Legislators bracing for bad economic news

Friday morning the Minnesota Department of Finance will release its forecast for the state budget in the coming year and the projected numbers are not likely to be pretty. The fallout from the burst in the housing bubble, rising oil prices, and the increasing credit crunch is roiling the economy and prompting talk of a recession — this at a time when the Minnesota economy has been consistently underperforming the national average.

Bad news for the state economy would inevitably affect how the Minnesota Legislature goes about its business when it convenes Feb. 12.

Regardless of the how significantly the current downturn is reflected in Friday’s forecast, it is fair to say that legislators are facing a more pessimistic budget scenario than was envisioned even as recently as last summer, when a special session was called to provide flood relief.

Consequently, MinnPost decided to ask the major players at the Capitol how a budget crunch would influence their priorities and strategies for the upcoming session.

Despite direct contact with Gov. Tim Pawlenty’s communications office four times on three separate days, neither the governor nor one of his designated spokespersons chose to participate. However, we were able to speak with the DFL and Republican leadership in both the House and Senate. What follows are excerpts from those conversations.

MinnPost: Are you preparing for a much tougher fiscal environment as you head into the next session, and, if so, how will that affect the way you prioritize and strategize how to get things accomplished?

Speaker of the House Margaret Anderson Kelliher (DFL-Minneapolis): I don’t think it changes our priorities. We will still be focused on getting a comprehensive transportation bill passed and doing other things that help put folks back to work while investing in our communities. We are going to renew our focus on relieving property taxes because that is contributing to the murky economic picture. We will look at doing something for education even in a nonbudget year because of its importance to the long-term future of the state. And in health care, we have been working very hard looking at ways to add more value and cover more uninsured Minnesotans because that is contributing to our economic uncertainty.

Senate Majority Leader Larry Pogemiller (DFL-Minneapolis): It is unclear if there will be less ready cash available, but clearly there will be less permanent money because our productivity numbers are way down and we have a shaky employment situation. That leads me to believe it will be harder to make long-term investments in the best interests of Minnesota’s future. That is a bad situation because it is real clear that the lack of investment in education in the last few years has started to show up in our growth picture. Our future as a community is largely dependent upon our ability to think smarter and have higher productivity than the rest of nation.

By long-term investments, I mean education, transportation, research and development. It is pretty clear that the governor is going to go “no new taxes” which translates into no new investments. Now I think the transportation bill is slightly different because there has been a 10-year buildup in getting something passed and hopefully it will come to fruition this year with an override of the governor’s veto. But with regards to education, I think without some effort to either close technical problems in the corporate tax code or [getting] some additional revenue from high income individuals, it will be hard to make investments in education.

Senate Minority Leader David Senjem (R-Rochester): It would certainly appear money is getting tighter and that is a cause for concern. It suggests that we will be very cautious about funding any new priorities or initiatives. I think it will be a session more focused on policy [than on spending]. I think it makes a transportation bill a bit more difficult to pass, because the more people are hurt financially, the more difficult it is for us to move forward with an extra revenue proposal, be it a gas tax or wheelage tax or sales tax. The price of oil and how it is rising also is not good. So there is never a good time, but as we move into the next session and look at a restrained economy it is going to be even more difficult.

House Minority Leader Marty Seifert (R-Marshall): All of the indicators look like we will have less money than anyone anticipated, and that it will be a miracle if we had more. As for priorities, it is a nonbudget session and with us in the minority we don’t get to drive the train anyway, so it is more about sustaining vetoes. If the DFL has tax increases, we will try to veto them. The DFL may be hungry to raise taxes but I tell you as I travel around the state, there is not a lot of discretionary income, not a lot of take-home pay. So my strategy isn’t going to change a whole lot; it will be: Can we stop their tax increase agenda?

MP: Sessions such as this one, where a biennial budget has already been set the previous year, usually is devoted to passing a bonding bill for new construction projects. Will an economic downturn affect that bill?

Seifert: I would go down the road of saying that we are going to have a very large bonding bill this session; it will be a billion dollars or more. The real question is where that money will be spent. Our caucus says a half-billion or more should go into roads and bridges. The Democrats will say no, it should go to hockey rinks and various earmarks around the state. That’s the difference. We say spend it on making transportation improvements. They want it both ways, with all the pork projects and the transportation projects. It is just a question of choices.

Kelliher: A comprehensive transportation bill and a bonding bill are both necessary if we’re going to remove all the bottlenecks, create jobs and build a sustainable transit system. We certainly are interested in having a significant amount of bonding go to transportation, but we also want to be able to pay as we go. The governor has had a transportation policy that would have proposed an increase of more than 600 percent on what we bond for transportation. That’s not sustainable over the long term. The issue is do we pay as we go or create a larger credit card bill for future generations?

Pogemiller: I think there will be a bonding bill of roughly a billion dollars. I believe we have set enough long term money to pay for a $600 million to $700 million bonding bill. Hopefully the forecast will be good enough so we can accommodate the extra needed to pay for an additional $300 million to $400 million, because that is permanent money, like a mortgage payment. But a billion dollars is about 3 percent [of the total budget], which is the usual [targeted ceiling on bonding], and we need it right now to jump-start the construction industry; it is a legitimate function of the public sector to get that industry back to work. Unless the forecast shows a total [economic] collapse, we should be able to do it. But it is not clear that this forecast will be the worst news. It will reflect a downturn but probably the front end of a downturn. And there will be another forecast in February [shortly after the session convenes].

[In response to Seifert.] We don’t do earmarks in Minnesota — all the bonding decisions come out of public hearings. Earmarks are the culture of Washington, not Minnesota. Besides, the governor has a line item veto on the bonding bill, so if there is a problem he can choose to deal with it that way.

Senjem: Yeah, I think there will be sentiment to get some money out there and get some people to work to stimulate the economy through the bonding bill. But obviously what is happening out there is way beyond what a bonding bill can solve. The bonding bill could vary $100 million one way or another [over original estimates] because of the economic climate, but not a lot.

MP: Does less available money make for a session with less comity — not comedy — and more stress and confrontation?

Kelliher: It can make it difficult, sure. It definitely raises the priorities higher and takes away some side issues that are more important to some people and less important to others. It is a short session. I think we’ll be OK, so as long as we focus on our agenda and make sure we provide legislative oversight so folks know their dollars are being spent on what they were appropriated for.

Senjem: It will certainly strain things. It did in 2003. And while we are not looking at a huge deficit, so we can’t directly compare this to 2003, I think there will be a feeling of needing to work our way out of a deficit, although this one would be looming. It is always easier to work when you have some degree of budget latitude. But in the end I think comity is for us to decide, especially at the leadership level. We can approach it as adults with a level of dignity or look like we’re playing in a sandbox. I think we will approach it as adults.

Britt Robson, formerly a staff writer and senior editor at City Pages, covers the state Capitol and politics. He can be reached at brobson [at] minnpost [dot] com.

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