Riding a surplus

INDIANAPOLIS-In the Bible Joseph got Egypt ready for a famine by saving up a surplus.

Indiana Gov. Mitch Daniels has followed Joseph's example, assembling a $1.3 billion surplus for his state in the midst of recession and in-house battles with the state legislature's Democrats.

Most states are addressing or face shortfalls in their budgets from 2009 nearly a month after their fiscal year 2010 began, according to the Center on Budget and Policy Priorities. Those shortfalls total $163 billion-or 24 percent of state budgets. Most plan to make up the difference using a combination of federal stimulus dollars, service reductions, revenue increases, and funds from reserves-with Indiana, North Dakota, and Montana leading the nation in boasting current surpluses. While other states have raised taxes, pleaded for federal bailouts, and cut spending, Daniels led his state's General Assembly this summer to adopt a budget that actually boosts spending on education.

A politically divided legislature could not agree on a budget in the spring regular session so Daniels called a special session, balancing his fiscal conservatism against Democratic Party pleas for more education spending. Daniels yielded some ground to Democrats with their House of Representatives majority. The result: a $27.8 billion budget that positions the state to weather more economic hard times.

Now in his fifth year as governor, Daniels has gained a national reputation as a budget-cutting chief executive. He inherited an $800 million deficit after his 2004 election and rapidly cut spending. He balanced the budget in his first two years, then gained a $1.3 billion surplus, without tax increases, by the end of fiscal year 2009 in June. He slowed state spending growth from 5.9 percent to 2.4 percent. He persuaded the legislature to adopt a cap on property taxes and introduced several measures for leaner state government, such as more competitive bidding for state services. The state also has attracted new business, including a Honda plant in Greensburg, Ind.

Daniels' boldest move was a 75-year lease of the state's toll road, giving the state an unexpected $3.8 billion bonus. That decision was unpopular in the northern toll road region of the state, and some thought it could cost him reelection in 2008. His approval rating dipped to 37 percent in 2006 and contributed to the Democrats' winning a House majority. Now, in a sour economy, the state has massive highway construction and repair initiatives-projects previous governors balked at, failing to see the financial potential in running the toll road as a business.

Daniels also confronted an issue most previous governors have avoided and few states confront: time change. He succeeded in persuading the General Assembly to move the state to daylight-saving time, a divisive issue in a state divided between business interests, particularly Chicago-area workers, and agriculture. He also has rocked the boat on education, finding his own candidate for Superintendent of Public Instruction, Tony Bennett, and pushing aside fellow Republican Suellen Reed, who decided not to seek another term. Daniels and Bennett blocked a Democratic Party cap on charter schools and adopted tax incentives for private-school alternatives for low-income families. In social services Daniels revamped the state's approach to child abuse, adding 800 social workers and supervisors to relieve heavy caseloads that contributed to the deaths of several children.

Daniels has made his mistakes. Soon after taking office, he proposed a temporary income tax boost on the wealthy, which Republicans killed. "It was a mistake," he later said. "I didn't do enough consulting."

House Speaker Pat Bauer, a Democrat from South Bend, said that Daniels became a better governor after the Democrats won a House majority in 2006. "He had to reach out to the other side, and it was better for him. . . . In his first two years he was still learning the process, and he felt he could just ram and jam."

Daniels is pro-life and pro-family but doesn't position himself with Religious Right activists. His wife Cheri supports crisis pregnancy center ministries, and several of his four daughters have been active in Christian ministries. When Daniels was a top business executive at Eli Lilly in Indianapolis, he helped start the Oaks Academy, an inner-city c-lassical Christian school with a 50-50 black-white student ratio. The governor knows Oaks students by name, praying for them and monitoring their progress. At the school's 10th anniversary last year, he remembered the early days of the school, hard discussions about black-white leadership, prayer meetings when money was running out, and choked with emotion as he told students, "This project is the most important human endeavor I've ever been involved in."

For his 2004 campaign, Daniels drove across the state in an RV. He stayed in people's homes and wrote a blog as he learned how the rural sections and small towns had suffered from population drift to bigger cities. In 2008 he won reelection by picking up a large number of Barack Obama voters, as Obama became the first Democrat to carry Indiana for the presidency since 1964.

Speculation for the 2012 presidential race (when his gubernatorial term in office ends) is inevitable, but Daniels has officially shut the door on a presidential run. Notre Dame's Robert Schmuhl, who teaches journalism and American Studies, thinks that Daniels' record could keep him in speculation as a possible candidate. "He's won twice in Indiana and changed the direction of the state," Schmuhl said. "He's a very good campaigner and deceptively so. He is not out of central casting. Yet he is very able as a political candidate."

Daniels grew up in Indianapolis, attended Princeton, received his law degree from Georgetown. He was an adviser in the Reagan White House and director of the Office of Management and Budget under President George W. Bush. But those who've known him all along never envisioned him running for office, winning on his first try, or becoming one of the most effective recent governors in the state. So he might surprise everyone if he changes his mind about the presidency.