels is a Republican, the Senate is controlled by Republicans, and the House is controlled by Democrats.
Daniels, in his revised budget package, proposed a 2.5% cut in overall spending, a 2% increase in education funding, and the use of about $300 million of the state's $1.3 billion in reserves. Daniels had previously resisted legislative pressure to dip into the reserves and had held flat funding for education in his original $28.1 billion budget.
Of his intent to leave $1 billion in reserves, Daniels said: "A billion is a lot of money, but it's only about 26 days of state operations ... If legislators want to spend more on some favorite cause, that's fine as long as they offset it elsewhere. Add a dollar, cut a dollar. And, of course, no gimmicks, and no tax increases."
House Speaker B. Patrick Bauer, D-South Bend, said he is pleased that Daniels had proposed an increase in education funds and the use of some piece of the reserves, which Bauer had called for during the legislative session.
The legislature adjourned at the end of April without passing a budget. Daniels held off on calling for a special session until a new revenue estimate was completed and a revised budget was crafted on the updated information.
The key sticking points over the original budget were additional spending cuts and the preservation of the budget reserve. Republicans approved a bill that would have cut public education spending by $100 million and increased the state's surplus to $1.4 billion. Democrats defeated that bill, preferring to tap reserves and increase education funding.
The latest revenue estimates, released last month, showed sales taxes were $37 million below projections for April and 12% below collections for the same period last year. Year-to-date sales tax collections were 4% below last year. Income taxes were $173 million below estimates and 31% below collections for the same period last year. The latest estimate projected a $1 billion decline in revenues in the next fiscal biennium over the existing estimate.
Daniels argued that despite the revenue declines, the state's financial condition remains sound.
"We have over a billion dollars in reserves, and a triple-A credit rating," he said. "Everywhere else, any reserves are long gone. They are slashing education by as much as 10% to 15%, they're releasing convicts from prison early, and, worst of all when families are struggling, they're raising taxes."
The reserve balance includes a cash balance of $439 million, $370 million in a rainy-day fund, $408 million in a tuition reserve, and $57 million in a Medicaid reserve.
Standard & Poor's upgraded the state's issuer credit rating last summer to AAA. Fitch Ratings rates the state's lease-backed debt AA and Moody's Investors Service rates it Aa1.
