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Minnesota Government Update

March 20, 2009

Governor Pawlenty Releases Revised Budget
Governor Tim Pawlenty released his revised State budget this week shortly after Senate DFL leaders called for 7 percent across-the-board cuts in their own budget proposal. Under the Governor's revised budget, the total amount of state general fund expenditures in FY 2010-2011 would be $32.6 billion, an approximate 4 percent reduction from the $33.9 billion in general fund expenditures in the current biennium.
Pawlenty's updated budget would spend $424 million of federal stimulus money on education, resulting in a $27 million increase from his January budget proposal which itself included a $156 million boost in spending for this area.
Pawlenty announced his revised budget proposal after the economic forecast released earlier this month by Minnesota Management and Budget showed a $4.6 billion deficit for 2010-2011 biennium. With the help of federal stimulus money, the shortfall in the new forecast and declined from $4.8 billion forecast in February.
By tapping $2.6 billion in federal stimulus money and another $2 billion of one-time money that he has proposed through accounting shifts and a sale of bonds, Pawlenty was able to prevent some cuts in basic services. In Tuesday's proposal, Pawlenty restored $304 million in cuts he had proposed for higher education. His proposal also would exempt up to $2,400 in unemployment insurance benefits from state taxation for 2009.
Two significant budget changes come in public safety and health care. Pawlenty would have short-term offenders serve their time in state prisons instead of local jails, sparing counties $8 million in expenses while closing off attempts to plea bargain in return for a local sentence.
Regarding health care, Pawlenty is barred for now from cutting eligibility for programs until 2011 (something he proposed in January) because of maintenance of effort requirements for federal stimulus funds. Beginning in January 2011, an estimated 113,000 Minnesotans would become ineligible for subsidized health care, and state spending for health care would be capped through 2013 at 2010 levels.
Pawlenty's plan saves additional funds by removing hospitalization as a benefit for Minnesota indigent persons. The proposal would allow General Assistance Medical Care, a state-funded program, to offer limited outpatient care only. Intended to discourage emergency room use, the proposal would create a pool of funds that hospitals could tap to cover charity care.
DFLers in both the House and Senate attacked Pawlenty's revised budget for increasing education spending while making cuts in public health care spending. Senate Majority Leader Larry Pogemiller (DFL-Minneapolis) called the revised budget a cruel hoax on Minnesotans. Pogemiller said Pawlenty's proposal could cause hospitals to close.
DFLers argued that Pawlenty's budget for 2010-2011 and its reliance on one-time money would make it necessary to cut health and human service programs by 35 percent in the 2012-2013 budget. They added that the Governor's use of one-time money will not solve a long-term fiscal imbalance between state revenues and expenditures. "It's easy to make the 2010-2011 budget look good," said Pogemiller, by relying on $2.6 billion of one-time money delivered by a Democratic Congress and president. But once that runs out, Pogemiller said, Pawlenty's own attempt at a balanced budget for 2012-2013 reveals deep cuts in local government aid and higher education and as much as a one-third cut in health care.
House DFL Leaders Propose Tax Increases
House Democrats, in response to the Governors revised budget, released their own budget on Thursday. That proposal raises taxes by $1.5 billion over the next two years, cuts spending by $843 million and employs a larger accounting shift than the Governor proposed in an attempt to avoid future borrowing.
Pawlenty's plan, released this week, would not raise state taxes but would use one-time shifts and borrowing to get the state past a $4.5 billion deficit projected for 2010-11. Speaker Margaret Anderson Kelliher said Thursday that House DFLers are "committed to a fair and responsible budget" and that Pawlenty's budget proposal is "balanced for the next election, but not for the next generation." House DFLers claim that Minnesota's tax system favors the wealthy and Kelliher noted that recent studies have projected that the wealthiest Minnesotans pay 8.8 percent of their income on state and local taxes while middle-income people pay closer to 12 percent. "People demand that we have fair taxes in this state again," she said. Kelliher did not offer any details on how her caucus planned to raise $1.5 billion in revenue but said that it should be done "progressively."
State Revenue Commissioner Ward Einess said that a tax increase on higher-income Minnesotans would not come close to raising the money House DFLers need. Citing an earlier proposal by Senator Ann Rest (DFL-New Hope), Einess said that creating a fourth tax bracket starting at 8.5 percent for couples making $250,000 or more would net the state just $140 million a year.
Pawlenty spokesman Brian McClung said the House DFL plan "is a lot like the Senate DFL plan--short on specifics and long on tax increases." But Kelliher said Pawlenty's plan is a "House of Mirrors," shifting pots of money to give his budget the illusion of balance.
Minnesota's Unemployment Rate Hits 8.1 percent
Minnesota's unemployment rate continues to climb, hitting an adjusted 8.1 percent as the state lost another 13,300 jobs in February.
The state Department of Employment and Economic Development reported Thursday that the state's February unemployment rate nearly matches that of the nation as a whole. "The global recession has touched nearly all business sectors, here and elsewhere in the country," said DEED Commissioner Dan McElroy in a prepared statement. McElroy pointed out that the pace of job losses in Minnesota is slowing but noted that Minnesota and the country are now shedding jobs at nearly the same rate. Minnesota lost about 3.2 percent of its jobs in the past year, while the nation lost 3.1 percent.
Nevertheless, the February job losses in Minnesota were fewer than the recently revised January figure of 18,500 jobs lost. Nationwide, employers cut 651,000 jobs in February.
In the past 12 months, Minnesota lost 85,900 jobs, including 27,600 business-services jobs, 25,700 manufacturing jobs and 19,000 construction jobs as the economy cratered while the housing slump morphed into a credit crisis, sparking a global recession affecting sectors from manufacturing to financial services to retail.
The State saw some job growth in February as education and health care added 2,100 jobs and government added 200. While the numbers are minuscule in comparison to the number of jobs disappearing, state officials said education and health care have been consistently strong performers.

For up-to-date information about the Minnesota Legislature, tune into Almanac: At the Capitol. This lively and informative program is aired Wednesdays during the legislative session on Twin Cities Public Television at 7:00 PM on Channel 17 and at 10:00 PM on Channel 2.
Almanac: At the Capitol is seen on all public television stations throughout Minnesota and in Fargo. Winthrop & Weinstine is the exclusive law-firm partner and a sponsor of the program.
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