State lawmakers scrambled into the night Wednesday in hopes of approving a new, two-year budget as a midnight deadline for adjourning the session loomed.
Republican Gov. Mitch Daniels and Republicans who control the Senate remained at odds with Democrats who lead the House on a budget compromise, and prospects for a plan passing the House were in doubt. If no budget was passed by midnight, it would force a special session.
But the House and Senate did approve a plan designed to fix the state’s bankrupt unemployment fund. It would raise taxes on employers and make administrative changes in hopes of saving money, but it would not cut benefits.
It appeared that House Democrats would put a Senate Republican budget plan up for a vote, even though House Speaker Patrick Bauer, D-South Bend, and many of his caucus members had problems with it. They were especially miffed that it spent $100 million less for schools than Democrats wanted in order to pad the state’s reserves.
It seemed likely that many Democrats would vote against the bill, meaning it would take some Republican votes to pass it. But Senate Appropriations Chairman Luke Kenley, R-Noblesville, said he talked to House Minority Leader Brian Bosma, R-Indianapolis, Wednesday night and did not think he wanted to give any votes on the budget plan.
Bosma said the Senate Republican plan spent far too much and would leave the state with a big budget deficit after two years. They also wanted unlimited growth in charter schools and $5 million in tax credits for people who donate money to K-12 schools for scholarships.
When asked if he thought there would be a special session, Kenley said, “It feels that way right now.”
The last special session was called in the summer of 2002, when lawmakers increased taxes to prop up a deficit budget and overhaul Indiana’s tax structure.
Each day of a special session would cost taxpayers a minimum of $12,420 in legislative per diem.
The key sticking points on the budget between Senate Republicans and House Democrats were spending increases for schools and a dispute over how large the state surplus should be at the end of the next two-year budget cycle in June 2011.
House Democrats proposed providing schools with a 4 percent increase over the next two years and said their budget plan would leave a $1.3 billion surplus at the end of the biennium. Like an initial Senate Republican plan, the increase for schools would largely rely on federal stimulus money.
But Kenley said Tuesday that he wanted to take $100 million out of proposed spending for schools and stash it away so the budget would have a $1.4 billion surplus after two years.
Kenley said recent economic bad news, especially in the auto sector, required a larger surplus, which would help protect education funding if needed. He also said that without a $1.4 billion surplus, Daniels would probably veto a budget bill. Daniels had cautioned lawmakers last week against spending too much or tapping into the state’s reserves.
Speaker Bauer said Daniels vowed to veto House Democrats’ budget proposal during a private meeting Wednesday morning with Kenley, Bauer, Senate President Pro Tem David Long, R-Fort Wayne, and House Ways and Means Chairman William Crawford, D-Indianapolis.
“He would veto it unless we took $100 million out of public education,” said Bauer, D-South Bend. “We are a little bit stunned by that attitude, and therefore we are reviewing the situation.”
Bauer said House Democrats did not want to reduce their proposed spending increases for schools because they already considered them low.
Kenley said Daniels did not believe either party’s proposal “really gets him to where he needs to be, but at least the Senate solution is a nod in the right direction where we can all agree we have a problem that can continue to be monitored and we can go forward.”
The unemployment insurance fund has been spending hundreds of millions of dollars more in benefits than it has been collecting in employer taxes. The state’s jobless rate was 10 percent in March, its highest level since the recession of the early 1980s.
Indiana employers currently pay annual state unemployment taxes of 1.1 percent to 5.6 percent on the first $7,000 of an employee’s income. Employers with a history of layoffs pay more.
Under the bill passed Wednesday night, the taxable wage base would be raised to $9,500 and new tax rates would be phased in. Next year the minimum rate would be 0.7 percent and the maximum would be 9.5 percent. In 2011, the rates would range from .75 percent to 10.2 percent.
There would be no cuts in benefits, something Democrats were adamantly opposed to, especially during a recession.
Sen. Brandt Hershman, R-Wheatfield, said some changes — including a phase in of higher tax rates — were meant to address concerns from House Republicans and the business community. Proponents said it was a responsible plan for ultimately fixing the fund and would allow companies, despite the higher taxes many would face, to remain competitive.
But several House Republicans blasted the plan.
“This is a huge increase on business owners,” said Rep. Jerry Torr, R-Carmel. “This is going to cause more people to be unemployed.”
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