INDIANAPOLIS | State budget talks took a frugal turn Wednesday with release of a new revenue forecast suggesting the two-year, nearly $30 billion spending plan that failed last month was about $1.1 billion too big.

Democrats assailed the new projections, which are on par with the spending restraint Republican Gov. Mitch Daniels has advocated. But GOP lawmakers put a positive spin on the tumbling tax-collection targets, saying Indiana can use federal stimulus dollars to at least continue funding schools and other priorities at current levels.

"We sort of have a manageable problem here," said Senate Appropriations Chairman Luke Kenley, R-Noblesville. "That (failed) budget reflected an increased level of spending, and I think the reality is hitting us now that we're closer to a flat-line situation."

Bipartisan staff for the State Budget Committee, a House-Senate panel, predicted state tax collections for the fiscal year that ends June 30 will finish 7.5 percent below last year, for a drop of nearly $1 billion. Next year, revenues had been expected to grow about 1 percent, but the new forecast projects a 1.1 percent decline from July through June 2010, before a 4.7 percent increase in the fiscal year ending in June 2011.

"A critical first step towards building a good budget is a reasonable, realistic revenue forecast, and we believe we have that at this point," said Chris Ruhl, the governor's budget director.

Daniels pressed for a revised forecast after last month's actual tax collections came in $255 million below projections lawmakers received April 17.

The governor chided lawmakers for using the earlier revenue estimate to craft a budget proposal he said was at least $1 billion out of balance. That spending plan failed overwhelmingly in the Democratic-controlled House on April 29, the final night of the four-month legislative session, necessitating a special session expected to start June 15.

The new forecast released Wednesday reduced revenue targets by $444 million for the final months of the current budget year, $332 million for fiscal year 2010 and $316 million for 2011. It sets the stage for a two-year budget that spends roughly $27 billion in state money and $2 billion in one-time stimulus dollars.

"I would say that this is a great forecast for all of the people that wanted to take a meat ax to education and job-creation efforts," complained Rep. Scott Pelath, a Michigan City Democrat and top lieutenant to House Speaker Pat Bauer. "Certainly if you do the forecast enough times, you end up getting the answer that you want."