Governor and Legislature and Statehouse Dispatch and Government

Deal-making efforts unraveled in session's last days

May 4, 2009
You wouldn't have expected it going into the final week of the Indiana General Assembly, but we're headed for a special legislative session.

If you tuned in on April 27, you would have believed a budget compromise had been forged. And if you had then checked back the next night, you would have felt the same way about an agreement on how to return the Unemployment Insurance Trust Fund to solvency.

But after Republican Gov. Mitch Daniels weighed in privately with reservations over the level of spending and surplus, Senate Republicans returned to the table with a new package trimming another $100 million in K-12 school funding from what the Republican majority in the Senate and the Democratic majority in the House had informally approved.

By April 29, the day the session was scheduled to adjourn, Democrats wouldn't vacillate on the school funding issue, and lawmakers couldn't find the $100 million in savings elsewhere in the already bare-bones budget. Meanwhile, Daniels made it clear to legislative leaders and budget negotiators that he would veto a budget that failed to leave a $1.4 billion surplus at the end of the biennium. (Democrats claimed that was up to $1.5 billion by the final hours of the session.)

Democrats were upset at having signed off on a deal only to have the rug pulled from under them. While their leaders groused, as they were entitled to do, they refrained from going ballistic and launching a full-fledged attack on the governor, leaving the door open for a resolution.

House Democrats still felt the final proposed Senate budget version spent too little on education, and House Republicans felt it spent too much overall. But with fewer than 15 minutes left on the final day, the budget came to the House floor for a concurrence vote with the Senate.

The votes simply weren't there in the session's final hour. The budget mustered only 27 votes, with 71 opposed. And as we look ahead to a budget vote in special session, you should expect that spending will be further reduced from what could have passed in April, given worsening economic conditions.

And as the drama was unfolding with the budget, the other major issue of the session, a fix for the insolvent Unemployment Insurance Trust Fund, was experiencing similar ups and downs.

Initially, lawmakers involved in seeking a resolution to that problem were feeling proud of themselves for forging a short-term solution.

The package they agreed on was not expected to be a permanent solution, but the major tax increase imposed upon business—through changes in both the wage base and rate—would begin to direct the fund back toward solvency.

Democrats were gleeful that they held firm against benefit cuts for workers, and avoided a reclassification of workers that would have been a blow to the building trades.

The measure would, however, have placed the bulk of the burden on business, and the Indiana Chamber of Commerce and the Indiana Manufacturers Association were disturbed that the sole concessions from the worker side came in the form of illusory savings concerning fraud and misuse of the system.

They found sympathetic ears among House Republicans, who made it clear that they would leave House Democrats to pass the huge business tax increase without any Republican votes, a political killer. At the same time, some conservative Senate Republicans also questioned why business would foot the full bill, and negotiators reconvened.

As ultimately reconstituted and approved, the measure carves only a $617 million chunk out of the much larger deficit, and leaves more work for later (trying to solve the full scope of the problem in one fell swoop would have posed hardships on both sides and on the state). But business now faces a longer phase-in period for the higher taxes, those responsible for more of the layoffs will shoulder a greater tax load, and companies that only rarely contribute to the problem will see tax rates decline. Reforms and more oversight also will save money.

The plan left the state ensconced at the low end of the national rate scale, thereby keeping Indiana competitive.

The UI fix passed the Senate 46-3, but found no Republican support when it passed the House.

As all of this played out, the Capital Improvement Board shortfall was still under discussion. Yet another assortment of local tools to continue downtown economic development was cobbled together by Sen. Luke Kenley (R-Noblesville), but with support from outside the metro area sorely lacking, the measure few saw as an imperative died without a vote in the waning hours.

The political winners and losers won't be clear for a while-perhaps not until the 2010 elections.

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Feigenbaum publishes Indiana Legislative Insight. He can be reached at edf@ingrouponline.com.
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