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Budget deficit: Pawlenty remains opposed to tax increases

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Gov. Pawlenty
Gov. Tim Pawlenty said Thursday he remains opposed to raising taxes to close the state's $4.27 billion budget shortfall.
MPR Photo/Tim Nelson

Minnesota is facing a projected budget deficit of more than $5 billion over the next two and a half years.

3:15 p.m.: DFL leaders vow cooperation

House Speaker Margaret Anderson Kelliher told reporters that DLFers will work with the governor to close a yawning budget gap approaching $5.3 billion through 2011, saying "we will weather this together." She also said DFL leaders would start by making budget cuts. 

DFL leaders respond
"This is not going to be easy. This is not work for the faint of heart. This is going to take sacrifice all around the table," said DFL House Speaker Margaret Anderson Kelliher. She was joined by Senate Majority Leader Larry Pogemiller, left, and House Majority Leader Tony Sertich.
MPR Photo/Tim Nelson

Kelliher, Pawlenty and Senate Majority Leader Larry Pogemiller are expected to meet Friday morning to start talking about addressing the state's short-term $426 million deficit, which must be covered by June 30, 2009. 

Reactions continue to come in from various constituencies. Here's a look at a few.

Environment:

With the state's huge budget shortfall, environmental groups are gearing up to make sure legislators don't try to raid the new pot of money coming from a sales tax increase.

Voters approved a constitutional amendment last month that raises the state sales tax by 3/8 of 1 percent for environmental and arts programs.

Steve Morse from the Minnesota Environmental Partnership says the language in the constitutional amendment clearly protects the new conservation fund.

Courts:

The state's chief justice says the court system needs to be first in line for legislative funding despite Minnesota's looming deficit.  Eric Magnuson says the courts will still seek an additional $54 million because they simply can't absorb more cuts.

Early childhood education:

Use a scalpel and not a meat cleaver, says Todd Otis, head of Ready 4 K, a non-profit group that backs efforts to create quality early child care and education.

Otis said early childhood care and education took a 16 percent cut in 2003-'04, even though it represented only 1 percent of the state budget.

2:00 p.m: Pawlenty lists budget priorities

Veterans, cops and schools top Gov. Tim Pawlenty's list of groups he hopes to insulate from the pain of closing a $5.27 billion state budget gap projected through 2011.

"The first priority for any government is the protection and safety of its citizens," Pawlenty told reporters. He put his priorities as:

  1. Military and veterans


  2. Public safety


  3. K-12 education

New gambling money is not in the cards, either. "We are not going to be revisiting gaming," Pawlenty said. 

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And forget the Vikings at this point: Stadium funding "doesn't seem like it would fit as a priority."

Asked about taxes, Pawlenty said raising Minnesota's top income tax rate from 7.8 percent to 8.8 percent would likely only raise $250 million and would not "solve the problem."

He also noted that money coming in from a sales tax increase approved by voters on Nov. 4 is untouchable. 

Voters backed a constitutional amendment to raise the state sales tax by 3/8 of 1 percent and dedicate that money to natural and cultural resources. Environmental advocates this morning said they were organizing to make sure legislators don't try to raid that money.

1:35 p.m: Pawlenty comments

Education may take up half the state's budget, but health care spending has Gov. Tim Pawlenty's immediate attention.

Speaking in his office on the challenge of closing a $5.27 billion budget gap projected over the next two and a half years, Pawlenty singled out health care, an area where general fund spending is expected to rise by 21.3 percent in the next two-year budget cycle.

"That rate of growth is unsustainable. It is mathematically impossible to bring Minnesota or any state's budget into line without dramatically changing the way we pay for and deliver health care," Pawlenty said. 

Economist Tom Stinson
State economist Tom Stinson checks his notes before addressing the media at the Capitol about the state's looming budget deficit.
MPR Photo/Tim Nelson

Currently, about 28 percent of the general fund budget goes to health and human services spending. That is second only to the 40 percent spent for K-12 education.

"This is not going to be easy," Pawlenty said of resolving the budget crisis. "There are going to be impacts that real Minnesotans will feel."

Pawlenty also ruled out raising taxes, but said there may be some "non-tax revenue" that the state may seek as part of its budget solution.

The heavy lifting starts tomorrow -- Pawlenty says he will have breakfast with DFL House Speaker Margaret Anderson Kelliher and Senate Majority Leader Larry Pogemiller, to start talking about addressing the short-term $426 million deficit. 

The governor plans to have his own budget proposal out Jan. 27.

12:40 p.m.: First reactions

State officials laid out the bad news this morning --- a $5.27 billion gap in the budget through 2011 that needs closing.  The reactions are just beginning to come in.

Tom Hanson
Minnesota Management and Budget Commissioner Tom Hanson spoke at the Capitol.
MPR Photo/Tim Nelson

Early response from an official -- St. Paul Mayor Chris Coleman.

"The governor and the Legislature must understand that we cannot solve this problem by further reducing aid to local governments," said Coleman. "We must seize this moment as an opportunity to make new investments in Minnesota's future and build ourselves back to greatness."

Early response from MPR listener Dan Sandell from Alexandria.

"I work for MnSCU (Minnesota State Colleges and Universities system) and I expect faculty will be laid off, tuition will increase, class sizes will increase, and fewer students will be able to attend because of reduced financial aid. This will have long-term negative consequences for our state," said Sandell.

12:10 p.m.: 'It could be worse'

As he finishes a press conference on the state's yawning projected budget deficit, State economist Tom Stinson says it's not as bad as it was 25 years ago. 

"Right now, we're not in as bad a shape as we were in the 1980s. We have not had the big hit we had on the agricultural sector, we have not had the big hit we had in the mining sectors," said Stinson. "If you go back and look at the mining sector in the 1980s, we lost more jobs [then] than we have now."

It's also no Great Depression. Stinson said there was a 25 percent decline in the economy from 1929 to 1933, and it took until 1940 for real growth to return.  Stinson believes it will be back by 2011.

Noon: Home values, jobs are concerns 

State economist Tom Stinson is telling reporters to expect housing prices to continue to slip. 

"Housing prices have declined for two straight years and that's likely to continue. That's something that hasn't happened since the Great Depression," Stinson said at a press conference.

He estimated the current recession will cost 77,000 jobs.  He compared that to the 2000-2001 downturn, where 55,000 jobs were lost and 1990-1991 when 10,000 were lost.

But it could be worse. He said the "double dip" recession in the 1980s cost 100,000 jobs.

"There is a lot of uncertainty out there. By the end of the biennium things could be worse. They could be a lot worse."

11:45 a.m.: Budget deficit of $5.27 billion projected

 It's official: The state's projected budget deficit through the next two years is $5.27 billion. Closing it becomes the crucial issue now.

"To put it in technical terms, it's going to be ugly," state economist Tom Stinson said. 

He said Minnesota should expect to lose 58,000 jobs in the coming year, for a total of 77,000 for the recession -- 10,000 of that will come from the retail sector, another 25,000 from the construction sector, which is about half of the job losses.

When it comes to budget cuts? Education is a likely target, since K12 public schools make up about 40 percent of state spending and higher education about 10 percent. 

"I certainly want to hopefully protect our schools, but it does look very grim. I just can't make a prediction," state Education Commissioner Alice Seagren said on Monday following a legislative committee meeting.

Click here for a quick look at where Minnesota government gets its funds and where it spends them.

A new forecast will be issued in late February.

      Minnesota's Constitution requires a balanced budget by the end of each two-year budget cycle.

      Lawmakers have few fallback options after nearly draining the state's reserves earlier this year.

      They're already talking about unconventional approaches including starting the budgeting process from scratch and privatizing the Minneapolis-St. Paul International Airport.

      Gov. Tim Pawlenty is due to release his budget plan in late January. He has said it's time for "quantum change."

      There's a chance lawmakers and Pawlenty could fix the short-term problem this month, allowing them to focus entirely on the bigger gap when they convene their 2009 session.

      One option for Pawlenty is to empty the state's nearly depleted rainy day fund and use his executive authority to cut spending enough to wipe out the rest of the near-term deficit.

(The Associated Press contributed to this report.)