Gov. Tim Pawlenty presented his preliminary answer to the state’s $4.8 billion question on Jan. 27.
His proposal? Fix the state’s projected budget deficit with $2.5 billion in spending cuts, $1.3 billion in accounting shifts, nearly $1 billion in “tobacco appropriation bonds” and an unknown amount of federal stimulus dollars.
The math is complicated, but the result would be to shrink state government by 2.2 percent, or $750 million, from current biennial spending levels. Pawlenty said his plan balances fiscal responsibility with the needs of the state.
“This budget involves some tough decisions; we realize that. But we also believe they are the decisions that reflect the priorities needed to position Minnesota for the future,” he said.
Among the areas hardest-hit by the governor’s plan would be health and human services. Although health spending would technically increase 9.6 percent under the governor’s plan, spending would be significantly lower than the 22 percent increase that was projected. As a result, approximately 84,000 fewer adults would be eligible for state health care programs over the next two years — although no children would be affected.
Local government aid and higher education would see reductions of 5.4 percent and 8.2 percent, respectively, while most state agencies would see an across-the-board 5 percent reduction in their operating budgets. The resulting savings, however, would be at least partially offset by $287 million in tax cuts aimed primarily at businesses. Pawlenty said making the state’s tax climate more business-friendly would help the economy recover.
Not everything in the governor’s plan consists of cuts. K-12 education would actually see a slight funding increase, with an emphasis on pay-for-performance programs; however, accounting shifts in the form of delayed aid payments to schools are also called for to provide temporary savings.
Legislative leaders reacted cautiously to the governor’s plan. House Speaker Margaret Anderson Kelliher (DFL-Mpls) said she and other DFL lawmakers will travel around the state in the coming weeks and seek public input on how the proposals would affect their communities. She also expressed skepticism about some of the governor’s ideas, such as the K-12 accounting shifts.
“This budget appears to be full of some gimmicks, and we are going to take a close look at that,” she said, adding, “It is a concern that if you build a budget completely out of those things, the long-term financial stability of the state could be at risk.”
Among concerns addressed by House Majority Leader Tony Sertich (DFL-Chisholm) was that the governor’s budget would lead to increased property taxes, higher tuition for college students and the loss of health care benefits for some Minnesotans. He also expressed doubt about the governor’s plan to raise nearly $1 billion in one-time money by bonding future revenues from the state’s decade-old tobacco settlement — the so-called “tobacco appropriation bonds.” He said nothing like it had ever been tried in Minnesota.
“This is something that we’re going to look at and see if it would work, and if it does not, that would put in serious jeopardy the governor’s proposal,” he said.
The governor’s proposals lay out “the blueprint,” in Sertich’s words, for the issue that will dominate the remainder of the legislative session; however, that blueprint is likely to change before lawmakers even get started on their own version.
To start with, the governor’s plan assumes a $920 million “placeholder” for funds from a forthcoming federal stimulus package. That legislation is expected to be passed by Congress and signed by President Barack Obama in the coming months; however, the final dollar amount of Minnesota’s share is yet to be determined, and is likely to be different — possibly much larger — than $920 million. Pawlenty said his budget proposals would be adjusted when state officials have a better idea of how much stimulus money will actually be available to shore up the General Fund.
The other event that will likely force a review of the governor’s budget proposals is the release of the February budget forecast, which state officials have hinted may predict an even worse financial situation for the state. More budget cuts might be necessary if state officials forecast a $6 billion or $7 billion deficit; however, Pawlenty said more federal stimulus dollars might help cancel out a larger deficit.
Republican leaders criticized the DFL majority for not offering their own ideas to fix the budget. House Minority Leader Marty Seifert (R-Marshall) said the Democrats were taking too long to come up with their own plan to counter the governor’s proposals, and urged them not to wait longer.
“They’ve had two months of time to listen to the public. We’ve had the (budget) forecast on our desks now since November. We know what the problem is, so now we need solutions, and we need leaders,” Seifert said.
Similarly, Senate Minority Leader David Senjem (R-Rochester) compared the budget process to a card game in which the governor had laid his first card on the table. Now, he said, the DFL leadership should lay down one of their own.
“We now want to see what the other proposals are,” Senjem said. “We would ask the other party to come along now, play along with the governor in terms of this process, and let’s move forward and make sure that we’re done on time, because we don’t need to be here in July or August trying to figure this out.”
Reaction to the governor’s proposals from House committee and division chairs was mixed.
Rep. Paul Marquart (DFL-Dilworth), chairman of the House Property and Local Sales Tax Division, said he respects the governor’s budget proposals, and sees them as an attempt to set priorities amid “a very dire situation.” His main concern is making sure that any cuts to local government aid are done in a way that is geographically balanced and that protects middle class interests.
“Too many times, as we’ve balanced the budget, we’ve done it on the backs of those who can afford it the least,” he said.
House K-12 Education Finance Division Chairwoman Rep. Mindy Greiling (DFL-Roseville) criticized the K-12 accounting shifts. She said that rather than solving budget problems, they would actually create more problems for the Legislature to deal with in the future.
“I hate shifts,” Greiling said. “It will flat-line schools for quite a while, I think, because it means that whenever we get money we have to keep taking huge chunks of it to pay this back. And it looks like we got money, but we did not.”
Rep. Paul Thissen (DFL-Mpls), chairman of the House Health Care and Human Services Policy and Oversight Committee, said the governor’s proposed health care cuts would cancel out some improvements that were made last session. He specifically mentioned the Statewide Health Improvement Program, which helps communities develop strategies to support healthy behaviors. It would see its funding reduced from the anticipated $47 million for the 2010-2011 biennium to $24 million, spread out over four years.
“This seems totally contrary and going absolutely against the governor’s own perspective on wanting to control the growth in health care spending,” Thissen said.
House Taxes Committee Chairwoman Rep. Ann Lenczewski (DFL-Bloomington) said her committee would try to find as much common ground as possible with the governor, but that she personally would prefer more “permanent solutions” to the state’s budget woes.
“We’ll look at what we might want to take from the governor and use, and other places where we’ll need to negotiate. We’re trying to keep an open mind, but it’s difficult to imagine how we’re going to structurally deal with the deficit,” she said.
— Kris Berggren, Susan Hegarty, Sonja Hegman and Lee Ann Schutz all contributed to this article.