Daniels: Education funding cuts needed to stay in black

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 fiscal 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."