INDIANAPOLIS — Gov. Mitch Daniels urged lawmakers during his State of the State speech Tuesday night to end the practice of schools promoting third-graders to the fourth grade even if they cannot read well.

“We must address the single greatest cause of student failure, the inability of so many of our children to read proficiently,” Daniels told a House chamber packed with lawmakers, judges and others.

“If a school accomplishes nothing else in a child’s decisive first years, it simply must enable him or her to read and comprehend the English language,” he said.

A Senate committee plans to consider legislation to prohibit the “social promotion” of many third-graders who cannot read proficiently.

Daniels also used his speech to promote changes designed to remove the politics from redistricting, and to pass legislation to tighten ethics and lobbying rules. The Democrat-controlled House already has passed such an ethics bill, and the Republican-ruled Senate is working on its own version.

Daniels said lawmakers should work to streamline state government, in part by eliminating township boards that have more than 3,000 elected officials and transferring their duties to counties. The Senate has a bill that would eliminate township boards outright, while the House has passed legislation that would allow voters to decide in November whether to get rid of their township boards and township trustees.

Daniels acknowledged that the economy was taking a toll on state government and the lives of many Indiana residents.

Tax revenues have fallen far short of previous projections, forcing Daniels to make hundreds of millions of dollars in budget cuts in recent months, including $150 million from higher education and $300 million from public schools.

Even with those actions, a surplus that stood at $1.3 billion in July is expected to be drained by the end of the two-year budget cycle in June 2011 if revenue trends continue. But Daniels repeated his contention that Indiana was is in better fiscal shape than most states, many of which have or plan to raise taxes.

He used a Warren Buffett quote to help make his point.

“Our day’s most celebrated business sage says, ‘You don’t know who’s been swimming naked ’til the tide goes out.’ Well the tide is out, and now we know.

“I hope you will join me in saying tonight to the people of Indiana, for whom we all work, we will make the hard choices, we will stretch the available dollars, we will do whatever is necessary but we will not take the easy way out and we will not make this recession worse by adding one cent to the tax burden of our fellow citizens,” he said.

Daniels won passage of one of his top priorities earlier Tuesday when the Senate gave final approval to legislation that will let voters decide in November whether to amend limits on property tax bills into the state constitution.

State law already caps property tax increases on homeowners to 1 percent of their homes’ assessed values, with 2 percent caps on rental property and 3 percent caps on business property. But putting the caps into the constitution will make it harder for future legislatures to undo.

“You gave the people the chance to decide, as I believe they will, that lower property taxes are here to stay,” Daniels said.

Indiana’s unemployment rate was 9.6 percent in November, but it is lower than that of Indiana’s four neighboring states.

Daniels said Indiana is competitive when it comes to attracting new jobs. In 2009 when national business investment fell by almost one-fourth, he said, Indiana’s job commitments grew over a near record achieved in 2008. Indiana secured nearly 20,000 new job commitments last year, according to the administration.

Republican Rep. Doug Gutwein of Francesville,, who represents District 16, said the speech gave Hoosiers a hope for a better future.

“He assured the citizens of this state that while things across this nation are extremely difficult, Indiana is headed in the right direction,” Gutwein said. “One goal is simple: don’t raise Hoosiers’ taxes one single penny, find ways to bring new businesses and jobs to the state and continue to focus on education.

“If we can accomplish these things, and I certainly believe we can, we’re going to come out of these tough times ahead of other states.”

Another area representative agreed.

“I am pleased with the governor’s realistic address to providing solutions to overcome these tough times. We must maintain our Hoosier jobs, but also bring in more jobs to our state,” District 24 Rep. Rich McClain, R-Logansport, said. “While the reality is Hoosiers are suffering, we can and will turn things around and Indiana is in a far better condition to do so because of our continued fiscal restraint and ability to attract new jobs.”

Democratic House Speaker Patrick Bauer of South Bend and Senate Minority Leader Vi Simpson, D-Bloomington, said Daniels should have talked about more specific ways to bring jobs to Indiana.

“I heard absolutely nothing new,” Simpson said. “I heard no hope for people who are unemployed.”

“What they do not need to hear is another recitation of that tired old saying, ’We’re doing better than our neighboring states,”’ Bauer said.

Senate President Pro Tem David Long, R-Fort Wayne, said Daniels’ speech was positive and nonpartisan and spoke to Indiana’s environment for attracting new job commitments.

“We are distinguishing ourselves from our neighbors in the Midwest,” Long said. “We are doing something about jobs.”