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DFL Gov. Mark Dayton said that it is a "fantasy island" scenario for Republicans to believe that the state will receive a waiver from the federal government in time for the start of the next biennium in July.

Minnesota’s budget battle starts in earnest

 Peter Bartz-Gallagher)

House HHS Finance Chairman Jim Abeler would spend $10.7 billion on HHS programs— $1.6 billion less than the 2012-13 statutory base. His proposal, which is not accompanied by fiscal notes, would seek a waiver from federal rules worth an estimated $300 million. (Staff photo: Peter Bartz-Gallagher)

On Monday Rep. Jim Abeler, chairman of the Health and Human Services Finance Committee, unveiled the details of the most anticipated budget bill of the legislative session. Under Abeler’s proposal, the state would spend $10.7 billion on health and human services programs in the next biennium. That’s a modest increase over state spending levels in the current two-year budget cycle – but $1.6 billion less than required by statute for 2012-13.

It’s the largest targeted cut in the entire general fund budget. But as the details of Abeler’s proposed budget circulated, however, it quickly became evident that the plan was extremely light on specifics.

That’s in part because a key facet of Abeler’s proposal requires a “global waiver” from meeting the federal government’s maintenance-of-effort requirements for state programs that receive federal Medicaid money. His finance bill anticipates saving $300 million through unspecified changes to those programs. But it is uncertain how soon such a waiver could be obtained, or whether the federal government would be inclined to grant such an exemption to the rules. DFL Gov. Mark Dayton said that it is a “fantasy island” scenario for Republicans to believe that the state will receive a waiver from the federal government in time for the start of the next biennium in July.

Abeler’s bill was also greeted with puzzlement for another reason: the absence of any fiscal notes to determine whether the bill’s math makes sense. In other words, when Abeler’s committee holds an initial vote on the omnibus bill Thursday, they will be voting on a series of budget placeholder figures that offer little assurance about the specific shape or the economic ramifications of the proposals.

DFLers immediately pounced on the HHS cuts plan as unrealistic. “We know it’s a bad bill,” said Rep. Nora Slawik, DFL-Maplewood, a member of the Health and Human Services Finance Committee. “We know it’s going to hurt people. But most of all, we know it’s phony.”

Even Abeler acknowledged that the bill was merely “phase one” of the HHS budget debate and that his committee would not have a more fleshed-out proposal for Friday’s initial deadline for passage of finance bills. “I don’t know everything,” Abeler said at the close of a news conference unveiling the bill. “As this goes forward, I’m open to ideas from anybody.”

On the Senate side, the HHS finance bill was just introduced on Wednesday. Sen. David Hann, R-Eden Prairie, chairman of the Health and Human Services Committee, conceded that there might not be an initial vote on the legislation until next week.

The continuing uncertainty about the GOP-led Legislature’s HHS budget proposal underscores the thorniness of efforts to erase the state’s $5 billion budget deficit without passing any tax increases. Overall, the GOP general fund budget plan spends nearly $900 million in funds drawn from the 2010-11 closing surplus and the contents of the state’s cash flow account, and it uses one-time funds (or revenue/savings claims that are not yet  backed by fiscal notes) in other areas.

In the state government budget, for example, the GOP budget points to $170 million in new 2012-13 revenue from a pair of tax enforcement measures proposed by Republicans; the larger of the two, estimated to be worth $133 million, is based on a bill (HF 174) that would enter the state into a tax analytics and business intelligence arrangement with a software provider who would help to identify possible tax scofflaws.

As Republican committee chairs rolled out their fiscal proposals throughout the week, numerous firefights erupted over proposed cuts. Among the plans generating blowback:

Transportation: House Republicans want to grab $69 million from the Counties Transit Improvement Board, which has been funded by a quarter-cent county sales tax passed by elected officials in five metro counties in 2008 to pay for rail and bus transit projects. Instead the money would be diverted to the Metropolitan Council to pay for bus service and other programs. In turn, the Metropolitan Council’s anticipated $130 million general fund appropriation for the next biennium would be eliminated. DFLers and local elected officials accused the GOP of essentially stealing funds from taxpayers in the five counties to cover the state’s budget shortfall.

Education: The House GOP proposal, which cleared the Education Finance Committee on a party-line vote on Tuesday, eliminates funds for desegregating schools in the DFL strongholds of Minneapolis, St. Paul and Duluth, a cut of roughly $25 million annually. At the same time the legislation bolsters funding for rural school districts that have 1,000 or fewer students. Rep. Mindy Greiling, DFL-Roseville, the ranking minority member of the Education Finance Committee, called the proposal “war on Minneapolis and St. Paul.” (See Briana Bierschbach’s Page 1 story for more details on the school funding debate.)

Economic development: Iron Range DFLers were fuming over a House proposal to move $60 million from the Douglas J. Johnson Economic Protection Trust Fund into the general fund. The fund’s dollars are collected from production taxes on taconite mining interests and are normally reserved for economic development projects on the Iron Range, another DFL stronghold. “There’s no other community in this state that’s getting their local property taxes stolen from them like they’re doing to us,” said Rep. Tom Rukavina, DFL-Virginia. “This is a direct attack on the Range.”

Aid to local governments: House Republicans want to dramatically reduce assistance to Minneapolis, St. Paul and Duluth. Those three cities would have local government aid payments cut by 25 percent this year, sliced in half in 2012, and then eliminated completely two years later. Cuts to suburban and rural municipalities would be significantly less steep.

Public safety: Under the House proposal, most programs would receive full funding or only minor cuts. But the Minnesota Department of Human Rights would see its appropriation chopped by $4.3 million – a 65 percent reduction. In addition, the public safety finance bill relies on tapping $16 million in one-time money from other state funds. For instance, $8.5 million would be transferred to the general fund from the Fire Safety Account, which pays for firefighter training.

Some House GOP budget targets have shifted since their original introduction. The House transportation spending target, for instance, added another $78 million in cuts to the initial figure announced by the Republican leadership. The reason? That money was needed to bolster state government funding, which was initially slated for an onerous 36 percent reduction. (See Charley Shaw’s story on Page 2 for more details on the state government budget.)

The additional $78 million cut to transportation spending prompted the proposal to tap into the Counties Transit Improvement Board funds. Rep. Mike Beard, R-Shakopee, chairman of the Transportation Policy and Finance Committee, argues there’s nothing wrong with dipping into the sales tax money from the five metro counties. “The fact of the matter is the five counties that levied that tax levied it for transit purposes,” Beard said. “It’s a recognition of the needs of public transit. But in these dire economic times, we may need to forego buying new train sets.”

The fiscal maneuver prompted heated responses from DFLers and local officials in the affected counties. “It’s really a complete bait-and-switch to have the state empower the counties to do this and then two years later say sorry, we’re going to take that money for our own purposes,” said Rep. Frank Hornstein, DFL-Minneapolis, the ranking minority member of the transportation committee. “I think it’s a fundamental issue of local control, and it sets a terrible precedent.”

Hennepin County Commissioner Peter McLaughlin argued that it sets a dangerous precedent for the state to go after local sales tax dollars. “They’re stealing local sales tax money,” McLaughlin said. “Every local sales tax in the state would be at risk … if this is permitted.”

Beard says that he’s not pleased about grabbing the local sales tax dollars, but believes the state’s extreme fiscal straits warrant such difficult decisions. “Heck no, I’m not comfortable,” Beard said of the overall transportation budget proposal. “This is a very tight budget … I’d love it if we could find more money.”

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