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Pawlenty opts for ‘painless,’ politically shrewd deficit fix

In his final budget address before the Republican National Convention comes to St. Paul this fall, Minnesota Gov.

Gov. Tim Pawlenty
Gov. Tim Pawlenty

In his final budget address before the Republican National Convention comes to St. Paul this fall, Minnesota Gov. Tim Pawlenty today laid out a vague, ostensibly painless, politically shrewd plan to solve the state’s $935 million deficit for the remainder of the 2008-09 biennium.

The vast majority of Pawlenty’s proposed $341 million cut in state spending takes the form of nebulous 4 percent budget reductions affecting most, but not all, state agencies (The departments of Military Affairs, Veterans Affairs and Transportation would be exempted.)

The governor also would tap $250 million of the state’s existing $653 million in budget reserves and get another $250 million from the surplus in the Health Care Access Fund. In addition, he would use $92 million in leftover funds from the federal TANF (Temporary Assistance for Needy Families) program. Closing a tax loophole on businesses headquartered outside the nation would leverage another $102 million against the deficit.

As a symbolic sop to the tax-cutting wing of his party, Pawlenty also proposes a one-eighth cent reduction in the state sales tax.

Proposed sales tax cut won’t fly
In addition to having no chance of passage in the DFL-controlled House and Senate, the governor’s own budget numbers indicate that the tax cut is structurally unsustainable. Even if the Legislature hews to all of his other recommendations, the 2010-11 biennial budget will be $515 million in deficit without the sales tax cut, and $693 million in the red with it — not counting inflation.

Unlike the combative tone Pawlenty has frequently invoked during other budget battles — when he has used such phrases as “welfare health care,” cost-shifted the burden of government down to the local level, threatened vetoes and generally drawn sharp contrasts with DFL opposition — his current proposal seems designed to get through this budget cycle with as little controversy as possible.

Pawlenty emphasized that there are no cuts to K-12 classrooms nor to local government aid. He says the money from the Health Care Access Fund will go toward maintaining health care programs and eligibility for the disabled. He said that existing health care cuts would only affect the insurance plans of single adults without children making between 200 percent and 215 per ent of the poverty level, who are scheduled by law to be covered this year.

Other cuts would again be more nebulous, such as state reimbursements to hospitals. Furthermore, Pawlenty has made his budget proposals relatively early in the legislative session, giving legislators time to come up with their own budget bills. He could have helped provoke a stalemate and then used his constitutional authority to “unallot” revenues.

Cautious approach has long-term cost
But Pawlenty’s caution also has its costs. A lot of one-time money is invoked to balance the current biennial budget, with little structural change to addess the larger deficits that are being forecast for the near future. In addition, by taking the Health Care Access Fund surplus, using reduced payments to hospitals and other health care providers to plug the deficit, and refusing to follow the recommendation of his own health care reform commission to raise the cigarette tax, Pawlenty is jeopardizing an ambitious, bipartisan health care reform initiative designed to lower health care costs and improve coverage.

Finally, blithely proposing 4 percent cuts in the Departments of Health and Human Services, Employment & Economic Development, the DNR, the Pollution Control Agency and many other units of state government will have a negative impact in myriad ways on their ability to effectively deliver services to taxpayers.

Another difference from previous Pawlenty budget addresses was the inordinate amount of time the governor spent at the beginning of his speech painting what he called “a broader context.” The first 10 minutes were devoted to an overview of the national economy, from the housing crisis and credit crunch to the challenges and benefits of globalization.

This approach accomplishes three things: It focuses the blame for lagging state resources on problems with the national economy (in fact, Minnesota has been underperforming the nation for most of the past five years), makes the “hundreds of millions of dollars” in red ink seems small by comparison, and makes Pawlenty seem more vice presidential.