Gov. Tim Pawlenty proposed a series of deep cuts to local governments and health and welfare programs on Monday to fill a $1.2 billion state budget deficit and pay for tax cuts he says will create jobs.
Pawlenty proposed $347 million in cuts to state health and human services programs and wants to cut state payments to local governments by $250 million.
Pawlenty's plan to reduce spending while also slashing business taxes sets up a likely clash with the DFL-controlled Legislature, which just last year voted to raise taxes to help fill a budget hole.
Democratic leaders were critical of Pawlenty's proposal, saying it takes services away from Minnesotans and puts money into the pockets of corporations. They say his cuts to local government are out of line, and will hit public safety programs despite the governor's promises to preserve them.
Lawmakers are forced this year to put together a supplemental budget for the two-year budget cycle that ends in mid-2011, because of declining revenue.
Besides local governments and health and human services, Pawlenty called for a 6 percent cut to state agencies and programs, which would make up for about $181 million of the deficit.
Pawlenty said the reductions will include layoffs, but said he does not know the exact number yet.
"We're going to strive to try to minimize it, obviously, but it's not realistic to think that there aren't going to be any layoffs," Pawlenty said Monday.
His plan also includes $47 million in reductions to the University of Minnesota and the Minnesota State Colleges and Universities system (MnSCU).
IMPACT ON LOCAL GOVERNMENTS
Local governments are big losers. Already reeling from $300 million in cuts imposed last summer, they would lose another $250 million. The new cuts are more sweeping than before, touching cities with fewer than 1,000 residents for the first time.
"We made a conscious choice to set some priorities," said Pawlenty. "And candidly, now and in the future, given what the likely economic outlook for the state is in the near and intermediate term, you can't have a $2.1 billion local government aid program. You just can't."
“If you don't like the condition of the streets now ... they're going to get worse.”Jim Miller, League of Minnesota Cities
Jim Miller, executive director of the League of Minnesota Cities, predicted a dire fallout.
"Either property taxes go up or services get cut or a combination of the two," Miller said, warning that local governments would face no choice but to cut back on two main expenses - public safety and public works.
"If you don't like the condition of the streets now, it's not tough to imagine that they're going to get worse," Miller said.
The cuts add up to $29 million for Minneapolis and $13 million for St. Paul, according to Gary Carlson of the League of Minnesota Cities.
Since the cuts are calculated as a percentage, local officials are still working to determine the actual amounts.
In Wadena, Mayor Wayne Wolden says his city will lose $175,000 in state funding in the current budget year, on top of another $169,000 cut in LGA earlier in the budget cycle. Wolden says the cuts will force the city to make some difficult decisions.
"There's no money at the state," Wolden told MPR's Gary Eichten. "We understand that, so we have to make do with what we have."
HEALTH AND HUMAN SERVICES CUTS
The health and human services cuts would affect about 20,000 Minnesotans in state health care programs and about 20,000 in human services programs, Pawlenty said.
To achieve the cuts, Pawlenty proposed making fewer adults without children eligible for MinnesotaCare.
Rep. Tom Huntley, DFL-Duluth, says the governor is assuming that Congress will fill in the MinnesotaCare gaps by extending Medical Assistance stimulus spending.
Huntley chairs the Health Care and Human Services Finance Division and the Policy and Oversight committee.
"It's the funny money, smoke and mirrors," Huntley said. "If he can assume that the feds are going to do something in the future, then I guess we can assume that, too. I could assume that they're going to give us $1.2 billion and then we don't have a deficit."
Pawlenty's cuts would also reduce the state rate for long-term care by 2.5 percent. Patti Cullen, president and CEO of Care Providers of Minnesota, says that reduction is a "cut on top of a cut" for some of the home and community-based long-term care providers.
Cullen says the HHS budget took a disproportionate hit, adding that it's not fair that K-12 funding was off the table for cuts.
GENERAL ASSISTANCE ELIMINATED
The budget proposal eliminates General Assistance, the program that provides $203 a month in cash assistance to low-income single adults who are unable to work. The program served about 19,000 people each month in the last fiscal year, and is the only source of income for many homeless adults.
"It's a devastating cut," said Liz Kuoppala, executive director of Minnesota Coalition for the Homeless. "These are folks who are waiting in line for federal disability. They don't have access to any other money."
Instead, the governor proposed creating a new short-term emergency assistance program, although Pawlenty eliminated funding for a similar program last year. The changes would save $14.3 million in the 2011 fiscal year.
State Sen. John Marty, DFL-Roseville, who chairs the Health, Housing and Family Security committee, said the elimination of General Assistance will hurt the state's most vulnerable adults.
"It's an attempt to make the poorest and the sickest people pay the brunt of the economic problem," said Marty, who is also candidate for governor. "He's not going to talk about any taxes on people who make large amounts of money. Instead, he's going to, in effect, take people who are very sick and very poor and step on them a little further."
Sen. Linda Berglin, DFL-Minneapolis, who chairs the Health and Human Services Budget Division, said her committee expects to receive more detailed information from the governor's office later this week.
Berglin said the program's elimination could be disastrous. "It'd be leaving a pretty big hole in the safety net," she said.
JOB CREATION BILL
Pawlenty said the spending cuts he proposed would not only fill the state's budget shortfall, but would also pay for a series of tax cuts and incentives aimed at creating jobs and encouraging business in Minnesota.
Pawlenty first mentioned a "jobs creation" bill in his State of the State address last week. The legislation includes a 20 percent reduction in the corporate tax rate and a 20 percent tax reduction for small businesses.
It also creates tax credits for emerging businesses and research and development. Pawlenty also wants to exclude certain business investments from capital gains taxes.
Pawlenty said Minnesota has one of the best health care systems in the country, and leads in arts and cultural opportunities and education.
"We are not out of balance in terms of the quality of our amenities," Pawlenty said. "We are definitely out of balance, though, when it comes to our tax climate, our business climate and our jobs climate."
Minnesota's budget shortfall has been blamed on the economic downturn. In December, Minnesota Management & Budget estimated the $1.2 billion shortfall, 70 percent of which was blamed on reduced income tax receipts because of lower wages and unemployment.
(The Associated Press contributed to this report)