By calling Friday for emergency budget cuts that include a pay freeze for the state’s 30,487 employees, Gov. Mitch Daniels said he hopes to avoid measures such as pay cuts, unpaid furloughs, layoffs and cuts to school funding.

But he’s not making any promises. Especially concerning layoffs.

Month after month, the anemic economy has produced state revenue far below projections. State tax collections are already a half-billion dollars behind the tally last year at this time. And that’s in a fiscal year that started July 1. In October alone, tax collections fell $46 million short of projections.

“At this point, we’ve seen enough to know that new actions are necessary,” Daniels said. “With regret, we’re going to take a series of actions on top of the hundreds we’ve already taken to live within our means in Indiana.”

To stop the bleeding, Daniels announced Friday that state employees will not receive a raise for the second straight year, and state agencies will have to cut their budgets by an additional 5 percent.

In the state’s new two-year budget, those agencies already had their spending cut by 10 percent, and department heads were asked to cut 5 percent in July. With the latest round of cuts, state agency spending will be nearly 20 percent lower than in the last fiscal year.

Since agencies have had to cut so much, Daniels said he could not guarantee that no state employees would be laid off as part of the latest spending reductions.

“Up to this point, we have managed with few, if any, involuntary terminations, except for poor performance. I can’t say that will remain the case here,” he said. “If anybody is displaced, we will put them at the front of the line for any openings that do occur in state government. It may not be avoidable. We’ll sure try to minimize it.”

Daniels said he’d forgo a scheduled pay increase to $107,000 from his current salary of $95,000, but he said the state likely would continue to give out a small number of bonuses and pay raises for “top performers.”

Chris Ruhl, the state’s budget director, said the new round of 5 percent cuts for agencies combined with the 5 percent trimmed in July should save the state $240 million to $250 million. Pay freezes would account for an additional $25 million to $30 million in savings, he said.

Millions more would be saved by transferring money from dedicated or earmarked funds that have surpluses and delaying state building projects, except for those at universities. State budget officials released a limited number of examples but had not determined a complete list of projects to be delayed or how much they would save.

The governor also said some reimbursements to Medicaid providers would be reduced to create more savings. Daniels said the Family and Social Services Administration would announce the details of that decision Monday but added it would be private contractors, not doctors, who would have reimbursements reduced.

In total, Daniels said the decisions he announced Friday should save the state $300 million to $400 million, which he said was “enough to handle the shortfall to date.”

If the state continues to miss revenue projections badly, Daniels warned, spending cuts to public education would be on the horizon. Public schools, which account for 48 percent of the state budget, are to receive a 1 percent state funding increase in 2010 and 0.3 percent in 2011.

“I hope we can deliver that increase, but it’s going to be hard to do that,” Daniels said. “If we’re growing half the budget, it’s hard to achieve the necessary savings out of what remains.”

Indiana is one of just a few states that passed an increase in education funding this year. At least 35 states have cut K-12 funding.

House Speaker B. Patrick Bauer, D-South Bend, who criticized Daniels for not providing a larger increase in education funding, said Friday that the governor’s warning about cuts to education was “appropriate.”

Bauer also abandoned his calls for Daniels to spend the state’s $1 billion in reserves to create jobs.

“We’ve lost $300 million since then,” he said. “So losing $300 million will make you say not to spend it.”

Although he did not disagree with any of Daniels’ decisions, Bauer said he’d like to see more detail on how the spending cuts would be accomplished, particularly the reduced Medicaid reimbursements.

Bauer also committed the House of Representatives to a 10 percent budget cut, and he said he would explore moving to a paperless system to handle legislation to cut down on the thousands of pages of bills printed for lawmakers, which he said costs 6 cents per page.

Most of all, Bauer said he was concerned about the prospect of layoffs for state employees.

Daniels did not raise that possibility in a letter he sent to state employees Friday, but he did mention that other states have “laid off thousands of employees and slashed pay for the rest.”

“I won’t ask you to accept this decision cheerfully or even agree with it,” Daniels wrote. “I regret having to deliver this news and remain deeply grateful for your service to Hoosiers.”

CORRALLING CASH

In addition to freezing pay for state employees, cutting state agencies by 5 percent and reducing Medicaid reimbursements,

the state also will delay non-university building projects and transfer money from some earmarked or dedicated funds.

State budget officials did not release a complete list of projects to be delayed or funds that would be tapped, but did release these examples, without associated costs:

Building projects

Replacing fire detection system in government center buildings.

Upgrading fire alarm systems in government center buildings.

Upgrading Indiana State Police communication towers.

Replacing ventilation system at Evansville Psychiatric and Children’s Center.

Drainage improvements at the Evansville State Hospital.

Replacing ventilation system in the natatorium at the Indiana School for the Blind.

Updating the student library and replacing the perimeter fence at the Indiana School for the Deaf.

Placing new historic site exhibits signs.

Construction of a new maintenance building at Chain O’Lakes Correctional Facility

Demolition of a cottage at Plainfield Education Re-Entry Facility.

Dedicated funds

State Budget Agency’s Personal Services Contingency Fund, which covers costs for salary increases, bonuses and health care.

Gaming Fund, which includes excess funds paid to the Indiana Gaming Commission.

Post War Construction Fund, which uses alcoholic beverage taxes to pay for upgrades at older facilities such as state hospitals, prisons and the schools for the deaf and blind.

Office of Technology Rotary Fund, which charges agencies for technology usage and pays for technology enhancement.

Lake and River Enhancement, a Department of Natural Resources fund.

Regional Health Care Construction Fund, which includes excess funds for building projects at health facilities that either never were built or completed under budget.

Recycling Promotion and Assistance, a Department of Environmental Management fund used to promote recycling.

Brownfields Fund, a Finance Authority fund used to match federal funds for brownfield redevelopment.

Waste Tire, a discontinued Department of Environmental Management program, funded by fees associated with tire purchases that advocates for tire re-use.

Excess flood relief assistance, extra funds set aside to match federal relief for past floods.

Excess accounting software funds, money left over associated with the state’s recent conversion to a centralized, electronic accounting system.

New Castle Lease Fund, money left over from building projects at New Castle Correctional Facility that was paid for out of another state fund.

State Solid Waste Management, excess funds from waste management fees the state uses for its regulatory program.

— Source: Chris Ruhl, director of State Budget Agency