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Legislative leaders head to Gov. Tim Pawlenty’s official residence for an early morning summit to discuss cuts for a $426 million chunk of the shortfall that needs immediate attention. The longer-term gap of $4.85 billion will take more fuel than a breakfast spread.
To put the deficit in context: It’s about the amount the state spent to run the entire government in 1987. In dollars, it’s the biggest shortfall Minnesota government has ever seen.
State leaders announced the deficit Thursday at a news conference where they described the underlying economic conditions as the worst in 25 years and possibly dating to World War II.
“The economy, as is no secret to anyone, has body-slammed our state budget,” said Tom Hanson, commissioner of Minnesota Management and Budget.
Rising unemployment and falling consumer spending have hit the state where it hurts. Revenue from its biggest taxes, income and sales, is shriveling. Corporate receipts are lagging an astounding 31 percent behind projections.
Pawlenty ordered most state agencies to show him how they could shave 10 percent of spending — not including prisons, state troopers, crime labs or military programs. He also notified legislators he may cut spending on his own to tackle the shortage in the current budget, as state law allows.
The Republican governor repeated his longstanding opposition to raising taxes, noting that even with the shortfall the state is projected to collect $32 billion in the upcoming cycle.
“There is no deficit if we live within that amount of money,” Pawlenty said.
Pawlenty is due to release his budget plan in late January. He offered few clues about how he would address the longer-term deficit, beyond saying he would propose changes to school funding and health care programs. He said his priorities for state money are the military and veterans, public safety and schools.
Democrats who control the Legislature also avoided offering many pointed solutions, saying it is too soon to lay out a proposal. Broadly, they said they will scour the budget for cuts, but unlike Pawlenty wouldn’t rule out raising taxes.
“This is not going to be easy,” said House Speaker Margaret Anderson Kelliher of Minneapolis. “This is not work for the faint of heart. This is going to take tremendous sacrifice all around the table and we understand that.”
Senate Majority Leader Larry Pogemiller said Democrats will give particular scrutiny to the state’s economic development programs, arguing that Minnesota is lagging too far behind in job growth.
Pogemiller, also of Minneapolis, hinted at the possibility of dismantling a Pawlenty jobs program and forcing a leadership change at the agency that runs it. The Senate has the power to oust commissioners who haven’t been confirmed, including Dan McElroy at the Department of Employment and Economic Development.
Minnesota’s constitution requires a balanced budget by the end of each two-year budget cycle. Lawmakers don’t have a lot of options because they nearly drained rainy day accounts earlier this year.
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 on Jan. 6. Pawlenty could empty the state’s rainy day fund — which now stands at $155 million — and cut spending for the rest.
State Economist Tom Stinson said the recession driving Minnesota’s problem will be long and the worst since World War II, with a slow recovery. He said he expects another 58,000 lost jobs in Minnesota between now and the end of the recession.
Hanson said Minnesota finds itself with plenty of company, with at least 41 states experiencing deficits. “We’re lucky we’re not California,” he said, referring to that state’s $11 billion shortfall.
Groups advocating for everything from local governments to the state’s courts to early childhood went into a defensive crouch in anticipation of losing aid. St. Paul Mayor Chris Coleman rattled off a list of city services including police, firefighting and snow plowing. He said cities have already set tax levels for 2009, so they would have to respond to any state aid cuts with cuts of their own.
“A bad economy is exactly the wrong time to dump the best earning stock in your portfolio,” said Todd Otis, who heads the early childhood education group Ready 4 K.
State budget director Jim Schowalter said the government has spent less than half of the current year’s $17 billion budget, with payments still pending for public schools, health care programs and cities and counties. A $340 million payment to local governments is due late this month, but the governor could delay that or other outlays.
And things might not have hit bottom yet. Stinson warned of problems in the housing sector and the aging population, and said the deficit could worsen in the next forecast in late February.
“There is a lot of uncertainty out there, and things could be worse — they could be noticeably worse between now and the end of the biennium,” he said.
