CHICAGO - Indiana's Republican-led Senate on Friday was poised to approve a $28.1 billion, two-year budget that includes up to $400 million of bonding authority not included in Gov. Mitch Daniels' spending plan.

The Senate's budget relies on nearly $2 billion in federal stimulus funds - also not included in Daniels' budget - and preserves the governor's request that the state avoid dipping into its $1.3 billion reserve fund.

"If we did not have the federal stimulus money, we would have significant cuts in every single area of state government," Sen. Luke Kenley, R-Noblesville, chairman of the Appropriations Committee and lead author of the budget plan, said at a press conference last week.

While its economy remains one of the healthiest in the Midwest, Indiana has recently suffered from plummeting revenues. Lawmakers have said they expect to revise the final budget based on new revenue projections scheduled to be released April 17. The General Assembly must approve a final spending plan by April 29 or head into special session.

Daniels has repeatedly warned lawmakers that stimulus money should only be used for one-time expenditures, and last week his budget chief said falling revenues means all increased spending in the final budget could be vetoed by the governor.

"It is 100% clear that the April revenue update will result in fewer resources to work with than December's forecast," state budget director Chris Ruhl warned in a memo to lawmakers. "We are seeing numerous costly bills outside of the budget advance in the General Assembly. Every one of these bills standing alone is a veto candidate."

Fiscal officials recently estimated Indiana could face a $1 billion spending gap by the end of the current fiscal year on June 30, up from the $736 million gap predicted in December.

March's total tax collections came in 15% below the same period last year - a sizable decline that has happened only once in the last 214 monthly revenue reports, according to the budget office. March was the fourth straight month that collections have lagged behind December's forecasts.

The Senate budget, which passed out of the Appropriations Committee Thursday and was expected to be approved by the full Senate Friday, includes $177.3 million of bonding authority for higher-education capital projects originally included in the current budget but later dropped as part of a series of spending cuts. Another $220 million in new bond authorization would finance higher-education projects during 2010 and 2011, according to legislative aides.

The Senate budget also includes $45 million of borrowing to expand two state prisons, a proposal supported by Daniels but not by Democrats, who control the House.

Of the $2 billion in federal funds, the Senate plan would use $823 million for schools and higher education and $1.1 billion for Medicaid.

The House budget proposal, released a few weeks ago, includes more than $700 million of bonding authority for capital projects. Unlike Indiana's traditional budgets, however, the House's $14.5 billion budget covers one year only. Democrats have said it makes more sense to plan only one year ahead, considering the uncertainty and weakness of the economy.

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