CHICAGO -- The Indiana General Assembly late Wednesday overrode Gov. Evan Bayh's veto of the primary bill for the state's fiscal 1994-95 budget hours before the start of the new fiscal year.

Earlier in the day, Bayh vetoed the $13.4 billion general fund budget with no tax increases that the Democrat-controlled House and Republican-controlled Senate sent to his desk that same day.

In his veto message, Bayh said that the budget will require "massive spending cuts in every part of state government to enable the state to pay its bills on time." He said the cuts may not be sufficient and a tax increase may be necessary.

Following the override, Bayh yesterday ordered $160 million of emergency spending reductions to offset the impact of what his office called a "bankruptcy budget."

"The budget adopted by the legislature poses a grave threat to our state's fiscal stability," Bayh said in a press release. "I owe it to the people of the state to do everything in my power to keep those threats from materializing."

Sen. Robert Garton, R-Columbus, said that he was "overall pleased" with the final outcome.

"It's a workable budget that meets the needs of the state," Garton said.

"Everybody's relieved it's over," said John Grew, a House Democratic fiscal analyst, who added that there were no winners or losers in the battle to pass the budget.

Grew said that House Democrats tried to advance Bayh's proposal for a cigarette tax increase, which would have provided more funds for education, but were blocked by the "majority in the Senate who are not willing to look at revenue enhancements."

The budget provides $338 million more in Medicaid funds than Bayh originally called for. However, various Medicaid cost controls that the governor supported were approved, according to Mark Moore, the state's special liaison for public finance.

The budget also allows for a 3.3% average increase in school funding, Moore said. The governor in January had proposed a 2% increase in funding for schools.

Several measures proposed by Bayh that would have limited school property tax levies for debt service, curbed lease-backed debt issuance, and restricted library and school transportation fund levies were not approved by the legislature, Moore said.

Moore said the legislature went along with Bayh's proposal for a moratorium on new higher education bonds in the 1994-95 biennium.

In addition, a bill that would have eliminated the state income tax exemption for interest paid on out-of-state bonds did not pass, Moore said.

A measure allowing riverboat gambling was passed as part of the budget. It had been added to the budget bill last week in the Senate by 20 Democrats, joined by nine Republicans. Legislative officials said that the riverboat plan passed because of support from a group of downstate Republican lawmakers who saw the potential economic benefits for their districts.

The measure allows five riverboats on Lake Michigan, five along the Ohio River, and one on Patoka Lake near French Lick. Two of the Lake Michigan riverboats will be located in Gary.

The riverboats will be subject to referendums in all cities or counties except Gary, where voters already have approved casinos.

Garton, who opposed riverboat gambling, said that he was forced to vote for the combined budget and riverboat bill for the good of the state.

"I only had one vote," Garton said. "In this case, the subjects were wedded together. That's what happens when you have a difficult time representing constituents and are forced to choose."

Robert Durante, an associate director at Standard & Poor's Corp., said that the budget is under review by the rating agency. George Leung, vice president and managing director at Moody's Investors Service, said the rating agency is expected to review the budget with state officials shortly. Indiana does not issue general obligation debt.

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