Indiana Gov. Mitch Daniels announced on Friday a series of spending cuts and other steps to offset a continuing multimillion-dollar dive in state revenues.
Among other things, Daniels has ordered agencies to cut spending by 10 percent; reductions in reimbursement rates for some Medicaid providers; no pay raises for state employees next year; delays in some building projects; and state employees be allowed to take unpaid leave voluntarily.
October tax collections were $46 million less than forecast in May and $309 million, or 7.4 percent, less than expected during the first four months of the fiscal year. If the trend continues at that rate without cuts, Daniels said the state's surplus that stood at $1.3 billion in July would be wiped out by next August.
He also said some money from accounts created for specific purposes would be transferred to the state's main checking account. Amounts would vary but would not disrupt the long-term viability of programs supported by those accounts.
"At this point, we have seen enough to know that new actions are necessary if we are going to protect Indiana taxpayers against the tax increases that are happening in most of the rest of America," said Daniels, a Republican.
"I hope many of them are temporary and hope some of them can be reversed at some time during the current two-year budget cycle, but it's at least as likely it will have to be followed by more actions."
The budget Daniels and state lawmakers put together using the May forecast had called for the state to have a $1 billion surplus at the end of the spending cycle in June 2011.
Daniels said the steps announced Friday should cover the current $309 million revenue shortfall and would help avoid spending cuts for public schools. But he did not rule out education cuts if revenues continue to fall significantly below projections.
He commended state school superintendent Tony Bennett for telling local school superintendents on Thursday that they should hold off on major new expenditures or new collective bargaining agreements. The two-year budget enacted in June would increase funding for school operations by 1.1 percent in 2010 and 0.3 percent in 2011.
But it cut most agency spending by 10 percent from the previous budget, and now agencies must reduce spending by another 10 percent. Daniels said agencies would be given flexibility in how to reduce spending, but he hoped employee layoffs could be avoided or minimized. He also wants to avoid furloughs.
Next year will mark the second consecutive one in which state employees will not get pay raises. The last time there were back-to-back years with no pay raises was in 2002 and 2003. Daniels said it might be possible to give some bonuses to outstanding employees.
Daniels did not say which health care providers would receive less from Medicaid, the state and federal health care program for the poor and disabled, but it would not be doctors. He said the state's social services agency would announce the specific cuts next week.
House Speaker Patrick Bauer, D-South Bend, said many of the cuts announced by Daniels were understandable, and he also hoped to avoid cuts in school aid.
"It was cut pretty much to the bone in the budget that was passed," Bauer said.
Bauer said he had advised his caucus that he would not consider any bills that spent money from the state's main checking account during the legislative session that starts in January. But he said he wanted more information about where the Medicaid cuts would come from.