Republican Gov. Mitch Daniels said benefits will have to be cut for people who are out of work and unemployment insurance taxes on businesses will have to be raised to repair the state's out-of-balance jobless program.

The changes are part of Daniels' legislative agenda for 2011, when Republicans will control the House, Senate and governor's office. He also wants to expand charter schools, establish merit pay for teachers, abolish parts of local government, pass a balanced budget without a general tax increase and make changes to criminal sentencing laws.

"We are really excited about the chance for Indiana to surge forward on all of these fronts," Daniels told reporters in his office Thursday as he discussed his priorities.

Daniels said the state's unemployment insurance fund — which pays out more in benefits than it gets in taxes from businesses and is relying on money borrowed from the federal government to stay solvent — can't be fixed by simply raising business premiums.

"There are going to have to be changes in both directions," he said.

But Democrats — who were relegated Tuesday to the minority and will have no control in state government in 2011 — said unemployed residents are already struggling to survive on the current maximum benefits of $390 a week.

"It's going to be disastrous," said outgoing House Speaker Patrick Bauer, D-South Bend, who will become House Minority Leader in January.

Daniels didn't have specifics on how much he wanted to cut benefits or raise unemployment insurance taxes on businesses. But he said he'll work with lawmakers to find common ground.

An economic forecast released Thursday by Indiana University economists predicted the state would see slow job growth and only a slight decline in its unemployment rate of more than 10 percent during the coming year.

State revenues are about even with forecasts and are showing slight growth over last year's numbers. Daniels said the state is financially stable right now, and that lawmakers must pass a new balanced, two-year budget without any general tax increases. He also suggested a state spending cap that would give taxpayers a refund if state government was collecting more money than it needed.

Daniels has already cut spending by hundreds of millions of dollars to balance the state's books, including $300 million from public schools. But Daniels said Thursday he didn't expect any further cuts to K-12 education given current revenues.

Daniels' agenda does include plenty of changes for schools, however. He said he was open to vouchers that would help parents pay for their children to go to private schools, and wants to expand the number of charter schools in Indiana and establish merit pay for teachers. Daniels also suggested a program that would let high school students graduate in 11th grade, and then use the money that would pay for their senior year toward post-secondary education instead.

Bauer said much of Daniels' education agenda aims to privatize schools.

"I think that's dangerous," he said.