Pawlenty upbeat about governors' historic meeting with Obama but worried about the growing federal and state deficits

Gov. Tim Pawlenty described today's historic meeting between governors and President-elect Barack Obama as "constructive and positive" but expressed concerns that the stimulus plans they discussed to help struggling states could dangerously run up the nation's deficit.

In an afternoon conference call from Philadelphia, the Minnesota governor also told local reporters that he hasn't seen the exact numbers yet but worries that Thursday's state revenue forecast deficit problem will show  not only a large projected deficit for the next biennium but a shortfall for the current biennium's final seven months.

If there are immediate financial problems, Pawlenty said he'll try to work with legislators to make the needed cuts, but that if those efforts fail, he'll be forced to "unallot" funds that already have been approved.

In this morning's meeting with Obama, Pawlenty said the president-elect made it clear he will seek infrastructure aid for the states that offers federal money for needed improvements that are ready to begin immediately so the impact can be quickly felt. Other parts of the stimulus plan aren't decided, and Obama asked the governors for help in designing it, Pawlenty said.

"With the exception of the infrastructure part of the package, no other decisions are made, and he's in a listening mode," he said. "He heard the ideas and suggestions from the governors."

Published reports indicate the governors asked for help because the recession and resulting increase in joblessness will mean higher health care costs for the poor, greater use of food stamps and added strain on welfare programs

According to townhall.com, the governors "have asked for at least $40 billion to help pay for health care for the poor and disabled and perhaps $136 billion more in infrastructure projects like road and bridge repairs in the legislation, which Democrats hope to have ready for Obama's signature as soon as he takes office on Jan. 20.

"Obama has said he will make an economic stimulus his top priority, and his aides and congressional leaders have been discussing the outlines of a measure that could exceed $500 billion over two years. The president-elect has said his goal is to secure 2.5 million jobs."

Some execs worry about over-extending nation's 'credit card'
But Pawlenty noted that many of the governors expressed concern about the massive amount of federal spending taking place.

"A number of us made the point that we have to put a limit on the nation's credit card because we're spending so much money so fast," Pawlenty said.

Pawlenty paraphrased Obama's response: The risk of economic deflation and stagnation are more immediate and urgent and important than the risk of letting the deficit go too high or face inflation.

The governors also talked with Obama about Medicaid, one of the biggest costs in the state budget, which is "out of control and rising at unsustainable rates," Pawlenty said.

He said he worries that federal aid for Medicaid assistance to the states could come with strings. If the federal government insists on no changes in eligibility or puts other restrictions on the states, it could delay needed reform in the system, the governor said.

Asked if he might reject federal aid that comes with restrictions, Pawlenty said:

"It's possible. If they say we'll give you a dollar, but if you take it, you can't change any of these federal programs and have to keep them as they were, then their dollar might not be worth it. It will depend on how much is offered and what strings are attached."

Pawlenty taking wait-and-see view on federal aid
Pawlenty said that, even with the infrastructure aid, he wants to see the plan before deciding whether it's a good thing for the state.

"I want to see how it's structured. We'll see. I don't want to just have the money go out without some reform in how its spent. I don't want some committee chairman to cherry-pick his pork-barrel project. If there's not a focus on politics, it will be more attractive."

"We'll have a more detailed reaction when we see their proposal. Today's discussion was mostly conceptual."

Pawlenty said the state does have needed infrastructure projects in the works, and said that with the right kind of conditions, it would be beneficial to have the federal boost to create some economic activity. Even that, though, won't help the state's immediate budget deficit, he said.

On Minnesota's budget problems, Pawlenty said he will have a Thursday afternoon press conference, after the revenue forecast is announced. Even then, he won't announce any proposed long-term changes in state operations until his budget message in January.

Earlier in the year, the state's monthly collections were running ahead of projections, by up to $300 million, he said.

"But as revenues are collapsing, will that cushion we built up be big enough [to prevent a deficit in the current biennium]? My opinion is no, it won't be sufficient. I think we'll burn through the cushion and be in a deficit for the current biennium.

"Because we'll be past the three-quarters mark [in the current biennium], the Legislature or the governor has fewer options, so we'll consult immediately with legislators about making commitments in early January to solve the deficit. But if they're unwilling, we'll go forward with unallotment, if need be.

"We'll give them a full chance to be partners, but we can't wait too long."

Pawlenty said today's meeting with Obama was historic and unprecedented because apparently no other incoming president has held such a summit with the nation's governors.

As it was breaking up, Pawlenty said he had a short chat — one on one and off to the side — about Minnesota's commitment to renewable energy. "He said he'd like to have further discussions," Pawlenty said.

Joe Kimball reports on St. Paul City Hall, Ramsey County politics and other topics. He can be reached at jkimball [at] minnpost [dot] com.