On Thursday, policymakers took a significant step in the ongoing discussion of how Minnesota will meet its needs over the next two years. At stake are decisions that will have a profound impact on the state’s future quality of life and economic vitality.
On Thursday morning, Governor Dayton announced an offer that increases the size of the shift in payments to school districts, borrows $700 million from the future through tobacco bonds, and reduces funding for vital public services by more than $2 billion. Late Thursday afternoon, legislative leaders accepted this basic framework. Here are the major elements:
- $1.4 billion in savings by continuing the current shift in state payments to school districts. Normally, the state pays school districts 90 percent of their annual aid in one fiscal year, and a 10 percent settling-up payment in the following fiscal year. In the 2010 Legislative Session, policymakers changed the formula to a 70/30 percent split to help reduce the state’s budget deficit by shifting the payments into the FY 2012-13 biennium. The Governor and Legislature have agreed from the beginning of the session to delay repaying school districts into the future.
- $700 million in additional savings by increasing the shift in payments to school districts, going from a 70/30 split to a 60/40 percent split.
- $700 million by issuing tobacco bonds that would sell off future tobacco payments in return for a lump sum payment today. We recently blogged on our many concerns with this one-time source of revenue, which borrows from the future.
That leaves $2.2 billion in spending reductions. The details of these cuts have not been agreed to by the Governor and legislative leaders. However, earlier in July, Governor Dayton released a document that sheds some light on how more than $2 billion in cuts could be distributed among the areas of the state budget:
- $36 million increase for K-12 education
- $16 million increase for public safety
- $1 billion reduction to health and human services
- $55 million reduction to transportation
- $14 million reduction to economic development
- $56 million reduction to environment and commerce
- $94 million reduction to state government
- $351 million reduction to higher education
- $530 million reduction to property tax aids and credits
The one detail in the Governor’s offer is that these spending reductions cannot include the Legislature’s proposal to decrease the state government workforce by 15 percent by 2015. If you are looking for more information on the potential impact of $2 billion in cuts, our recent analysis of the Governor’s and Legislature’s budget proposals discusses the cuts that were on the table during the legislative session.
The Governor’s offer also calls for a $500 million bonding bill, and specifies that the final budget deal would not include either the Governor’s tax proposals or the Legislature’s policy proposals.
Legislative leaders and the Governor are now working out the details of the agreement. The Governor could call a special session as early as next Monday or Tuesday so lawmakers can vote on the compromise.