No taxes in Pawlenty's budget toolbox; but cuts to cities and health care for poor

ST. PAUL -- Governor Pawlenty's plan to solve the projected $5 billion spending gap relies solely on cutbacks, but there's no tax hike in his budget toolbox.

As promised, the plan seeks to insulate K-12 school budgets from major hits while dipping into spending on health care for lower income Minnesotans.

An estimated 55,000 adults without children would lose eligibility for the General Assistance Medical Care program in calendar year 2009, and 29,000 parents with children would be dropped from that program in calendar year 2010.

Some people unfortunately will lose eligibility but the total number of people being served will continue to increase," Pawlenty explained, suggesting that the ranks of even more destitute Minnesotans will swell.

Mr. Pawlenty says he will spend more on health care for some low income Minnesotans, but his target for 9.6 percent growth in that program over the next two years will fall short of the expected inflationary increases of 22% expected with the weakening economy.

"Health and Human services absolutely dwarfs the spending increases in every other part of this budget." The Governor laid out his fiscal fix blueprint in a news conference at the Stassen Building in Saint Paul, which serves as headquarters for the Department of Revenue.

The proposed budget for Fiscal Years 2010-2011 is $33.61 billion, which would be an actual reduction of 2.2 percent from the current two-year budget cycle.

"The upcoming budget debate should not be about where we are now," Pawlenty said, "It should be about where we're headed."

This repeated the governor's ongoing theme of telling lawmakers not to compare Minnesota's budgetary diet to previous decades, but to the economic realities of the future. "You've heard me say before this is not the 1970s," Pawlenty remarked, "We need to make the strategic investments that will position Minnesota for future success."

Pawlenty's fix includes $2.5 billion in spending cuts and $3.1 billion in the category of "other resources." Those include $920 million his budget planners expect from the federal stimulus plan, $983 million in "tobacco appropriation bonds" which are bonds issued against the value of future tobacco company lawsuit settlement proceeds.

"I think we need a lot more detail on this almost one billion dollars of borrowing tobacco money," House Majority Leader Tony Sertich told reporters later, "What we don't want to happen is to have any Ponzi schemes in the governor's budget."

Speaker of the House Margaret Kelliher echoed her DFL colleague's concern, but in different terms. "This budget appears to be full of some gimmicks and we are going to take a close look at that."

There's also $1.2 billion that can be achieved by "payment shifts" to school districts around the state. Those shifts, employed during the 2003 budget crisis, delay state aid payments to school districts to capture interest on the money.

"I suspect the legislature will have different priorities," he said, "But we've treated our priorities more favorably in this process." Mr. Pawlenty also pushed for a cut in Minnesota's business tax rate, and an upfront sales tax exemption for new business equipment.

Both moves are designed to spur job growth, at a time of huge job losses. DFL critics point out the fact that Minnesota and the United States as a whole produced more jobs during 1990's under higher tax rates than during the past eight years after the tax cuts signed into law by former President George W. Bush.

Senate Majority Leader Larry Pogemiller of Minneapolis told reporters early this month that the theory of "tax cuts for the wealthy creating jobs has been disproven, both here and nationally."

The budget plan also anticipates the wage freeze for state workers the Governor proposed two weeks earlier in his state of the state address.

Eliot Seide, who heads the AFSCME Local 5 government employees union called on the governor to guarantee no layoffs in exchange for the pay freeze, adding "The state's wealthiest citizens need to be part of the solution as well, and those folks making over a quarter million dollars a year should have to pay their fair share."

A group of mayors briefed the media on the impact of cuts in local government aid to already cash-strapped municipalities. Saint Paul Mayor Chris Coleman said the city has cut the budget down to the bone, and left positions unfilled as it scrambles to deal with money stripped from this year's alotment.

"We want to be part of the solution to these challenges," Coleman said, "But the proposal puts a disproportionate burden on communities throughout Minnesota that can simply not afford it."

Senate Majority Leader Larry Pogemiller suggested the cuts to local aid will merely "push the problem downhill to the cities," which will lead to local property tax hikes. But Pawlenty repeated his past assertions that local government has other options, and should absorb the cuts without tapping property owners.

The budget plan is typically the opening salvo in the battle between DFL legislative leaders and the governor over taxes. This year's fiscal fracas will also occur against a backdrop of a debate in Washington over how much federal aid to give to states, most of which are struggling with huge quantities of red ink.

States, unlike the federal government, can not incur actual debt. With the exception of bonding for large building projects, Minnesota must balance its books within each budget cycle.

Pawlenty said getting a boost from the federal government would be welcomed, but he's not counting on it. And he points out it is a one-time infusion of cash, which would do nothing to address the long-term structural problems with the state's finances.

By John Croman, KARE 11 News

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