Governor gives up tax fight

Gov. Frank O'Bannon has dropped his plan to raise cigarette taxes to help the state out of its $923 million revenue shortfall. \nAngela Belden, O\'Bannon\'s press secretary, said the governor found little support for the plan in his weekly breakfast with top legislators Wednesday. \n"It's off the table for this year," she said. "Still, the governor hopes legislators will see the need to pass a responsible budget, even if they haven't embraced his proposal."\nA decrease in tax collections arising from a slowing national economy threatens to wipe out the state's projected $874.3 million surplus. State coffers have also dwindled in recent years with tax cuts and new prisons.\nTo solve the severe shortfall, O'Bannon suggested a suspension of a two-year property tax credit and a 50 cent hike per pack of cigarettes last week. It met up with a cool reception from Senate Republicans and many House Democrats, especially after those in the 16 southern counties in which tobacco is grown. House Ways and Means Committee Chairman Pat Bauer, D-South Bend, pronounced the proposal "dead on arrival."\n"There's no need for any sort of tax hike," Senate Republican Caucus spokesman Robert Campbell said. "We have enough revenue to get by, and it's a temporary situation."\nFiscal leaders in both chambers continued private talks in conference committee Thursday, hoping to reach a budget agreement before the regular session deadline of midnight Saturday.\nIf lawmakers cannot agree on a two-year spending plan by then, O'Bannon would be forced to call them back for a special session. The current two-year budget expires June 30.\nBut Senate Republicans remain optimistic a deal can be reached before the General Assembly will have to adjourn.\n"We should have a bipartisan agreement reached by tomorrow," Campbell said. "We want to have a day to look it over rather than push it through last minute."\nShunning O'Bannon's tax hike proposal, Republicans support using bookkeeping tactics to free up money over the next two years. They also proposed tapping into the state's Rainy Day Fund, a $2 billion cash reserve saved up in the event of a recession.\nO'Bannon has frowned upon dipping into the fund this session, but Belden said he "would take a hard look into it."\nEducation funding continues to be the main sticking point in budget negotiations.\nHouse Democrats are seeking 4 percent increases for schools and universities to keep place with inflation. Along with university officials, they contend such funding levels are needed to avoid teacher layoffs and substantial tuition increases at universities.\n"We realize that these are tough fiscal times," IU spokeswoman Susan Dillman said. "But we hope lawmakers will realize that it's not only an investment in education -- it's an investment in the state economy."\nWith the downturn in the economy, Republicans maintain increases at those levels might not be possible.\n"The current figure we're throwing around is three percent," Campbell said. "We'll probably meet them in the middle"