By Dan Carden, Times of Northwest Indiana

dan.carden@nwi.com

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

Gov. Mitch Daniels on Friday ordered a 5 percent cut in state agency budgets, on top of the 5 percent cut he ordered in July.

The state also will reduce payments to some Medicaid providers (doctors are not expected to be affected), indefinitely delay construction projects at state buildings and cancel 2010 pay raises for state employees.

The Republican governor said he does not expect to lay off state workers but would not rule out layoffs in the future. Daniels said state employees will be encouraged to take voluntary, unpaid days off.

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

"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.

Last month, Indiana took in $997.1 million in tax revenue. But state spending is based on a revenue forecast predicting Indiana would get $46.1 million more.

Since the budget year began in July, state revenue is $309.2 million less than forecast.

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

Compared to October 2008, last month's revenue from individual income taxes is down 13 percent and sales tax is down 8.5 percent.

Since the fiscal year began in July, income tax revenue is 19 percent less than last year and sales tax revenue is 11 percent less.

Only gambling revenue is higher than forecast. But that surplus is just $15 million.

The governor said there won't be any cuts to police or schools, yet.

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

House Speaker Patrick Bauer, D-South Bend, agreed the governor's cuts are "unavoidable."

However, Bauer said other pools of money, such as funds remaining from the $3.8 billion lease of the Indiana Toll Road, should be spent on projects to stimulate Indiana's economy.

"I think we ought to spend that on Indiana jobs, here in Indiana," Bauer said.

The state agency cuts account for more than half of the anticipated budget savings. With the latest cut, state agencies will be operating on 80 percent of the budget they had in July 2008.

Budget officials did not identify the specific sites and values of the delayed construction projects. University projects won't be affected, Daniels said.

The fund sweeps will take money leftover from earlier projects or attached to programs that don't use all their funds and transfer that money to the state's general fund. The money will not be paid back.

The Indiana Family and Social Services Administration will announce Monday how the Medicaid payment reductions will work. Doctors are not expected to be affected.

Illinois borrows instead of cutting

Gov. Pat Quinn announced last week he wants to borrow another $900 million to start paying off the state's $3.5 billion in late bills.

The $900 million would have to be paid back by June 30.

Illinois Comptroller Dan Hynes, Quinn's opponent in the Feb. 2 Democratic gubernatorial primary, would have to sign off on the short-term loan.

Illinois already borrowed $1 billion in May and $1.25 billion in August to cover revenue shortfalls. Those loans are also due June 30.

Health care and social service providers are already waiting up to 61 business days, or three months, to get paid by the state, according to the comptroller.

Indiana's Constitution prohibits the Hoosier State from engaging in similar short-term borrowing.

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