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Home / Budget / Taxes / Decade of Minnesota budget cuts adding up
Based on fiscal review documents created by Senate staff each year, the state has cut projected spending over the decade by roughly $7 billion. The largest chunk of those reductions, roughly $3.3 billion, has occurred in the health and human services sector, the fastest growing segment of the budget.

Decade of Minnesota budget cuts adding up

The brake on tax increases — applied first for eight years by Gov. Tim Pawlenty (left) and now by a Republican-controlled Legislature that has rejected Gov. Mark Dayton’s proposed tax hikes — has led to big funding cuts in health and human services and education. (Staff photos: Peter Bartz-Gallagher)

Minnesota has cut roughly $7 billion from projected spending over the past decade

Minnesota has faced chronic budget deficits for the last decade. The perennial stalemate at the Capitol over tax increases versus spending cuts has prevented any long-term solutions that would fix the structural issues in state finances. Accordingly, the books have been balanced repeatedly by raiding one-time pots of money, deploying accounting gimmicks and generating modest increases in revenue on the margins of the budget.

“For many of these years Minnesota, like just about every other state, was facing deficits because of economic downturn,” pointed out Nan Madden, director of the Minnesota Budget Project, an initiative of the Minnesota Council of Nonprofits. “But in many years we had a larger deficit because in the previous year, we used one-time measures to solve what was not going to be a short-term problem.”

But the brake on tax increases in Minnesota — applied first for eight years by Gov. Tim Pawlenty and now by a Republican-controlled Legislature — has meant a steady stream of cuts that have piled up over the course of 10 years. While the state’s general fund budget has grown from $28 billion to $35.7 billion over that period, projected spending contained in statute has risen much more quickly. The cumulative effect is that the state’s social safety net and physical infrastructure have steadily eroded even as the budget has remained structurally unbalanced.

Exact numbers on the level of cuts are difficult to pin down. That’s because projections for revenues and spending are constantly in flux. But based on fiscal review documents created by Senate staff each year, the state has cut projected spending over the decade by roughly $7 billion. The largest chunk of those reductions, roughly $3.3 billion, has occurred in the health and human services sector, the fastest growing segment of the budget.

Madden points out, however, that any attempt to quantify the extent of cuts over the last five budget cycles will likely underestimate the effect. That’s because any permanent cuts are taken off the books and not included in projections for future spending. “When you make a cut that’s permanent, that kind of resets the base line,” she said. “If you’re adding it up cumulatively, you kind of lose track of what the base line would have been.”

But with those caveats in mind, here’s a rundown of the cumulative cuts made over the last decade:

2004-05: With the post-9/11 economy still sputtering, the state faced a $4.5 billion deficit during Pawlenty’s first year in office. That consisted of a $330 million shortfall from the previous biennium and $4.2 billion for the current two-year budget cycle.

Pawlenty unilaterally eliminated the $330 million gap primarily through cuts. A total of $25 million was cut from the University of Minnesota and the Minnesota State Colleges and Universities (MnSCU) systems. In addition, $7.4 million was chopped from the budget of the Board of Water & Soil Services and funding for the Perpich Center for Arts Education was reduced by $130,000.
Roughly half of the remaining $4.2 billion gap was eliminated via permanent cuts. That included the first big whack in local government aid (LGA), a $542 million reduction. Schools weren’t spared either, with K-12 funding cut by $622 million, a roughly 5 percent cut. MNSCU and the U of M saw reductions of 15 percent from the previous biennium.

Projected spending for health and human services was reduced almost $700 million, from $8.1 billion to $7.4 billion. Much of the savings came from eliminating eligibility for public health programs. For instance, just over $200 million was saved by squeezing eligibility for General Assistance Medical Care, while nearly $150 million was trimmed primarily through eliminating coverage for some adults. Counties were squeezed, too, losing $33 million in funding for administering the Minnesota Family Investment Program, the state’s economic assistance program for poor families.

2006-07: Minnesota faced a seemingly manageable $466 million deficit heading into the 2005 legislative session. But months of legislative gridlock left Pawlenty and the DFL-controlled Senate at loggerheads over how to square the books. With just days remaining in the legislative session, the governor offered to raise almost $400 million through increasing taxes on cigarettes by 75 cents per pack. That eventually became the centerpiece of a budget deal, but not before the first government shutdown in the state’s history.

The additional revenue did not entirely alleviate the need for cuts in resolving the budget shortfall. While education and public safety saw modest funding increases, other areas got whacked. General fund spending on economic development programs was cut by $28 million, a 4.5 percent reduction. That included $9.7 million less spending on renewable energy programs and a $13.2 million reduction in youth programs.

The biggest cuts were once again targeted at health and human services programs. Total general fund HHS spending was $8.3 billion, a 13.8 percent increase from the previous biennium. But that still represented a $367 million decrease from the spending levels dictated by statute at the start of the biennium. Among the cuts: $98 million less for the state’s Medicaid program and a $58 million reduction in payments to hospitals for in-patient care. The state also saved nearly $1 million by eliminating coverage of circumcision, erectile dysfunction treatments and sex change operations for individuals on public health care plans.

2008-09: The state received a brief reprieve from the seemingly endless stream of negative budget news. Revenues at the start of the 2007 legislative session were projected to be $1.9 billion above spending currently contained in statute. But that positive outlook quickly soured as the economy ran completely off the rails over the course of the biennium.

By 2008 projected revenues had plunged by more than $1 billion, and the state was facing a $965 million budget shortfall. Roughly half that hole was filled by raiding the state’s budget reserves. But the Legislature also enacted $268 million in budget cuts. Health and human services took the brunt of the fiscal pain, with $172 million in reduced spending. That included $32 million in reduced payments to health care providers and $16.6 million in lower payments to the state’s managed care organizations. Higher education also got hit, with the U of M losing $7.4 million and MnSCU facing a $7.9 million reduction in funding.

2010-11: New biennium, same old problem: With the economy in tatters, the state faced a $4.6 billion budget deficit. The Legislature initially passed a $33.8 billion general fund budget, $1.7 billion less than forecast spending. It included reduced spending in every area of the budget except for debt service and aid to local governments. But many of those cuts were blunted by an infusion of federal stimulus dollars. A $500 million reduction in K-12 spending was fully offset by federal funds, while $200 million in cuts to higher education was blunted by $138 million in increased subsidies from Washington. All told, the state received $2.1 billion in increased federal funds during the biennium.

But the Legislature’s budget bills included one that raised nearly $1 billion in new tax revenues and shifted $1.8 billion in K-12 funding. Those revenue provisions were vetoed by Pawlenty after the legislative session ended. That left a gaping $2.7 billion hole in the state’s budget. Rather than call the House and Senate back into session to rectify the problem, Pawlenty took the unprecedented step of unilaterally cutting the budget through unallotments. That meant that general fund spending was reduced by $4.2 billion from projections at the start of the biennium — an 11.8 percent reduction.

Pawlenty filled the bulk of the hole through $2 billion in education funding shifts and other accounting gimmicks. But that left significant cuts on the table: $300 million in lower payments to local governments, $215 million in reduced health and human services funding, $100 million in reduced funding for higher education and $50 million in smaller property tax refunds for renters. The state’s political contribution refund program was eliminated, and health care provider payments were reduced another $16 million.

A lawsuit challenging Pawlenty’s constitutional authority to make broad, unilateral cuts was filed. Nearly a year later the unallotments were struck down by the Minnesota Supreme Court. But that didn’t substantially change the details of the budget framework for the biennium. The Legislature largely ratified Pawlenty’s unallotments during the 2010 legislative session.

But by then, the budget deficit had swelled by another $994 million. Ultimately the Legislature squared the books with substantial cuts. Health and human services was reduced by $1.1 billion, aid to local government was cut by a little over $400 million, higher education lost nearly $150 million in funding and transportation got squeezed by $28 million.

2012-13: This year Minnesota stared down a $5 billion budget deficit, the largest in state history. While the bulk of the solution was ultimately jerry-rigged together by increasing the school funding shift by an additional $700 million and selling almost $700 million worth of bonds, that left cuts in the range of $2.2 billion.

Higher ed took a roughly $350 million hit, tax aids and credits were reduced by just over $600 million, and health and human services were chopped by approximately $1 billion. Only debt service and public safety/judiciary completely escaped the budget axe.
There’s little reason to think that Minnesota’s chronic budget deficits are going away anytime soon. The budget deal worked out for the current biennium already shows a $1.9 billion shortfall for the next two-year budget cycle. But that doesn’t include any means for paying back the school shift that has now grown to $2.1 billion.

In addition, the state’s stagnant economy is likely to lead to downward revisions in how much revenue the state is expected to collect in coming months. The federal government has already revised downward estimates of growth in the gross domestic product for the first two quarters of 2011.

The economic difficulty is further exacerbated by ongoing tensions at the Capitol. The fundamental disagreement that led to this year’s government shutdown — a DFL governor who wants to raise taxes and a GOP-controlled Legislature that’s dead set against doing so — hasn’t changed. That makes the likelihood that some assemblage of accounting gimmicks, one-time fixes and cuts will continue to be major parts of any future budget deals.

Madden sees another financial storm cloud on the horizon: constitutional amendments. She points out that there’s already a proposal being floated that would require a legislative “super majority” to raise taxes. Such restrictions would almost certainly make finding consensus on long-term budget solutions even more difficult.

“With what we’ve seen over the last 10 years,” Madden noted, “and with how difficult it has been to come to agreement on transparent, long-term budget decisions, anything that ups the ante and makes it more difficult to come to an agreement, I think, is going to lead to more gridlock and more of these kinds of shifts and gimmicks.”

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