New Ind. Governor Takes Hard Fiscal Line

School Aid Holdup, Proposed Tax Hike Each Draw Criticism

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A decision by Indiana Gov. Mitch Daniels to withhold millions of dollars in funding from school districts in an effort to balance the state budget has some district leaders and lawmakers accusing his recently inaugurated administration of bucking long-standing tradition.

While there is typically a shortfall between what Indiana districts expect to receive in state aid and the amount of money initially set aside by the legislature, the state usually makes up that gap. The shortfall this year is $27 million out of $3.7 billion in total school aid.

But Mr. Daniels has pointed to a $600 million deficit in the state’s $11 billion budget for fiscal 2005 as reason to be more prudent about spending decisions and said districts are not entitled to that money.

Indiana Gov. Mitch Daniels chats with Rep. Ralph Ayres following a speech on Jan. 19.
Indiana Gov. Mitch Daniels chats with Rep. Ralph Ayres following a speech on Jan. 19. Gov. Daniels, a former White House budget chief who is in his first year as the state's leader, is living up to his reputation for being frugal.
—Michael Conroy/AP

The first-year Republican governor—a former director of the White House Office of Management and Budget whom President Bush nicknamed “The Blade” for his budget-trimming skills—has wasted little time in taking a more critical look at how money is being spent in the Hoosier State.

The governor already has created, by executive order, a Department of Government Efficiency and Financial Planning to oversee how tax dollars are distributed, and he has vowed to rein in what he sees as bloated school construction projects. During his State of the State Address last month, he called for a 120-day moratorium on issuing school construction bonds because of concerns about expensive school facilities.

Gov. Daniels has not only irked some Democratic leaders in the state, but also fiscal conservatives on the national scene, who went after the governor for proposing a one-year, 1 percent boost in state income taxes paid by individuals earning over $100,000. The plan is still before the state legislature.

In a Jan. 31 editorial, The Wall Street Journal called the proposal “a pocketbook raid.”

Meanwhile, the decision to hold back funding that districts had expected to receive has some school leaders worried that they may have to make more cuts to already austere budgets.

Cuts Ahead?

The 40,000-student Indianapolis public schools expect to lose more than $2 million in state money if the governor’s decision stands. As a result, local officials say the district may have to lay off teachers and other staff members.

“It’s frustrating, and it makes it difficult to plan,” said Mary Louise Bewley, a spokeswoman for the district. “We try and recruit teachers to come to our district, but when there is talk of losing staff, folks don’t want to deal with that uncertainty.”

The 16,000-student Lawrence Township schools would be out $424,000 in the spring and another $399,000 in the fall if the governor does not change course, according to district Superintendent Michael Copper. At least 14 teachers could lose their jobs by the fall, he said.

“The dilemma for us is this game has been changed, and we are in the middle of it,” Mr. Copper added. “It’s difficult for financially strapped districts. It’s a major dilemma for us.”

Gov. Daniels’ office did not respond to requests for comment.

Adding to the frustration of some lawmakers is a $20 million reserve in the state department of education that former Gov. Joe Kernan, a Democrat, and state education leaders created in 2004 to make up just such a budget shortfall.

‘Whole New Day’

“I’m very concerned about the blasé way the governor made this determination,” said Sen. Vi Simpson, a Democrat. “When we budget for particular appropriations, that is a promise we make to our schools, and the governor seems not to have any regard for that promise.

“I have been here 20 years,” she said, “and I can’t remember ever withholding this payment. … It seems very strange to me. There are funds set aside in the department of education.”

Mary Tiede Wilhelmus, the director of communications for the Indiana Department of Education, said that while $20 million was put into a “reverting account” that could be directed to general budget funds, the agreement to use the money in case of a shortfall was made under previous state leadership.

“It’s a whole new day,” she said. “It’s a new administration.”

Ms. Wilhelmus noted that the legislative session is ongoing, and that lawmakers could ultimately come up with the money. The Indiana legislature is currently under Republican control in both chambers, though it’s unclear how leading GOP lawmakers feel about the governor’s stand on the use of the reserve fund.

Until then, she said, districts are left waiting.

“It’s going to hurt locals,” she said. “They are very concerned, as well they should be.”

Vol. 24, Issue 23, Pages 25, 28

Published in Print: February 16, 2005, as New Ind. Governor Takes Hard Fiscal Line
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