At Issue: Deficit fixed for now

While recently eating a meal, Rep. Lyndon Carlson (DFL-Crystal) opened a fortune cookie to see the following message: “You shouldn’t overspend at the moment. Frugality is important.”

“That’s what is represented in this bill,” he told the House May 18 after describing the contents of HF1812, the plan to resolve the state’s current biennial budget deficit of about $1 billion — up from the $935 million projected in the February forecast.

“This is responsible, balanced and reflects the critical priorities of the state. It is a reasonable combination of budget reductions and use of reserve funds to balance our budget while retaining our commitment to schools, health care and college students,” said Carlson, who co-sponsors the law (HF1812*/SF3813/CH363) with Sen. Richard Cohen (DFL-St. Paul).

After days of negotiations between legislative leaders and Gov. Tim Pawlenty, the agreement calls for $500 million to be taken from the state’s $653 million budget reserve and nearly $360 million in cuts and non-tax revenue increases are to occur. Additionally, the omnibus tax law (HF3149) includes $109 million from closing a tax loophole some foreign-operating corporations use to bypass state tax law. The state’s $350 million cash flow account is preserved.

“This is a bipartisan accomplishment,” said House Minority Leader Marty Seifert (R-Marshall). “I wish we would make tougher cuts and tougher decisions, particularly in the entitlement programs and structural increases that are going to bankrupt this state at some point, but it is a good first step forward. It will balance this budget without raising taxes between now and July 1, 2009.”

One appropriation was line-item vetoed by Pawlenty. The $134,000 was for a policy bill that did not pass. Legislative leaders acknowledged the oversight and did not object to the veto.

Even with the deficit-reducing plans, Seifert noted the state’s biennial budget will still grow by 9.8 percent this biennium.

The belt-tightening is still not enough for what potentially lies ahead. Carlson said this law, combined with others passed on the final day of session, reduces 2010-11 biennial spending by $136.6 million, but still leaves a deficit of approximately $950 million.

“We need to pass this bill because we need to do what we can,” said Sen. Linda Berglin (DFL-Mpls). “But I urge you all to put on your seatbelts and get ready for next year.”

Here are some of the areas affected:



Education

“The law doesn’t simply protect our schools, but reprioritizes resources and invests the equivalent of an additional 1 percent in the funding formula, or approximately $51 per pupil statewide,” Carlson said. “It is critical that, in this time when our school districts across the state are struggling to increase costs, we are prioritizing funds so that they are able to meet the needs of our students.”

Districts are also given some short-term flexibility to meet their needs.

Funding comes from a $10 million reduction in Q Comp, the pay-for-performance program some districts are using. The General Fund pays for the other $33 million of cost.



Health

The total appropriation for the health and human services areas decreases by $84.7 million in the current biennium and nearly $190 million for the following two years.

However, a 1 percent cost of living increase is included for nursing home workers, and a 1 percent bonus is also planned for those employees.

“At a time when we are investing in a comprehensive health care system in our advancing needed reform proposals, it is critical we strongly support our nursing home workers who are responsible for the daily care of our elderly,” Carlson said.

Rep. Gene Pelowski Jr. (DFL-Winona) said this law takes direct aim at some hospitals. For example, he said it will result in at least an $813,000 cut to the last independent hospital in southeastern Minnesota.

“If I add the increase in K-12, if I add the increase in local government aid, and then I factor in any cuts to my two-year technical college and my four-year higher ed institution, it would appear that what’s happening here, at least in part, health care is paying for any increase that’s going to happen in this (law). In large part it’s falling on local, rural hospitals.”

The chairman of the House Health Care and Human Services Finance Division somewhat agrees.

“It’s not just rural hospitals that get hurt, everybody gets hurt. This is a very serious hit on hospitals,” said Rep. Thomas Huntley (DFL-Duluth). According to his calculations, rural hospitals are losing $74 million of state money in Fiscal Year 2009, and $77 million in the next biennium. “For probably two-thirds of that, for every dollar that they lose from the state they lose another dollar of federal money.

“We tried not to cut people with disabilities and people in long-term care or nursing homes, but these are very significant and very painful cuts for our hospitals.”

A $50 million transfer from the Health Care Access Fund to the General Fund is included in the law. The money will be paid back when the health care reform law efficiencies save the General Fund those amounts. Pawlenty initially wanted to take $250 million of this fund and legislators zero.

A one-time $2 million appropriation to the White Earth tribe “to purchase or develop one or more culturally specific treatment programs or capital facilities, or both, designed to serve youth from native cultures” is funded in the law. Cohen said the item, requested by the governor, is not bondable.



Higher Education

A $21.7 million hit is in store for the state’s higher education institutions in the current biennium, and a $33.5 million reduction is scheduled in the following biennium.

In Fiscal Years 2008-09, a $12.3 million reduction to the University of Minnesota is planned, as is a $7.88 million trim to the Minnesota State Colleges and Universities system. Pawlenty had proposed roughly $27 million in ongoing cuts for each system.

Neither institution can raise tuition higher than what has already been planned for in the 2008-09 academic year. MnSCU approved a budget May 21 that will hold 2008-09 tuition increases to 2 percent for community and technical college students and 3 percent for state university students.

“We’re optimistic that the final budget cut to the U will be managed with spending reductions and the previously anticipated tuition increase,” University President Robert Bruininks said in a statement.

Cohen doesn’t believe the institutions are at “a breaking point” for tuition increases. “If we find ourselves in significantly more trouble next year relative to higher education, tuition increases will probably, unfortunately, result,” he said.

Thanks to approximately $12 million in additional federal Pell Grant money, the living and miscellaneous expense allowance is increased by $300 per student. This is one factor used in determining financial aid amounts.

The law also adds a spouse or dependent of a veteran to the definition of a resident student, appropriates $600,000 in one-time money to expand the Power of You program, instead of $900,000 ongoing, and allocates $120,000 for a teachers of diverse backgrounds financial aid pilot program.



Public Safety/Corrections

An additional $1 million cut was agreed to in the judiciary area, but there is no cut in the Department of Corrections. The department was originally set to lose $3.23 million.

District courts are cut by $2.8 million, instead of the $2.25 million as proposed in the original bill; the Public Defense Board faces a $1.49 million cut, $100,000 higher than first proposed; the Supreme Court is cut an ongoing $831,000, instead of $650,000 as first proposed; and the Court of Appeals cut is increased from $200,000 to $250,000 ongoing. Opponents said this would likely result in shorter hours and reduced days for district courts.



Transportation

Of the $21.2 million decrease for transportation, the most controversial is transferring $15 million from an airport development and assistance fund to the General Fund. It was not in the initial House or Senate proposal.

Money was taken from the fund four years ago and it took four years to get the money back, said Sen. Michael Jungbauer (R-East Bethel). “We no sooner get it back and start programming some repairs at airports and things and the governor takes it again. These are user fees paid by people who fly airplanes in order to fix airports so they can keep flying. … On this specific issue we’re making the statement that ‘If you fly an airplane we don’t want you here. In fact, we’ll take your money, but then we’ll put it into the General Fund, we’ll spend it somewhere else, so bring your airplane and your business somewhere else.’”

A motor vehicle transfer fee increase from $10 to $20 proffered by the Senate was not included in the law.



Other provisions

• livestock grants are reduced by $130,000 to $1 million;

• the state soldiers assistance program is reduced $500,000 to $2.5 million;

• because of uncertainty in the numbers of participants during the remainder of the biennium, instead of writing down appropriations, the GI Bill is converted to a forecasted program so that on June 1, 2009, the finance commissioner is to review program participation levels and adjust the appropriations at that time;

• most state agencies are looking at a 4 percent budget reduction, the Legislature and constitutional offices are generally cut 3 percent;

• an increase of $2 million, to $7 million, for Revenue Department audit staff, with the expectation of increasing additional tax compliance revenue from $15 million to $21 million;

• a plan to forgive nearly $35 million in loans to the City of St. Paul for the RiverCentre complex was not included;

• a $14 million guarantee to the Republican National Convention is not in the law; and

• a workers’ compensation $10 million fund transfer is not in the law.