Updated projections from Indiana's economic forecasters are expected to knock more than a billion dollars out of the state's already pinched bottom line.

Analysts will update their projections next month, a couple of weeks before legislators finalize the state's next budget. Governor Mitch Daniels expects the projection for the next two years to slide by another $1.2 billion or so, and says budgeters need to start planning accordingly now.

The state already downgraded its forecast for what's left of this fiscal year in December. In three months since then, the state has missed even those reduced targets by $217 million.

Daniels is repeating his insistence on pulling back hard on state spending, leaving reserves intact as a failsafe.
"You simply have to make some decisions you'd rather not make, but we've shown an ability to do that," Daniels says.

The governor has been similarly adamant about not using federal stimulus money to prop up the budget, warning that spending the money on regular expenses instead of one-time projects will leave the budget in worse shape when the stimulus ends in two years.

But Daniels and Senate Republicans appear ready to make an exception for schools. The stimulus bill set specific guidelines for spending the money, generally requiring it to be spent within two years. Daniels is interpreting that to mean that as long as the state promises to spend the money for its intended use, it has some wiggle room on when.

Daniels has signaled support for budgeters' proposal to pump some stimulus money into schools to give them a needed boost, while holding some federal cash in reserve to create a fiscal glide path once the stimulus goes away.