By Dan Carden, Times of Northwest Indiana

INDIANAPOLIS | Indiana's already trim state government is about to embark on a crash diet to cope with a continuing decline in state revenues.

Gov. Mitch Daniels announced Friday state agency budgets will be cut an additional five percent, on top of a five percent cut he ordered in July, and payments to some Medicaid providers will be reduced.

The state will also delay planned construction projects and upgrades of state buildings, state employees won't get a 2010 pay increase and "excess" money in little used state funds will be moved to the general fund.

The measures are expected to save the state between $300 and $400 million over the remaining 20 months of the budget cycle.

"I hope many of them will be temporary. I hope some of them can be reversed sometime during the two year budget cycle," Daniels said. "But it's at least as likely they will have to be followed by more actions."

The problem is state revenue. In October, Indiana took in $997 million from taxes and fees. But that is 3.3 percent below last year's October's revenue and $46 million below the revenue forecast the budget is based on.

Since the budget year began in July, state revenues are $309.2 million below the revenue forecast.

"We think the actions we have taken will cover that shortfall," Daniels said. "We're hoping that's all it will take."

Both sales and income tax revenue were significantly lower last month than in Oct. 2008. Individual income taxes were down 13 percent from last October, while sales taxes were down 8.5 percent.

Through the first four months of the fiscal year, individual income tax revenue is off 19 percent and sales tax revenue is down 11 percent compared to last year.

Gambling revenue was once again the lone bright spot in the state's revenue picture.

Gaming taxes from new casinos at downstate horse tracks, combined with a slight increase in riverboat gambling tax revenue, has pushed gaming revenue $15 million above its forecasted amount so far this fiscal year.

The governor said he does not plan any cuts yet in public safety or public education.

"Public safety and public education are the very top priorities," Daniels said. "We're doing everything else first."

He did suggest school corporations carefully consider the state's fiscal condition before announcing any major projects or making promises to teachers and taxpayers that he might not be able to keep.

The majority of the budget savings will come from the state agency cutbacks.

Daniels did not say there definitely will be layoffs at state agencies, but he also refused to rule them out. Each agency will send their planned cuts to the governor's office for approval.

State employees will also be allowed to take voluntary, unpaid days off, on their own initiative. Mandatory furlough days won't be required at this point, Daniels said.

The reduction in Medicaid payments won't affect doctors, the governor said. The Indiana Family and Social Services Administration will announce on Monday how the payment reductions will work.

The fund sweeps will take the money that is above and beyond what is needed to administer their program and transfer those funds to the state's general fund. The money will not be paid back.

Additional details on which funds will be swept is expected later in the day on Friday.

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