Gov. Mitch Daniels said Tuesday he will cut state spending on public schools by at least $300 million given a new revenue forecast that predicts Indiana government will take $1.8 billion less than what lawmakers thought when passing a two-year budget.
That spending plan passed in June was projected to leave Indiana with a $1 billion surplus at the end of the budget cycle in June 2011, but revenues for the first five months of this fiscal year already are $475 million below a May forecast. That previously prompted Daniels to order state agencies to cut their budgets by 10 percent, cut funding for higher education by $150 million and take other steps to save money.
"If we do nothing further, we will run through every penny of our reserves and still have $300 million in bills we can't pay by the end of the budget in 2011," Daniels said Tuesday. "We are now forced to our last resort. K-12 spending is half of the entire state budget and it will have to contribute something to keeping us in the black."
He said he has asked the State Board of Education to meet quickly and recommend by Friday ways of cutting at least $300 million from schools without laying off teachers.
The budget had given schools a 1 percent increase in state spending for fiscal year 2010 and less than that for 2011. State funding for schools amounts to about $6.4 billion a year. The increases will now be wiped out, and spending will be cut by another 2 percent.
Daniels suggested among other things that schools could absorb some of their cuts by joining the state's program for buying materials in bulk. They could also join the state's health insurance program and pay less in premiums, he said. The Board of Education is scheduled to meet Thursday.
The state's current budget is about $27.6 million.
Dennis Costerison, executive director of the Indiana Association of School Business Officials, said he was not surprised about the cuts.
"We're next in line," he said.
A bipartisan panel of fiscal analysts told the State Budget Committee that an updated look at economic conditions caused it revise its May revenue estimates downward. It said the state would take in about $1 billion less, or nearly 8 percent, than previously expected during the fisscal year that ends in June.
Tax collections for the next fiscal year are projected to be nearly $800 million less, or 5.8 percent, than previously predicted.
"The revenue loss in this recession is much, much more profound than in past recessions," said Dan Novreske, a member of the forecast committee.
The full Legislature is set to convene on Jan. 5. Besides the cuts the administration is making on its own, Daniels will present a cost-savings package for lawmakers to consider.
It will include a proposal to combine the administration of the Public Employees Retirement Fund and Teachers Retirement Fund. That is projected to reduce investment management fees and administrative duplication by at least $50 million per year.
He will also ask lawmakers to merge or eliminate several boards and commissions but said he will not seek any tax increases.
Daniels said debate over trying to preserve $1 billion in reserves was now over.
"The only question is whether we will use every penny of them or find a way to have something left," he said.
House Speaker Patrick Bauer, D-South Bend, and Senate President Pro Tem David Long, R-Fort Wayne, have said they will not consider any bills that spend money during the upcoming session.
Rep. Peggy Welch, D-Bloomington, said she could not fault Daniels, a Republican, for turning to K-12 education for savings.
"Everything has to be on the table," Welch said. "When you're in this fiscal situation you have to look at it all. But I know that we as House Democrats will be looking very carefully at what these cuts might be."