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Minnesota Government Update


January 30, 2009


Governor Tim Pawlenty Unveils Budget Proposal
Governor Tim Pawlenty unveiled his budget proposal on Tuesday, which he stated “sets priorities for a better future” and prepares Minnesota to be strategically placed in a changing world. “The upcoming budget debate should not just be about where we are now. It should be about where we're headed,” Governor Pawlenty said. “That means looking forward, not back, and setting priorities that will deliver a better future. This is a plan that doesn't increase tax burdens on struggling families and job providers, lives within our means, and positions Minnesota for growth.”

The Governor's plan focuses on strategic investments to encourage job growth and progress K-12 education. The budget proposal for Fiscal Year (FY) 2010-11 would spend $33.61 billion, which is a 2.2 percent reduction from current FY 2008-09 general fund expenditures of $34.36 billion.

The Governor's budget proposal aims to erase a projected budget shortfall of $4.8 billion over the next biennium. Spending reductions and other savings currently total $2.5 billion while the use of federal stimulus funding and other resources provides another $3.2 billion. New spending initiatives, tax cuts and placing $250 million in the budget-reserve totals $860 million. Pawlenty is counting on at least $920 million in federal stimulus funds to help the state out of the increasing budget deficit. The figure is actually expected to be much higher, but Pawlenty pointed out that half of that money may go to “shovel-ready” projects that will benefit the state's economy but not necessarily its budget. Whatever additional money comes in could serve as a cushion against the deeper declines expected in coming months.

Nearly 85,000 working Minnesotans would lose their health care under Pawlenty's proposed budget, while cities, counties, colleges and universities would see funding cuts in the first proposal in a generation to make year-to-year reductions in the state's budget.

Highlights of Governor Pawlenty's budget include:
  • K-12 Education: The Governor's plan includes $41.45 million in FY 2010-11 to expand the state's nation-leading pay for teacher-performance program, Q Comp, to every school in the state. Q Comp funding would be comparable to a 5 percent increase in the general education formula for districts not currently in the program. The Governor also recommends $91 million in FY 2010-11 for “Pay for Progress,” a new initiative that links increases educational funding based on student achievement.
  • Minnesota Jobs Recovery Act: The Governor's plan to retain and grow jobs in Minnesota includes a package of tax cuts and incentives. This includes reducing the business tax rate from 9.8 percent to 4.8 percent over six years, providing an up-front exemption from the sales tax for purchases of capital equipment, a new Reinvestment Tax Credit for small businesses that reinvest in assets such as machinery and equipment and other incentives.
  • Health and Human Services: The Governor's plan slows the rate of spending growth in these programs while preserving core services for children.
  • State/Local Reform: Governor Pawlenty is proposing a new collaboration between the state and counties to improve the delivery of human-service programs. A portion of proposed county aid reductions can be recovered if counties comply with proposed service reforms. The Governor is also proposing to allow counties to opt-out of some mandates to provide flexibility without adding state costs. For some local governments, state aid supplies more than half their revenue.
  • Improved State Services: To provide government services effectively, efficiently and conveniently, Governor Pawlenty is recommending improving state services. This includes an updated information technology platform that will enhance information access, transparency and the consolidation of data centers.
  • Constitutional Amendment – Clean Water/Parks & Trails: Governor Pawlenty is recommending a $118 million package to protect Minnesota's water supply. These funds come from the new sales tax revenues authorized by the constitutional amendment passed in November. The package was developed by the Governor's Clean Water Cabinet. The Governor also recommends a $53 million package for parks and trails from the constitutional amendment funds. For both clean water and parks and trails, funds are focused on strategic, long-term investments.
The budget-balancing task is complicated by two unknowns: the exact size and scope of the federal bailout that should come together in the next few weeks, and a state economic forecast coming at the beginning of March that is almost certain to show another big drop in projected revenues.

Minnesota to Feel Health and Human Services Budget Cuts
About 55,000 Minnesotans would lose health care coverage this year and another 29,000 next year under Governor Tim Pawlenty's proposed budget for FY 2010-2011. Most of those affected are adults without children who are now on MinnesotaCare, the health-care subsidy program for low-income working people. The cuts would save about $500 million over two years compared with forecasted spending. Others losing coverage would be in various Medical Assistance programs for the poor, including people with traumatic brain injuries and disabilities as well as older people who may be placed in nursing homes.

Under the Governor's proposal, reimbursement fees would also be cut by 3 percent to hospitals and others serving people on Medical Assistance and programs keeping older and disabled people at home instead of in institutions. Nursing home rates would be cut 1.3 percent, and 1 percent of new applicants would be denied nursing home care because of the change in eligibility requirements proposed by the Governor. Medical Assistance, MinnesotaCare and General Assistance Medical Care no longer would cover podiatry, chiropractic or adult dental care, and there would be a cut in spending for personal care assistants. The Health Care Access Fund, set up primarily to fund MinnesotaCare, would be merged into the General Fund. The $47 million approved last session to finance community efforts over two years to reduce obesity and smoking would be cut to $26 million over four years.

Cuts in State Auditors has Resulted in Increase in Fraud
Since 2000, the Department of Finance, which is responsible for overseeing state spending, has cut its total staff by 30 percent as the Pawlenty and Ventura administrations have been burdened by budget deficits. State officials say that cash has gone missing as budget cutbacks have trimmed the ranks of auditors.

A recent string of high-profile cases of fraud is being considered as a direct result of what state legislators are calling a “penny-wise but dollar foolish” decision to save money by cutting auditors' jobs. The Legislative Auditor's office told Minnesota legislators last week that the state's auditing controls are now "significantly flawed.”.

The weaknesses have surfaced in both large state agencies and small commissions. Legislative Auditor Jim Nobles, whose office operates independently of the executive branch, said there is no way to determine how much state money has been misused, misplaced or stolen because of a lack of internal controls and proper auditing oversight.

The Department of Finance, now called the Office of Management and Budget, is responsible for the state's internal controls. However, department officials say they don't have the staff to properly audit all state agencies. Stephanie Andrews, Deputy Commissioner, said the Department instead seeks to help agencies tighten their controls by providing training to individual agencies, often via Web-based tutorials and self-study opportunities. The Office of Management and Budget plans to add eight additional auditors. Commissioner Tom Hanson at a committee hearing Thursday stated, "It is a reminder that no matter who you are or what you're doing in state government, whether you are myself or the governor or you're the guy who oversees the unit that stocks the fishing ponds in northern Minnesota, that there is a fundamental ethic and responsibility to manage state dollars.”

Battle over Medicaid in Minnesota
Governor Pawlenty will have to tackle the problem of Medicaid as he deals with the budget shortfall this session. The federal state health insurance program for the poor, elderly and disabled is growing at an accelerated pace in every state. However, cutting it could end up costing the state more in lost federal revenue. Moreover, Pawlenty is up against DFLers in the Legislature who want to expand health care coverage in Minnesota.

The Minnesota Medicaid bill is expected to rise by 12 percent in each of the next two years, a total of about $8.4 billion. Pawlenty, who delivered his budget proposal on Tuesday, is tackling a $4.8 billion deficit by cutting a large portion of the Health and Human Services budget, including programs such as Medicaid, known as Medical Assistance in Minnesota.

The state loses a dollar for every dollar it cuts from Medical Assistance because the federal government matches state spending. State officials are hoping for help from Congress, which is now debating an economic-stimulus bill that could give Minnesota about $3 billion, one-third of which might go to Medical Assistance.

Representative Tom Huntley (DFL-Duluth) is Chair of the House Health Care and Human Services Finance Division, which watches over one-third of the state budget. Huntley stated this week that the state deficit might be $7 billion or $8 billion, which would require a 20 percent budget cut, and in turn would cause a lot of pain to Minnesotans.

Senator Linda Berglin (DFL-Minneapolis), Huntley's counterpart in the Senate, proposed legislation Monday to increase access to MinnesotaCare. She said she will try to draw a line to protect low-income people from health care cuts. "We'll have to look at budget cuts, but that's not our only tool, despite what the governor seems to think. We do not have to cut Medical Assistance," she said, “doing so would be financially shortsighted.”. If there are cuts in a similar program, General Assistance Medical Care for very low-income people, "40 percent of them have mental illnesses and they'll end up in emergency rooms or in jails.” Berglin is working on bills to improve health care efficiency, including cheaper, non-emergency ambulance service and birthing clinics that she said would offer care at one-third of traditional costs.

Senate Energy, Utilities, Technology and Communications Committee discusses RES compliance
The Energy, Utilities, Technology and Communications Committee, chaired by Senator Yvonne Prettner Solon (DFL-Duluth), convened Tuesday, January 27, to hear a presentation by the Office of Energy Security (OES) on compliance with standards established in the Next Generation Energy Act (NGEA).

Marya White, Manager of the Energy Regulation and Planning and Energy Facilities Permitting from the OES, presented information regarding the progress of Minnesota's electric utilities in compliance with the Minnesota Renewable Energy Objective (REO) and the Renewable Energy Standard (RES). White said electric utilities appear to be making a good-faith effort to comply with their 2007 obligations of obtaining at least 1 percent of Minnesota retail sales from renewable sources and look to be on track to meet their 2010 goals of increasing renewable retail sales to 7 percent, with Xcel Energy required to obtain 15 percent. White also identified a number of obstacles the utilities have encountered or anticipate encountering to meeting RES requirements. Transmission constraints and rising cost and availability of equipment, particularly wind turbines, were two areas repeatedly cited by the utilities as potential obstacle. Finally, White said several smaller utilities also cited availability of financing and lack of developer interest in pursuing smaller wind projects as additional obstacles.

Jeffrey Haase, OES Demand Efficiency Program Supervisor, testified that in 2006 and 2007, Minnesota's utilities spent approximately $206 million to promote Minnesota Conservation Improvement Program (CIP) activities and achieved total annual energy savings of 875,541 MWH (Megawatt hours) of electricity and 4 million Mcfs (1 Mcf = 1000 cubic feet) of natural gas. Those savings resulted in more than 1 million tons of carbon dioxide emissions being avoided. In addition, utilities spent over $7 million annually on programs to provide energy efficiency and conservation services to low-income customers. However, Haase said meeting the 1.5 percent savings goal for all utilities, set in 2007 by the NGEA, will require a tremendous increase in program activity. The energy savings required to meet the energy savings goal is approximately double the 2007 savings achievements of electric utilities and nearly 2.5 times the 2007 savings achievements for natural gas utilities.

Dwight Anderson, RES Project Development Manager of Minnesota Power, said capitalizing on the two most prevalent alternative energy resources in Minnesota, wind and biomass, will be the key to meeting the long-term goals established by the RES. Furthermore, Anderson said Minnesota Power's goal, like many other utilities investing in renewable energies, is to minimize its costs to consumers while also complying with the RES. Even though wind energy is the most prevalent renewable resource in Minnesota, transmission constraints and rising costs and availability of equipment pose obstacles to utilities pursuing wind projects.

Betsy Engelking, Director of Resource Planning for Xcel Energy, focused on Xcel's progress in obtaining 30 percent of Minnesota sales from renewable sources by the year 2020. Engelking said 25 percent of the 2020 goal must come from wind, which equates to 3,900 MW of generated energy, nearly four times as much wind power as is currently on Xcel's Minnesota system. Engelking said the federal stimulus plan will likely contribute funding and innovation to the renewable energies initiative which will help Xcel and other utilities to reach their RES goals.

2009 Session Committee Deadlines
  • Friday, March 27 – First Deadline: policy bills must pass all relevant committees in one body or other by this date
  • Tuesday, April 7 – Second Deadline: policy bills must pass all relevant committees in the other body by this date
  • April 8 to April 14 (noon) – Easter and Passover break
  • Wednesday, April 15 – Third Deadline: finance division bills and property tax bills out of relevant committees
  • Wednesday, April 22 – Fourth Deadline: tax and finance bills to the floor

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.

For more information and to see previous broadcasts, check out the Almanac: At the Capitol Web site at http://tpt.org/aatc/.
 
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