March 6, 2009
February Budget Forecast
The federal stimulus package, recently passed by the U.S. Congress, has boosted Minnesota's new budget forecast from a projected $6.4 billion deficit to $4.6 billion projected shortfall for FY2010-11. Even so, "We're in the worst recession in the post-war era," said state economist Tom Stinson. The recession in Minnesota is projected to cost another 70,000 jobs in the coming year. Before it's over, Minnesota's job losses could reach 120,000. Unemployment, already at 7.6 percent in Minnesota and nationally, could gallop to 9.4 percent this year, Stinson said.
Tom Hanson, Commissioner of Minnesota Management and Budget, said that Tuesday's good news was that the federal cushion offset even deeper deficits. "The bad news is the economy continues to deteriorate," Hanson said. Minnesota lost another $1 billion in projected revenue since the last forecast in November. Stinson said business receipts across a broad swath of industries are expected to head downward. "Not profits," he noted, "but money across the countertop." The recession will be longer and deeper than expected, Stinson said, and might even require a second stimulus package from a federal government already exploring the outer limits of debt.
The $4.6 billion shortfall in FY2010-11 is $278 million less than forecast in November. This is primarily due to the federal stimulus offsetting a $1.2 billion reduction in forecast revenues. Without the federal stimulus package, the projected state deficit would be $6.4 billion. A $236 million balance is expected for FY2009. Only the Federal Medical Assistance Percentage (FMAP) funds are included in the forecast. The FMAP change is expected to reduce state expenditures $464 million in FY2009 and $1.359 billion in FY2010-11.
One of the biggest concerns in the months ahead: about 70 percent of the U.S. economy is consumer-driven, and consumers aren't spending, Stinson said. Continued job losses will exacerbate the urge to hoard money rather than spend it, he said, further slowing recovery. Markers of an end to the recession to watch for, he said, include rebounds in consumer spending, a stabilized savings rate, improved credit markets and smaller declines in payroll. By 2011 or 2012, he said, the economy should resume growth. Stinson said that stimulus dollars "may be hiding the long-term problem, but they're certainly helping the state economy in the short term. In the short term, it's welcome relief. "Without federal intervention," he said, "the state might have lost another 45,000 jobs."
Federal aid ultimately could pour anywhere from $4.5 billion to $9 billion into federally funded programs in the state, but only $1.8 billion came in time to be counted for the forecast. State budget director Jim Schowalter said that additional money could come directly to the state or go to school districts or other governmental entities.
Clean Car Bill Moves Forward
State Senator John Marty (DFL-Roseville) introduced the Minnesota Clean Car Act last Thursday at the Senate Energy, Utilities, and Communications Committee. This bill is considered to have some repercussions for the auto industry, which would force the auto industry in Minnesota to comply with standards that are stricter than Environmental Protections Agency requirements. Marty's proposal would require new cars and pickup trucks starting in model year 2013 to comply with new standards for low emissions. Referring to the auto-industry's efforts to improve efficiency and reduce emissions in vehicles, Marty stated that, "They fight it instead of working on the technology. But in the end they have to move forward."
Advocates for the bill testified at the Senate Energy Committee hearing that the Clean Cars legislation would help the state achieve greenhouse gas reduction goals passed by state lawmakers in the Next Generation Energy Act. J. Drake Hamilton, science policy director for St. Paul-based Fresh Energy, said the mixture of carbon-cutting solutions to reach the goal must include significant contributions from the transportation sector, which account for 25 percent of greenhouse gas emissions in Minnesota. "We cannot make the 2025 goals in Minnesota without clean cars," Hamilton said. Hamilton was a member of the Minnesota Climate Change Advisory Group (MCCAG), which was appointed by Gov. Tim Pawlenty. The 56-member group recommended adopting the California standards for Minnesota, although 16 MCCAG members dissented. Adopting the California standards, the MCCAG said, would help the state stick to it plan to reduce greenhouse emissions in Minnesota by 30 percent by 2025.
The increased costs for car buyers would amount to about $7 more on a monthly payment, according to Marty. But he said motorists would still save a net $24 a month in fuel costs. Alyssa Schlander, Director of Government Affairs for the Minnesota Auto Dealers Association opposing the bill, called Marty's consumer cost-savings numbers a "fairy tale." She said California-certified cars can cost $1,000 more than EPA-certified cars. Moreover, Schlander disputed that the California vehicles get better gas mileage. She said the Obama administration has made a commitment to make America's auto industry more fuel-efficient.
The Senate bill was passed and referred to the Senate Environment and Natural Resources Committee. The Clean Cars bill has already received a hearing in the House. It passed the Transportation and Transit Policy and Oversight Division. The House version of the bill, which is sponsored by Rep. Melissa Hortman, DFL-Brooklyn Park, is scheduled for a hearing on Tuesday in the House Environment Policy and Oversight Committee.
Legislators Propose Lift on Nuclear Moratorium
After years of a ban on building new nuclear power plants in Minnesota, debate over climate change and the reduction of carbon emissions has brought back the discussion of nuclear power plants as a carbon-free alternative to power plants fueled by coal or natural gas.
This bill is sponsored by Representative David Hann (R-Eden Prairie). Rick Lancaster of Great River Energy argues that nuclear energy needs to be brought back to the table as a viable alternative, in addition to more energy conservation and wind power. As demand increases for electricity, nuclear power is reliable without producing greenhouse gases, he said. Great River has no plans to build a nuclear plant, said Lancaster, but has been discussing it. "We have asked Xcel if they decide to build another nuclear plant to consider us as a possible partner," he said. "They said they'd be glad to keep us apprised."
Terry Pickens, Xcel's director of nuclear regulatory policy, said that the utility is focused on extending the licenses and expanding the amount of power produced at its Prairie Island and Monticello nuclear plants. Xcel supports but is not "actively pushing" proposals to remove the ban on new nuclear plants in Minnesota, he said.
The nuclear option is much more active elsewhere; 17 companies have filed applications with the federal Nuclear Regulatory Commission to build 26 new plants. Tom Kauffman, spokesman for the Nuclear Energy Institute, expects that four new nuclear plants will be up and running by 2018 and that more will follow. "Right now nuclear power is the number one source of low-carbon, pollution-free base load power," Kauffman said.
However, the opposition argues that nuclear power has huge drawbacks. Senator Ellen Anderson (DFL-St. Paul) stated, "It's completely dishonest to call it clean. It has less carbon emissions, but it has highly toxic dangerous waste." Anderson said that most of the concerns about nuclear power debated 15 years ago at the Capitol still have not been solved. No permanent federal disposal plan is in place for the waste, which is highly radioactive for thousands of years, she said. The plants cost billions of dollars and demand huge taxpayer subsidies. "I don't think people should be fooled," Anderson said.
The Prairie Island Indian Community, whose reservation borders Xcel's nuclear plant, also opposes lifting the state's moratorium on new plants. Storing radioactive wastes 600 yards from the community has been an unfair burden to the tribe. Prairie Island and others opposed to the bill argue that it is irresponsible to allow the construction of new nuclear power plants anywhere in the United States until the government solves the nuclear waste problem. Environmental groups have opposed new nuclear power plants, and a dozen other states besides Minnesota, including Wisconsin, have restrictions on nuclear power development until the waste issue is resolved or nuclear plants are economically feasible.
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