INDIANAPOLIS | A dark financial cloud hung over the Statehouse on Tuesday as lawmakers gathered for the General Assembly's annual Organization Day.

The dismal economic climate in which legislators will craft a new two-year state budget dominated discussion on a day usually reserved for the seating of new members and for speeches stressing bipartisan cooperation.

Indiana has $1.4 billion in rainy day funds heading into 2009 budget negotiations. And Democratic House Speaker Pat Bauer, D-South Bend, suggested lawmakers might need to tap those reserves to help balance a roughly $26 billion biennial budget.

"This is a rainy day," Bauer said. "I really believe this could be the most dramatic recession we've had."

Gov. Mitch Daniels agreed with the diagnosis but not the potential cure. The Republican governor, who on Friday ordered staff to evaluate the need for every vacant state job before authorizing new hires, said Indiana simply must keep spending in line with the new economic reality.

"Our objective will be to protect the reserve that we have, not knowing how long this downturn may last," Daniels said Tuesday. "We're not raising taxes. We're not going into gimmickry like delaying payments (to local government and schools). Those things are just not good practice anytime."

Northwest Indiana lawmakers, who welcomed in newly elected Rep. Chuck Moseley, D-Portage, and Sen. Lonnie Randolph, D-East Chicago, met privately Tuesday morning to discuss priorities for the coming session, which is scheduled to begin Jan. 7.

Several region legislators said seeking funding to redevelop the Lake Michigan shoreline, build a $300 million trauma care hospital in Gary and extend South Shore commuter rail service to Lowell are even more important in light of the faltering economy.

"Northwest Indiana, we're going to have to be very careful," said Rep. Ed Soliday, R-Valparaiso. "We're starting to lose jobs up there. We've got to be thinking about how we can create jobs up there."

Rep. Linda Lawson, D-Hammond, said preserving local bus service also tops the list of concerns. Hammond is planning to stop funding city buses in June, and the nascent Regional Bus Authority lacks the money it would need to take over municipal bus operations.