Daniels: Hard financial decisions ahead-WEB ONLY

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Gov. Mitch Daniels cautioned lawmakers about Indiana’s fiscal challenges during his State of the State speech last night, saying that drafting a new two-year budget this session will be full of hard decisions.

But Daniels, sworn in to a second term on Monday, said spending restraints and other actions taken during his first term have left Indiana in better shape than many states and in a strong position not only to weather the economic hard times, but to make progress.

“Thanks in large part to the people here assembled, we can speak tonight of challenge, but not crisis; issues but not emergencies,” Daniels told a House chamber packed with legislators, judges and other dignitaries.

The Republican governor said it would take compromise to get through difficult financial times. Democrats control the House while Republicans rule the Senate.

But Daniels provided a framework that he said included a budget that spends less than the state is projected to take in, no bookkeeping tricks to balance it, and stopping spending on programs that have not worked or are nonessential.

He also said the state must hold onto the money in its main checking account and reserve funds, projected to be $1.3 billion by the end of the current budget that ends on June 30.

“None of us knows how long this downturn will last, or how much tougher it may become to protect essential services in the next few years,” he said. “If we ran through our balances now, where would we be if better times did not return soon?”

Daniels said one area for special care was public schools, which he wants funded at essentially the same amount as now.

“In this environment, protecting education funding at this year’s levels would be a significant victory and we should aim for it,” he said.

Democratic leaders have said that because of increasing costs for such things as teacher pay raises already in contracts and higher health insurance costs, freezing education funding would actually be a cut. They have suggested the possibility of tapping into the state’s reserves to increase funding for schools and projects that could create jobs.

“We must refocus on jobs and the economy. I didn’t hear anything about that,” said House Speaker Patrick Bauer, D-South Bend.

Senate Minority Leader Vi Simpson, D-Bloomington, said Daniels’ speech was a “missed opportunity.”

“This is a time when we should be stepping forward boldly to put together a stimulus package for the economy,” she said.

Although the subject of jobs was not overt in the speech, Daniels administration officials said Indiana had created one of the best atmospheres for job creation in the country.

They said that was done by such things as leasing the Indiana Toll Road for $3.8 billion – money being used for numerous highway and other transportation projects – and capping property tax bills that should save homeowners money and improve the business climate.

Daniels told lawmakers he wanted them to take the next step to amend the caps into the state constitution by passing a resolution a second time. Doing so would put the measure before voters statewide in 2010, and if approved, make the caps harder for future legislatures to undo or judges to negate.

The governor also pitched some other proposals, including steps to streamline local government and steer more dollars to the classroom.

Daniels’ proposed budget does not include money for new construction and renovation projects proposed by colleges around the state, and $200 million in higher education projects included in previous budgets would not go forward.

“A time of fiscal austerity will require each of us to forego for now priorities about which we feel strongly,” he said.

He noted that he has dropped for now two campaign proposals – one a further expansion of full-day kindergarten and a new college scholarship program. His proposed budget also would trim higher education operating costs by 4 percent and cut most agency spending by 8 percent from 2009 levels.

An updated budget forecast released last month projected a $763 million spending gap in the current budget, and Daniels immediately ordered steps to trim costs.

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