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Minnesota budget future dark

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ST. PAUL - For 28 years, Jim Mulder has looked into his crystal ball and predicted how legislators and the governor will solve budget problems.

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Now, the Association of Minnesota Counties' executive director said, that crystal ball is dark. Mulder and other veteran budget-watchers are stumped as lawmakers prepare for the 2009 legislative session that begins at noon Jan. 6.

No one knows how to fix a record state budget deficit that most predict will top $6 billion for a two-year budget lawmakers and the governor must write in the first half of 2009.

Usually as a new legislative session approaches, lawmakers are full of ideas for how to solve problems facing the state and they rattle off a list of other bills they will push. However, when the start of the 2009 legislative session arrives, there will be no answers to the budget question, a question so dominant that few other issues even are being discussed.

For one, Sen. Gary Kubly, DFL-Granite Falls, admits to being puzzled, even after a dozen years in the Legislature.

"I don't have a clue how to start handling that kind of a deficit when we've already used up the easy money," Kubly said. "I don't know what kind of revenue increases could be agreed to. That's part of the bewildering nature this time around."

Kubly and other veteran lawmakers remember 2003, when lawmakers and Gov. Tim Pawlenty used a variety of budget-balancing tricks with tails that will limit what they can do in 2009.

One thing Kubly and other policymakers know is that upcoming budget cuts "will be deep and painful."

Or, as Rep. Kent Eken, DFL-Twin Valley, put it: "It's not going to be a very fun session."

It is a hard problem to grasp.

"I don't think most people, even those who work around the Capitol, understand the depth of this problem yet," said Sen. Tom Bakk, DFL-Cook.

The state often has faced budget problems. But in those years, such as 2003, the public has not seen much change. The warning to Minnesotans this time around is that everyone will feel the impact of this economic situation, in part because changes made six years ago still limit legislator's options.

The problem is simple: The state does not have enough money to cover its expected expenses.

If the state budget continues as is, Minnesota easily would spend more than $37 billion in the two years beginning next July 1. But if the economy continues as is, taxes and other revenues will struggle to reach $32 billion. An economic report early in the legislative session likely will show an even bigger gap.

Policymakers are left with two options:

-- Cut the budget.

-- Raise taxes.

Everyone agrees state budgets will be cut, although no one in power has decided just how to do that. Most want to keep money flowing to education. Pawlenty also puts a priority on public safety and veteran-related spending. And various types of health and human services spending for the poor, especially, are becoming even more important in this time of economic distress.

Some legislators, particularly Democrats, quietly suggest tax increases, but even the strongest tax proponents say there is no way to raise taxes enough to fix the problem.

Republican Pawlenty says he will not accept higher taxes or fees, but has made vague references to higher revenues.

Legislative leaders plan to ask their committees to evaluate state spending and revenues right after they convene for the year.

"We are thinking about how in the world can we start handling things of this magnitude?" Sen. Keith Langseth, DFL-Glyndon, said.

Pawlenty must release his budget proposal by Jan. 27, and he makes it clear it will focus on cuts.

A legislative budget plan probably will not come out until well after a late-February or early-March economic forecast that many experts expect to show a budget deficit well north of $6 billion (the current prediction puts the deficit for the next budget at $4.85 billion). The budget must be balanced; deficit spending, like done in Washington, is not allowed.

The state constitution requires lawmakers to end their regular session by May 18, but many predict the budget mess is so ugly that a special summer session will be needed to finish the budget.

"I'm not planning on any summer vacations," Rep. Doug Magnus, R-Slayton, said.

There is no roadmap about what to do. And during a series of interviews, it became apparent that even long-time lawmakers are not sure how to proceed.

A veteran Democratic legislator said a tax increase could be floated, but such a proposal won't go far.

"We've got 201 legislators and somebody will (propose a tax increase), but as far as it picking up or gaining momentum, I honestly don't think so," Sen. LeRoy Stumpf, DFL-Plummer, said.

Minnesotans facing a recession cannot handle higher taxes, he said.

Stumpf predicted there could be some fee increases, but said that approach has been used a lot since 2003 and Pawlenty recently said he would look at fee increases like tax increases - not where he wants to go.

Rep. Larry Howes, R-Walker, conducted an informal poll of his northern Minnesota constituents in recent weeks that showed many could accept a sales tax increase easier than other taxes.

People told him purchases are "a choice you make" and the sales tax captures tourists' dollars.

On the other hand, many Democrats say that the sales tax already hurts the poor more than it does the rich. They prefer a new income tax bracket for the richest Minnesotans.

Lawmakers worry the average Minnesotan does not grasp the severity of the crisis because they are too focused on their own economic challenges.

"Most people aren't engaged in the process," Sen. Dan Skogen, DFL-Hewitt said. "They have lives and jobs and careers and families."

Fewer Minnesotans have jobs than in the past. And that complicates the budget situation.

Some, like Pawlenty, see the budget problem as an opportunity to make changes.

"This is a wonderful opportunity to downsize government," Sen. Bill Ingebrigtsen, R-Alexandria, said. "We don't have any choice, quite frankly."

If, like some want, education and human services programs are not cut, only about $7 billion remains in the state budget, Magnus said. "That is the magnitude of it."

"I'm not sure we can cut our way out of this and with the economic situation, we cannot raise our taxes," he said. "We cannot afford the huge increases in spending we have seen. That is obvious. But can we afford to make the cuts? That is the question."

Every Minnesotan will feel the impact of the budget-balancing solution, whatever it is, Magnus said. "There is no way around it. ... That is a scary thought, I know."

With many state expenditures being protected to some extent - such as education, public safety, military and human services programs - Rep. Paul Marquart, DFL-Dilworth, said other programs could see cuts of 10 percent to 20 percent - "depending upon how much revenue can be raised."

In the past, when legislators talked about cutting programs, they often meant reducing what had been expected to be increased spending. Now, Marquart said, lawmakers must cut from existing amounts.

"A lot is going to depend on how much revenue we can raise, and that is going to depend a lot on how much the governor will allow, frankly," Marquart said.

"The problem is if you just cut things, it is so regressive," he added. "It hurts our lower income, the senior citizens harder."

Marquart would put education, health care and property tax relief as top legislative priorities. "Everything else, ask: 'Is this what we should be doing as a state?'"

Rep. Morrie Lanning, R-Moorhead, said that each expenditure needs to be examined.

"There will be some areas that will be more protected than others and education needs to be protected as much as possible," Lanning said. "You can't solve a problem of this magnitude without taking a close look at expenditures across the board."

Eken said that Pawlenty will need to consider some tax increases.

"In the past, every governor who has faced a deficit of this magnitude has chosen to use a combination of things, including revenue and cuts," Eken said. "I think this is the first governor I'm aware of who has said it is only one way we are going to do it. I am still hopeful there will be a compromise."

Bakk said that while the official deficit is $4.85 billion for the next budget, in reality it is closer to $6 billion already.

The $4.85 billion does not include money needed to rebuild the budget reserve, which Pawlenty had to spend before he began making program cuts to balance the current budget. And the state budgeting process does not take inflation into account, which makes the deficit even bigger, Bakk said.

"We can't end the session with no budget reserve," Bakk added.

No one is going to be happy when the session ends, Bakk said.

"Nobody is going to get what they want," he said. "But my hope is people will get what they need. That is a really different thing."

As the Senate tax chairman, Bakk said that he understands big cuts are needed. "You can't tax your way out of this."

On the other hand, Bakk said that he is worried that Pawlenty "will just put a cut budget together ... knowing full well that nobody is going to support that, probably including himself."

Rep. Steve Drazkowski, R-Wabasha, explained the deficit problem in a way most Minnesotan can understand: "They say you save your reserves for a rainy day. It is raining, it is thundering. It is going to be a hurricane."

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