The House and Senate budget proposals for economic development, workforce development and housing cut funding far below the Governor’s recommendations. The House proposal (House File 1049) contributes $87 million toward solving the deficit and the Senate bill (Senate File 887) contributes $65 million towards solving the deficit. In contrast, Governor Dayton’s budget recommends a net $3 million in cuts.
With such large savings targets, these legislative proposals would seem to require deep spending cuts. However, both the House and Senate plans transfer significant amounts of money from dedicated accounts to the general fund, avoiding deeper cuts.
Economic and workforce development. The Department of Employment and Economic Development (DEED) is the agency primarily responsible for workforce development. The Governor proposes a 10 percent increase in its general fund base budget for FY 2012-13, the House cuts funding by one percent, and the Senate cuts funding by six percent.
The House and Senate proposals reduce funding for a number of DEED-run grants for economic and workforce development. These grants fund a variety of services – such as job training, career planning, business development and financial education – to a variety of disadvantaged and disabled people, as well as young people just entering the job market. The House and Senate propose deeper reductions in these grant program than the Governor. Following a recommendation from the Legislative Auditor, the Senate also converts many of these grants into competitive grants instead of naming grantees in statute.
The Governor’s proposal increases funding for both Vocational Rehabilitation Services, which provides employment services for people with significant disabilities, and State Services for the Blind, which helps Minnesotans who are blind, visually impaired or Deafblind with their employment skills. This increased funding would allow the state to draw down additional federal matching funds. The House includes these funding increases; the Senate does not.
The Governor also proposes $5 million in one-time money to local governments to aid in expanding businesses, creating jobs and cleaning up blighted properties for redevelopment. The House and Senate proposals do not include this local economic development funding.
Affordable housing and housing development. Overall, the Governor cuts the Minnesota Housing Finance Agency’s general fund budget by five percent, the Senate cuts it by seven percent and the House cuts it by 11 percent. Efforts to preserve and rehabilitate affordable housing units are the hardest hit by these cuts. The proposals largely protect services for those who are homeless or at risk of being homeless. The Governor also shifts $2 million from another housing fund to preserve 150 rental assistance opportunities within the Housing Trust Fund. The Senate does not provide any resources to preserve this rental housing and the House proposal actually cuts the Housing Trust Fund by $500,000 in FY 2012-13.
One-time transfers from other funds. Cuts to workforce development and housing will have an important impact on Minnesotans struggling to find and keep employment and those seeking affordable and stable housing during this slow recovery. However, the cuts make up only a small portion of the budget changes in this area. More than 80 percent of the savings in the House and Senate bills comes from transfers from other funds. In total, the Governor uses $6 million in transfers from economic development and workforce funds to help resolve the general fund deficit. The Senate transfers a total of $54 million and the House transfers a total of $76 million.
- Mining companies pay into the Douglas Johnson Economic Protection Fund in lieu of property taxes. The Senate transfers $45 million to the general fund, repaying the loan with interest over three years beginning in FY 2015. The House transfers $60 million with no payback provision. The transfer reduces the Iron Range’s ability to respond to economic development and job creation opportunities, and uses the money for a purpose for which it was not intended.
- The Workforce Development Fund pays for job training and business development programs and is funded by payroll taxes. The Senate proposal transfers $9 million to the general fund in FY 2012-13, filling the state’s budget deficit with money intended to help with job training for youth, people with disabilities, and other disadvantaged populations.
- The Unemployment Insurance (UI) Contingent Account gets money from the penalties and interest on unpaid employer UI taxes and is used for UI administration. All three budget proposals continue a long-standing practice of transferring some of the available funds to help out with shortfalls in the general fund or backfill cuts in other funds.
The House and Senate budget bills are moving quickly towards a conference committee. As legislators look to reach a compromise with Governor Dayton, negotiations will surely focus on the heavy use of one-time transfers. These short-term fixes only highlight the point that the state needs to find a balanced solution to the budget deficit, one that includes new revenues.