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May 23, 2010
Session left much unsettled
State budget only 'fixed' short term
By Mark Fischenich Free Press Staff Writer
The Minnesota Legislature often adjourns with more than a few loose ends left hanging from their freshly printed budget, especially in election years.
In 2010, there were plenty.
The biggest is a monstrous deficit looming for the two-year budget cycle beginning in 13 months, the budget that the next governor and Legislature will be wrestling with starting on Jan. 2.
There are also unresolved issues around whether Minnesota should leverage over $1.4 billion in federal funds by enrolling early in a Medical Assistance program, how to repay billions of dollars the state is essentially borrowing from local schools, and whether Gov. Tim Pawlenty will be doing any more unallotments of aid to cities and other funding.
Red ink on the horizon
The shortfall projected for the next biennium — starting July 1 of next year — is $5.8 billion, or $7 billion if the impact of inflation is included. It’s a daunting number in relation to the state’s two-year budget of a little more than $30 billion.
On top of that, Democratic lawmakers and Republican Gov. Tim Pawlenty — who’s not seeking re-election — used nearly $2 billion in delayed payments to schools to eliminate a $3 billion shortfall in the current budget cycle.
“When the new governor first enters the governor’s office, it will be like entering a hoarder’s home — crammed to the gills with unpaid bills, warning notices from bond rating agencies, and crumpled up Supreme Court rulings,” wrote Wayne Cox, executive director of Minnesota Citizens for Tax Justice. “The new governor’s first job won’t be measuring the drapes. It will be figuring out how to head off the sheriff’s sale.”
Conservatives placed the blame on Democrats, saying they insisted on making temporary spending cuts of about $1 billion rather permanent reductions which would have reduced the size of the $5.8 billion shortfall for the upcoming budget cycle.
“Their unwillingness to make long-term cuts is driven by their desire to raise taxes next year when I’m not here to stop them ...,” Pawlenty said in a statement after the session ended.
Federal funds fight
The final budget deal contained a provision allowing Pawlenty, or the next governor, to enroll early in a federal Medical Assistance program that would cost the state $188 million but bring in more than seven times that much in federal funds.
With Pawlenty all but certain to opt not to opt in, the provision still matters, according to Sen. Linda Berglin, a Minneapolis Democrat who’s the Legislature’s top voice on health and human services funding.
“Not only is it in state law, it’s paid for,” Berglin said.
That means the new governor could sign up for the plan on Jan. 2 and probably have the federal money — which would total $1.4 billion to cover the cost of health care for low-income adults — flowing to the state by sometime in February, she said.
Rep. Tom Emmer, a Delano Republican and his party’s endorsee to replace Pawlenty, said he will not allow Minnesota to take the money if he wins on Nov. 2. Emmer predicted the state’s economic recovery “will be stopped in its tracks if the next governor opts in to Obamacare.”
Democrats said they were baffled by attempts to tie the issue to the health care reform bill pushed by President Obama and passed by Congress this year. Sen. Kathy Sheran, DFL-Mankato, said not accepting the federal money would be a huge mistake.
“We give up claiming money we have already given the federal government that will now be given to other states who opt in to early enrollment,” Sheran wrote in an e-mail to constituents. “The Medicaid program is not a new program. The new development is that early enrollment has been offered to about 11 states who have demonstrated cost efficiency and reform in their health care delivery system.”
Schools, can you spare a dime?
Pawlenty, using gubernatorial unallotment powers in an unprecedented way a year ago, attempted to delay $1.7 billion in payments to Minnesota schools to address a budget shortfall. Earlier this month, the Minnesota Supreme Court ruled that Pawlenty abused his power and that unallotment can be used to address budget shortfalls only after a balanced budget is negotiated with the Legislature.
The negotiations happened this year, but lawmakers upped the ante on the school borrowing after Pawlenty rejected proposed tax increases. Schools are now facing nearly $2 billion in delayed payments.
“Our local schools are going to be in the position of borrowing money to see themselves through, and there is a cost to doing that,” said Rep. Terry Morrow, a former St. Peter School Board member.
Area school officials preferred that to outright cuts in state aid, according to Morrow and Rep. Kathy Brynaert, who served on the Mankato school board before being elected to the House. But they would prefer to be paid what they’re owed, something that won’t happen soon if there isn’t substantial growth in state tax revenue, Brynaert said.
“I do think we’ll do our best to target money, but I understand that it could be 12 or 13 years (to entirely repay the shift) and that’s a long time,” the Mankato Democrat said.
A parting unallotment?
While Pawlenty was out of the unallotment business for a couple of weeks after the Supreme Court ruling, the passage of the budget agreement restores that authority if a couple of conditions are met.
First, an unanticipated drop in state revenue would need to be officially identified by the state’s finance commissioner. Second, red ink would still need to exist after the state’s remaining reserves have been depleted.
That could still happen if the economic recovery stalls during Pawlenty’s final seven months in office, a concern for cities because Local Government Aid has been a favorite target for the governor’s previous unallotments.
North Mankato Mayor Gary Zellmer, a board member of the Coalition of Greater Minnesota Cities, is hopeful that some federal funding will help spare cities this year even if the state’s budget condition worsens.
A federal jobs bill which passed the U.S. House would provide $408 million to Minnesota if the Senate concurs. Most of that money would end up in the state’s reserve accounts and would have to be depleted before Pawlenty could unallot. State Senate Majority Leader Larry Pogemiller put the odds at 50-50 that the federal dollars would arrive, but Zellmer is hopeful.
“It seems like things are stable right now as far as funding,” Zellmer said.
By “stable right now,” he meant “right now.” The situation in 2011 and beyond is anything but, even with the legislative session complete.
“It doesn’t solve anything,” Zellmer said.