INDIANAPOLIS - Gov. Mitch Daniels says that before he call Indiana lawmakers back for an overtime session, he wants them to grasp reality and understand they'll have to restrict spending to weather the down economy.
After days of intense negotiations, lawmakers in the Democratic-controlled House and Republican-dominated Senate got close but failed to reach agreement on a budget ahead of Wednesday's deadline.
Daniels said it wouldn't have mattered, because he would have vetoed the one they were discussing anyway.
"The budget had no redeeming features, and there just wasn't a middle ground to be found," he said.
Lawmakers differed on how much money should be held in reserve.
House Democrats agreed to protect the current $1.3 billion surplus, but Senate Republicans wanted to trim $100 million from education spending to boost the surplus to $1.4 billion.
The Senate passed its budget, but when the House brought the Senate Republican budget to a vote, it failed with all House Republicans and some House Democrats voting against it. But the governor said both sides were dramatically overstating the amount of money the state will have to spend.
Daniels said even the leanest budget the lawmakers discussed would have eaten through the surplus and forced tax increases and service cuts.
State economists are projecting tax collections will continue to plummet. April tax revenue could be as much as $200 million less than a downgraded revenue forecast issued less than two weeks ago, he said.
Daniels said those new numbers should be a wake-up call to lawmakers who think the budget that failed Wednesday night was the leanest it could possibly be.
He signaled he'll wait a few weeks before calling them back for a special session to try to pass a budget again.
"The right time for them to come back is when they're ready to face reality and not pretend we'll have revenues that we already know we won't have," Daniels said.
A special session costs taxpayers more than $12,000 a day in pay for legislators. .
Legislative leaders suggested Thursday a compromise budget be negotiated outside a special session, and that the governor only call lawmakers back to pass that budget.
Senate Majority Leader David Long, R-Fort Wayne, said one avenue might be the State Budget Committee, which is a bipartisan panel of lawmakers that includes Democratic Rep. Dennis Avery of Evansville, as well as the state budget director.
At the beginning of the session, Daniels offered the framework of the budget he said he wanted. However, declining revenues have rendered that plan obsolete, too, he said.
Long said Daniels should offer a complete budget that includes a school funding formula before calling lawmakers back. That, Long said, should serve as a starting point.
House Speaker B. Patrick Bauer, D-South Bend, said Daniels should wait until June to call lawmakers back. That would allow them to consider a budget with April and May revenue reports in hand.
The last time lawmakers were called into a special session was the summer of 2002, when they increased taxes to help avert a budget deficit.
If the General Assembly doesn't adopt a budget by the time the current fiscal year ends June 30, much of the state government could shut down without funding.