1/23/2009 by Beth Bily

(Photo: Minnesota House majority leader Tony Sertich, DFL-Chisholm.)

When the 2009 Minnesota Legislature convened on Jan. 6, the economy was the biggest topic in the minds of lawmakers.

The issues that have taken center stage in recent legislative sessions — more funding for schools and transportation, and health care reform – seem minor compared to the budget crisis the state faces, an estimated $5.2 billion shortfall over the next 30 months.

There’s a gap of about $426 million to fill in the current biennium that ends June 30, 2009, and another $4.8 billion hole projected in 2010-2011. In its November forecast report, the Minnesota Management and Budget Office attributes the financial crisis to the recession that actually began in the final quarter of 2007. The budget office estimates a 9.4 percent decline in the state’s 2010-11 revenues from its forecast last spring. State expenditures are expected to rise by $580 million during the next biennium, driven by higher health and human services costs from a weakening economy.

It’s widely believed the outlook will be even worse with the next update.

Gov. Tim Pawlenty already has acted to reduce the current biennial shortfall. In mid-December, the governor tapped $155 million in reserves and “unalloted” $271 million in payments to local governments, higher education and state agencies. The city of Duluth lost $1.7 million in state aid revenues in the unallotment process.

As bitter as some of those cuts seem, choices will get exponentially tougher with the larger cuts required in fiscal years 2010-2011, the biennium that begins July 1. And the stage seems to be set for yet another round of budget feuds between the Republican governor and DFL-controlled Legislature.

Pawlenty is adamant he will not raise taxes to address the shortfall. “The historic budget deficit will be a challenge, but it will also be a further opportunity to reform, prioritize, streamline and shrink state government, not add to the burden of Minnesotans by raising their taxes,” said the governor in late December.

That position is supported by one of the state’s largest business concerns, the Minnesota Chamber of Commerce. The state chamber lists balancing the budget without a general fund tax increase as a top priority.

DFL legislators argue the governor’s local government aid payment reductions simply shift tax increases from the state to other entities.

“We have to break the myth of the governor’s sound bite on taxes,” said House Majority Leader Rep. Tony Sertich, DFL–Chisholm.

Rep Tom Rukavina, DFL-Virginia, had stronger words for the governor. “This budget problem cannot be solved without raising revenue. The governor’s broken his no new tax pledge. He’s shoved this all back on the most regressive tax there is — property tax. There are no more gimmicks to go after, there’s no more money to go after,” he said, referring to one-time transfers that were used to fix a state budget shortfall five years ago.

Sertich said every available option must be kept open to solve a budget crisis of this magnitude. The House majority leader also said care must be taken not to negatively impact education or workforce development by cutting initiatives that might stimulate the state’s economy and thus revenues.

Although there has been some talk of keeping cuts away K-12 education, local lawmakers acknowledge no cut is off limits. “Everything has to be on the table,” said House Ways and Means Committee Chairman Rep. Loren Solberg, DFL–Grand Rapids.

“We hope to avoid K-12 cuts and shifting the burden to local property taxes, said Solberg. “But, we might be looking at some K-12 programs and asking ourselves whether they are delivering what they are supposed to deliver.”

Serious budget talks and cuts between the two sides probably will follow the governor’s release of his budget proposal in late January. K-12 education and higher education account for about half of the state’s budget. Health and human services account for about 30 percent of the projected 2010-2011 expenditures estimate of $36.7 billion.

Sen. Tom Saxhaug, DFL–Grand Rapids, said the size of those expenditures make K-16 education and health and human services the most likely targets for budget reductions. He acknowledges cuts are inevitable but said he doesn’t believe the state is overspending. Rukavina called health and human services cuts “targeting the poorest of the poor.”

Cutting expenditures isn’t the only option under review. Two nearly year-long studies of Minnesota’s spending and taxation system will be completed and their findings available for the 2009 legislative session. One study group was appointed by the Legislature: the Minnesota Budget Trends Study Commission. The other, appointed by Pawlenty is the Governor’s 21st Century Tax Reform Commission.

Neither has telegraphed its conclusions, although either or both could weigh in on broadening the state’s 6.5 percent sales tax to exempted goods and services — including clothing and numerous business services — as a potential source of new revenue.

Rukavina suggested a flat income tax surcharge as part of the fix for the budget shortfall. Other state legislators suggest previous proposals to reduce or eliminate mandates to local schools and government as cost savings measures may get more consideration this time.

While the state’s budget crisis may offer opportunity for reform and creative solutions, one reality seems clear: Any effort to increase the state’s revenue base likely will meet stiff resistance from the governor.

• Investment in colleges, universities totals $270 miliion since 2000 -8/25/2010
• Despite recession, Range Readiness Initiative continues -8/17/2010
• Wide Open Future -8/10/2010
• Highway design change sends customers elsewhere -8/3/2010
• Visitors make Bayfield a business destination -7/27/2010