Indiana House panel accepts state budget proposal

The House Ways and Means Committee voted 15-8 along party lines Friday to advance the new $28 billion, two-year state budget that Republicans said held most spending flat while avoiding tax increases. The budget would keep overall education spending steady, but includes changes to the distribution formula that will hurt some urban and rural schools and help some suburban schools.

"It is tough on some school corporations, there is no doubt about it," said Committee Chairman Rep. Jeff Espich, R-Uniondale.

Democrats said many districts would be devastated by the cuts.

"We've got to figure out a way to mitigate the losses to some of these school corporations," said Rep. Terry Goodin, D-Crothersville.

The House Republican budget spends about $60 million more over two years than the budget previously proposed by GOP Gov. Mitch Daniels. The House Republican budget leaves about $588 million in reserves at the end of fiscal year 2013, while the governor's proposal would leave about $725 million in reserves.

The Daniels administration said the House proposal was a solid effort.

"It spends within its means and protects Hoosier taxpayers," said State Budget Director Adam Horst. "While we would like to see more money in our savings account in the final version, this is an important step towards passing the state's budget."

Democrats plan to propose several changes to the bill next week when the measure is before the entire GOP-led House for consideration.

But Friday, Democrats suggested one change they said was fundamental — eliminating a provision in the budget that allows the governor to withhold funds allocated in the budget.

Democrats said Daniels has abused that power by cutting too much from the state budget when there is still some money in reserves. Rep. Scott Pelath, D-Michigan City, said elected officials — not bureaucrats — need to decide how the state spends its money. If the governor can withhold spending the General Assembly has ordered, he said, the budget merely becomes "something that's dropped in a suggestion box."

But Republicans said the provision is key to keeping the state in good financial standing during tough financial times even when the part-time Legislature isn't in session. Daniels has cut millions from the current budget as revenues fell below expectations — doing the dirty work that lawmakers are sometimes reluctant to do.

Rep. Eric Turner, R-Marion, said if Daniels hadn't made the cuts, lawmakers would be debating unpopular tax increases to make up for what would be a deficit.

"I am very thankful and I think the people of Indiana are very thankful that the governor was willing to make those cuts and not have further taxation on Hoosiers," Turner said.

Republicans rejected the Democratic proposal on a party line vote.

John Ketzenberger, president of the Indiana Fiscal Policy Institute, noted that Indiana governors have long had the authority to withhold spending, and said he'd be surprised if a change was made this year.

"Really what you're talking about is a philosophical question of the legislature having the power to appropriate verses the governor with the power to not use the money appropriated," he said.

The budget approved Friday also:

— Does not make a 3 percent cut to higher education as proposed in Daniels' version of the budget. But the House plan does not fund any repair projects or authorize any new capital projects for universities.

— Implements limits on tuition increases at Indiana colleges and universities. The limits would be set by the state Commission for Higher Education. Espich said the tuition increase limits protect families. But Rep. Sheila Klinker, D-Lafayette, said the reason colleges have to raise tuition is because they are getting less money from the state, and said the limits could hamper their ability to retain and recruit top talent.

— Does not cut optional Medicaid services for adults, including dental and podiatry services, as Daniels proposed.

— Temporarily suspends pay raises for state legislators, judges and prosecutors.

— Does not take $200 million from a banking insurance fund as Daniels' budget would have done. Instead, the House Republican budget takes money from some other sources, like reducing a subsidy for the horse racing industry. It also changes income tax distributions for local governments to more quickly recapture what Espich calls overpayments the state made to counties during the recession.