With the first policy deadline only a week away, Minnesota legislative committees have been meeting well into the evenings and on weekends in order to process all of their bills. In addition to policy bills, legislators have finally begun to address the $6.4 billion deficit. Both Gov. Pawlenty and DFL leaders presented their budget solutions this week. While many details are still forthcoming, what is clear is that the Governor and legislative leaders are still very far apart in their solutions.

The legislature is scheduled to adjourn on May 18, less than two months away. That leaves little time for legislators to finish their work and come to a negotiated agreement with the Governor. With three very different proposals on the table, there is still a lot to be decided. Pawlenty remains absolute in his commitment to not raise taxes, which means Democrats would need three Republican votes in the House to override his veto.

Pawlenty's Revised Budget

Gov. Pawlenty released his revised budget on Tuesday, and it reflects February's updated economic forecast and takes into account the $2.6 billion in federal stimulus funds the state expects to receive. "In relative terms, the budget we're unveiling today contains some good news," Pawlenty said as he presented a revised version of his January proposal. Pawlenty did not include any tax increases and funded $2 billion of his budget through the somewhat controversial use of one-time funds through the sale of tobacco appropriation bonds and accounting shifts.

Pawlenty's new budget includes an increase in K-12 education funding and $10 million for a contingency fund to ensure a state match for federal stimulus fund grants, restores his earlier cuts to higher education, exempts unemployment insurance benefits from state taxes, and reconfigures the General Assistance Medical Care (GAMC) program. Pawlenty's updated budget spends $424 million of federal stimulus money on schools, a $27 million increase from his January proposal.

In order for Minnesota to be eligible for federal stimulus funds for healthcare, Pawlenty had to restore most of the cuts he made in healthcare eligibility. To offset these increases, he further cut benefits available to single adults throughout GAMC, such as the hospitalization benefit. In exchange for limiting emergency room care, he created a pool of funds that hospitals could access to cover charity care. Pawlenty's new budget also caps healthcare spending at 2010 levels through 2013 and eliminates healthcare eligibility for 113,000 Minnesotans beginning in 2011.

For more information on the Governor's proposed new budget, go to http://www.startribune.com/politics/state/41367657.html?elr=KArks8c7PaP3E77K_3c::D3aDhUec7PaP3E77K_0c::D3aDhUiD3aPc:_Yyc:aUU.

You can read the Governor's budget proposal in its entirety or listen to the press conference on http://www.governor.state.mn.us/.

DFL Legislators Respond to Revised Budget With Their Own Proposals

Senate DFL Announces Deficit Reduction Plan

Includes $2 Billion in "Revenue Increases"

Late last week, Senate DFL leadership announced its plan. To bring the budget into alignment for this two-year cycle—and the next—they propose:

  • Implementing 7% across-the-board cuts for the next four years (= $5.1 billion);
  • Raising "revenue" by $2 billion; and
  • Using $2 billion of federal stimulus dollars to make up the gap.

DFL leadership was careful not to use the word "tax increase," which would be rejected out of hand by Gov. Pawlenty. They also refused to name the exact source of the "revenue increase," but hinted it would be based on the ability to pay (i.e., income tax increase on upper bracket earners) and would not include an expansion of the sales tax to clothes or services.

According to Senate Tax Chair Tom Bakk (DFL-Cook), "The Governor's budget plan included huge property tax increases and one-time solutions that would saddle our kids with debt....The recently released Tax Incidence Study clearly indicated that those with higher incomes in our state aren't paying their fair share of taxes and that the middle class is getting stuck with a disproportionate burden. The property taxes and other regressive taxes in the Pawlenty budget are hurting folks who can't afford more pain right now."

Senate Majority Leader Larry Pogemiller (DFL-Minneapolis) announced that this is a "shared sacrifice" approach that was inspired by the discussions at the listening sessions held around the state.

Senator Pogemiller also elaborated that:

  • Cuts to local government aid will not be as severe under this plan as they are under the Governor's;
  • Since they are across the board, the cuts will protect the neediest Minnesotans better than would the Governor's plan; and
  • The Senate DFL will not shift dollars from the Health Care Access Fund to make up the difference, as Pawlenty's plan does.

House DFL Budget Plan Softens the Potential for Cuts

Yesterday, House DFL leaders announced their budget plan in a press conference. While their proposal relies on increased revenue to minimize cuts, no details of those revenue increases were unveiled. House Speaker Margaret Anderson Kelliher (DFL-Minneapolis) said the specifics of any tax increases would be decided by the House Tax Committee. Mirroring the language of the Senate and stating that the "economic crisis calls for shared sacrifices for Minnesotans," the House solution also balances the budget for the next four years. The yet-to-be-identified tax increases are estimated to raise $1.5 billion this cycle and an additional $1.4 billion increase in the next two years. House Majority Leader Tony Sertich (DFL-Chisholm) said that the later tax increase may not be needed if the economy improves enough.

In addition to tax increases, the House proposal uses $2.4 billion of federal stimulus dollars and delays approximately $1.8 billion in state payments to schools. E 12 and higher education are also held harmless while health and human services would bear most of the cuts. Unlike the Governor's proposal, the House plan subjects veterans affairs and public safety to agency cuts and program reductions.

For additional details on the DFL House Budget proposal, go to http://www.startribune.com/politics/state/41350927.html?elr=KArks8c7PaP3E77K_3c::D3aDhUoaEaD_ec7PaP3iUiacyKUnciaec8O7EyUr.