Pawlenty budget cuts offer few surprises but lots of pain

Gov. Tim Pawlenty
MinnPost/Terry Gydesen
Gov. Tim Pawlenty

Gov. Tim Pawlenty’s proposed budget cuts, released this morning, offered few surprises but lots of pain, state policy-watchers agreed.

“What the governor did was cut a big hole in Minnesota’s safety net,” said Jay Kiedrowski, a senior fellow at the University of Minnesota’s Humphrey Institute who was Minnesota’s finance commissioner under Democratic Gov. Rudy Perpich. “No longer do Minnesotans have the assurance that when they have hard luck they will have help.”

“We’re concerned that it looks like under his proposal, working people are going to lose access to health care,” said Nan Madden, director of the nonprofit Minnesota Budget Project. “We are disappointed in the lack of balance.”

“The unfortunate thing is everyone from the governor on says we have to make tough decisions, but they’re not — they’re not making the tough decisions,” said John Gunyou, finance commissioner under Republican Gov. Arne Carlson and current city manager of Minnetonka. “Unfortunately, no one will talk about tax and spending reform, they’re just cutting budgets.”

In addition to a 20 percent reduction in the corporate tax rate, Pawlenty’s supplemental budget (PDF) proposes $1.2 billion in spending cuts that he said will leave intact funding for services to veterans, “core” public safety programs and K-12 classroom spending.

Big cuts for local aid, health and human services
Under the governor’s proposal, state aid to local governments would be slashed by $250 million, health and human services by $347 million, higher education by $47 million, and other state agencies and programs by $181 million.

“There are no one-time gimmicks, there are no shifts,” Pawlenty insisted. “There are no reserves, no one-time solutions.”

Gov. Pawlenty’s proposed budget fix

Source: Office of Minnesota Management & Budget

He did, however, factor in $387 million in anticipated one-time federal stimulus funds to help struggling states finance Medicaid.

The governor also asked the Legislature to ratify his decision last summer to “unallot” $2.7 billion in state spending, which would mean school districts and other government agencies would simply not receive state aid they were supposed to receive a year late.

Because K-12 makes up 40 percent of the budget, and services to veterans another 10 percent, the cuts of the last few years have fallen disproportionately on health and human services, which make up slightly less than a third of state spending.

Tightened health programs
This year, Pawlenty proposed changing the eligibility guidelines for childless adults on state health insurance rolls from 250 percent of the federal poverty limit to 75 percent. The change would affect an estimated 20,000 people, according to state Health and Human Services Commissioner Cal Ludeman.

General Assistance Medical Care is set to end March 31. DFL lawmakers are looking for ways to extend the program, but the governor has hinted he would veto the current legislative proposal. GAMC provides health care to some 70,000 people each year; in 2008, more than 90 percent had income of less than $203 a month. One-fourth are homeless, a third have chronic medical conditions, and 60 percent are mentally ill or chemically dependent.

“We can’t be so smug about who we think we are that we price ourselves out of the market,” Pawlenty said.

The people who will be dropped from the program, MinnesotaCare, don’t have access to health insurance at work and won’t have realistic options, the Minnesota Budget Project’s Madden countered. “Most of them will be facing a private market with insurance they can’t afford,” she said. “So, most of them will be joining the ranks of the uninsured.”

The governor also called for reducing nursing home reimbursement rates by 2.5 percent and asked legislators to overturn a state law that requires long-term care facilities to charge all patients the same rates, whether they are receiving government subsidies or not.

Higher education “got off easy,” the governor said, with proposed cuts of $36 million to the University of Minnesota and an additional $10 million to the state university system.

When combined with $300 million in unallotments, the proposed reduction in aid to local government means most counties and cities will receive 25 percent less state funding, Pawlenty said.

According to the League of Minnesota Cities, Minneapolis will see a $29 million cut, while St. Paul will lose $12.9 million. “City governments are already making lots of other cuts,” said Kiedrowski. “Police and fire and roads will be affected.”

“When I talk to city groups I say we have to get used to living without state aid,” said Gunyou. Minnetonka no longer receives LGA money, the city manager noted. “The only revenue the state allows us to use is property taxes.”

In general, state agencies can expect a 6 percent budget reduction, which will mean an unspecified number of layoffs, Pawlenty said.

Peggy Ingison stepped down as Pawlenty’s finance commissioner in 2006 to become chief financial officer of Minneapolis Public Schools. Reached before Pawlenty’s announcement, she said school administrators were particularly concerned that the governor said he would not touch classroom spending, instead of using a broader term like education funding. “A while back, he was pushing this 70 percent solution: ‘If schools just spent 70 percent of their funding in the classroom, we’d be all right,’ ” she recalled.

Unallotment moves complicate budget cutting
Ratification of last year’s unallotments would cost schools $1.5 billion, she noted.

That controversial unilateral budget tactic is the subject of a lawsuit brought by six individuals whose specialized diet aid was slashed. In December, Ramsey County District Court Chief Judge Kathleen Gearin ruled that Pawlenty exceeded his authority when he made the unilateral cuts after the Legislature had adjourned. Pawlenty appealed the ruling to the state Supreme Court, which is expected to hear oral arguments next month.

If the two challenged unallotments are ruled illegal, things don’t get any easier for legislators. If lawmakers refuse to ratify Pawlenty’s decisions, they then will have to find an additional $2.7 billion in savings.

“There’s the philosophical policy debate, but the other issue is the practicality,” said Gunyou. “If those are not legal, or not ratified, then they still have to cut that same amount somewhere else. If they say they don’t want to do the unallotment, then they are looking at a $3.3 billion problem.”

In addition to the pain caused by the proposed cuts, policy-watchers said they were disappointed that Pawlenty again failed to propose structural changes that are needed to keep the size of the problem from snowballing. Minnesota has faced budget deficits in seven of the last nine years. Each time, Pawlenty has drawn fire for draining reserves and using one-time accounting shifts as partial ways to close those gaps.

The net effect, critics on both sides of the political aisle have argued, will be to hand the next governor an even bigger fiscal problem.

“This $1.2 billion shortfall is peanuts compared to the next biennium,” said Gunyou. Previously, a $5.4 billion deficit was projected for the 2011-2012 cycle. More shifts this year would add the current deficit to that amount for a total of $6.6 billion, which could be the equivalent of 15 or 20 percent of the state’s budget, he said.

Analysts were still sifting through the proposal’s fine print, but Pawlenty this morning argued that he had actually taken steps to reduce the future deficit to $2.4 billion. Kiedrowski called this a positive step.

Structural budget problems compound situation
Regardless of the eventual size of the future shortfall, the structural problems will be compounded by a shift in the state’s demographics. Because Minnesota’s population is aging, fewer people will be working and more will be using the most costly services, such as long-term care.

“We are not going to grow our way back to the prosperity of the last couple of decades,” Gonyou said. “So the gains will have to come from productivity.”

Public policy can best encourage increased productivity by investing in infrastructure and public education, he said. “There has to be a more thoughtful strategy here,” said Gonyou.

When it downgraded Minnesota’s bond rating recently, Moody’s cited the high number of one-time fixes and lack of cash reserves. “Given the one-time actions already incorporated in the adopted budget, including payment delays, fund balance transfers, use of federal stimulus money and depletion of budget reserves, the state has reduced flexibility to address continued budget challenges,” Moody’s reported.

“The negative outlook reflects Minnesota’s ongoing financial and economic weakness, resulting from revenue underperformance and leading to sizeable out-year budget deficits, and tightening liquidity. In addition, the outlook reflects depletion of budget reserves, negative GAAP balances, and heavy reliance on one-time resources to balance the state’s budget,” the analysts wrote.

MinnPost reported recently that Minnesota is second only to Alaska in the number of one-time fixes it has used.

During Pawlenty’s tenure, property taxes have increased by $3 billion, or 65 percent. Fees have doubled, reaching a total of $1.25 billion. State and local tax rates have increased for 90 percent of Minnesotans, while tax rates for the state’s wealthiest, those earning more than $130,000, have decreased.

In November, Pawlenty announced a proposed constitutional amendment to limit state spending to the amount of revenues that were brought in the door during the previous two-year budget cycle.

Lawmakers — several of whom are running to succeed Pawlenty — must now decide which of the governor’s proposals to accept. Unless they are able to raise taxes — unlikely with Pawlenty’s no-new-taxes pledge, they’ll have to be creative if they are to come up with alternatives, analysts said.

“I’ve struggled to think about what would I do if I were trying to put this together and I had put myself in this box of no new taxes,” said Ingison. “Is your legacy going to be IOUs or what?”

Beth Hawkins writes about education and other topics.

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Comments (10)

  1. Submitted by dan buechler on 02/15/2010 - 03:14 pm.

    Of historic porportions. Grim and grimmer. Thank you for your work here Ms. Hawkins altho it certainly didn’t make my day.

  2. Submitted by James Hamilton on 02/15/2010 - 03:45 pm.

    The big news is what’s in the budget for 2013: Corporate and other business tax cuts of $180 million or more in 2013 matched with the elimination of $250 million in aid to local government, $93 million to education. $137 million to the U of M, $60 million to state unviersities and colleges, and $300 million in human services. Realistic? No, but it will play well in his 2012 campaign.

  3. Submitted by Thomas Swift on 02/15/2010 - 06:31 pm.

    I applaud the Governor for finally stepping up and making the tough decisions without gloss or obfuscation.

    We are adults. We can see that the new economy will not sustain the sort of government growth that some have become accustomed to for the past 30 years…but this needn’t be a gloomy story.

    This is an excellent opportunity for the very vocal, caring, sharing, “happy to pay” community to step up and walk their talk. It will be good for their souls, and will have the effect of making believers of us cynics.

    Of course, the people that have always carried the weak and helpless without fanfare can (the religious and faith community), and will step up their charity; that’s a given.

    There has been much talk about “communities”, but we’re turning a corner today. It’s time for more than lip service and signs…now is the time for YOU and I to step up and help the helpless.

  4. Submitted by Rebecca Hoover on 02/15/2010 - 07:27 pm.

    Pawlenty took the lazy way out as usual. Some cuts are needed but anyone who has observed state government knows there is lots of room for smart cuts. State bureaucracy is loaded up with unnecessary managers and fat. If Pawlenty and his agency heads were not afraid of a little hard work, they would address this needed for cleanup and cut the budget in the right way.

    Instead of doing some honest work, however, Pawlenty slashes programs for the poor and makes a 3% across the board cut affecting most state agencies. Lazy, lazy. Pawlenty is a moral serpent.

  5. Submitted by william lynott on 02/15/2010 - 07:53 pm.

    Since the next governor will be a DFLer, we can look forward to a couple of things. Either:

    *tp will see his taxes go up A LOT; or

    *tp will trade his home state for a low tax paradise like Mississippi or South Dakota (ouch). Either way, a win-win for Minnesota.

  6. Submitted by Richard Schulze on 02/15/2010 - 10:26 pm.

    I would have thought that with the governors fiscal rhetoric, he would have made some serious and meaningful cuts. He has not made any hard political choices. It appears that he is only doing the minimum and avoiding the politically difficult cuts that need to be made.

    The governor proposed about six different tax cuts today that he said would help create jobs. Business tax cuts that will cost 20 million dollars in this biennium. The next biennium those tax cuts will cost 312 million dollars.

    These cuts are essentially back loaded. The corporate tax cuts of 20% will cost 10 million now and then 150 million dollars in the next biennium. The small business cuts will cost nothing this current biennium and then 118 million dollars in the next one. The governor might argue that jobs will kick in and the tax cuts will pay for themselves. Although that is not the way the accounting process works.

    Aside from some small nicks in the budget, the governor has left all the heavy lifting for the next governor. Although Governor Pawlenty as Mr. Hamilton points will have some nice campaign slogans for use in the future if he chooses continue in his role as a career politician.

  7. Submitted by dan buechler on 02/16/2010 - 04:17 am.

    Rebecca and Thom, very interesting comments altho I doubt it will ever come to fruition. Taxes are the price we pay and bear for civilization. Thomas not only do I expect you to head the chess club at your local private school (which is a good thing) but you need to organize the babushkas to get out there and sweep the streets, fix the potholes, paint and inspect the bridges, change the lightbulbs, collect the fares for the raillines, vaccinate the population, build missiles, etc, etc, Thomas your every wish has come true, although more economic growth would be extremely helpful altho that is probably not sustainable either. Others get hit harder in life, if you have been fortunate or one of the elect work in a nursing home for low wages and you will begin to feel differently.

  8. Submitted by John Olson on 02/16/2010 - 07:33 am.

    $387 million of the proposed “fix” is stimulus money that has yet to materialize. Over the course of the last year, several folks have consistently scorned these funds, including the Governor. The hypocrisy of this, of course, is that the Governor has used a portion of these funds in the past year to do “one-time” fixes to the state budget.

  9. Submitted by Bernice Vetsch on 02/16/2010 - 02:22 pm.

    If it’s illegal for Pawlenty to use those federal stimulus funds to balance his budget, he can at last be arrested, tried, and removed from office by impeachment for being the criminal we all know he is.

    There must be some way this awful man can be stopped. He and Grover Norquist must be bursting with laughter at the damage they have been able to inflict upon Minnesota in a few short years.

    Can he be impeached for refusing to honor his oath to uphold the Constitution of the State of Minnesota? Specifically, Article I, the Bill of Rights, Section 9, Treason Defined:

    “Treason against the state consists only in levying war against the state (THE CUTS THAT KILL PEOPLE), or in adhering to its enemies, giving them aid and comfort (GROVER NORQUIST, ALL SIGNERS OF THE INFAMOUS NO-TAX PLEDGE AND MEMBERS OF THE LEAVE US ALONE SOCIETY). No person shall be convicted of treason unless on the testimony of two witnesses to the same overt act or on confession in open court (SEVERAL THOUSAND FOLKS AVAILABLE).”

  10. Submitted by Jon Graves on 02/17/2010 - 06:00 pm.

    So lets send more money to the State. They are either the largest or second largest employer in the state. Every dollar you send maybe you benefit by .50.

    Education – already at the one of highest per pupil rates in the nation and it needs more?? You have two second grade teachers right next to each other the 60 year old making $80,000 and the 25 year old $29,000. Eduction’s quality is 90% up to the parents, even my teaching friends agree with that. This idea more money makes it better has never proved out. GMC was less screwed up than the school costs and the results are.

    As far as someone else should pay for me. MN has already accomplished that going down enough in population in comparison to other states that we may give up one of our districts. The population in Minneapolis and St. Paul has not gone down. This is a very small world now and the benefits of MN obviously have not been seen by the wealth that left.

    3-M, Northwest (Delta), Wells Fargo = they have all passed on expansion of anything in this state. The quality of life here is great, but unless you are employed by the University of MN, State government or Federal government (the three largest employers) the opportunities have become less the last 20 years.

    Get your government job. The largest employer of college grads, and probably all.

    I think you should go to your friends first and tell them you want a couple of hundred a month from them, BECAUSE you need more and next year you will be back for more. I will guess you will have less people next year to get it from.

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