Budget reaction far different 3 months later
ST. PAUL - Minnesota legislators and the governor were thrilled with a $2.2 billion state budget surplus.
Finally, property tax relief, education and health programs would be funded adequately. Many Republicans talked about rebates and Democrats were happy that they would have some money for their pet programs.
That was last November.
On Wednesday, state officials released their latest budget predictions, but despite showing a nearly identical surplus to the one announced three months ago, the Capitol attitude was gloomy, with some Democrats predicting tax increases. Programs must be cut, some policymakers said.
"Really, there is no difference from November's forecast," State Economist Tom Stinson said.
Added Sen. Keith Langseth, DFL-Glyndon: "It was good news simply because it wasn't bad news."
Wednesday's state budget forecast reaction featured warnings that many programs will not get as much money as expected.
The twice-a-year report showed a $7 million drop in available money out of what Gov. Tim Pawlenty proposes to be a $34.4 billion, two-year budget. That's practically no change, Pawlenty said.
The news is a bit worse for the 2010-11 budget, when economists predict a $418 million shortfall. And if inflation is taken into account, that would become $638 million less than expected earlier.
Most of the attention around the Capitol on Wednesday centered on what the forecast means for the budget lawmakers and Pawlenty are crafting for the two years beginning July 1.
Senate Democratic-Farmer-Labor Party leaders said they would need to raise taxes to fund new education, health care and other initiatives they support. House DFLers did not go that far, saying their budget plans are "almost there" without a general tax increase. And Republicans continued to say Pawlenty's proposed 9.3 percent budget increase is enough, and no more taxes are needed.
Finance Commissioner Tom Hanson, a Mahnomen native who just took office, warned policymakers not to overextend themselves: "We have to be very concerned about the commitments we make."
Several legislative leaders joined Pawlenty, Hanson and Stinson in calling for a larger budget reserve to protect against future financial woes.
House Speaker Margaret Anderson Kelliher, DFL-Minneapolis, did not think the forecast meant much.
"The biggest news of the day probably is the snow and not the budget forecast," she said, repeatedly refusing to say if a tax increase would be needed.
Kelliher said closing what Democrats call corporate tax loopholes - and Republicans call raising corporate taxes - would go a long way toward funding new programs. More money is available from making sure tax laws are strictly enforced, she added.
The third way Kelliher proposed raising money is by changing priorities in Pawlenty's budget, code for cutting some of his programs so Democrats have money to fund their wants. DFL leaders would not say what Pawlenty programs they want to see cut.
Pogemiller agreed with Kelliher's three fund-raising methods, but said lawmakers would "absolutely" have to raise taxes if they are to fund new programs they support such as improved child health care and education.
"The money available to us is a very modest amount," Kelliher said.
Rep. Mindy Greiling, DFL-Roseville, delivered the most direct assessment of the state budget situation.
"I don't think we are going to be able to do everything we planned," said Greiling, House education finance chairwoman. "This is not a good day."
Her leaders were not as glum. House Majority Leader Tony Sertich, DFL-Chisholm, said House committees are not ready to make final decisions.
"We're still in the process of finding out what the need is out there," Sertich said.
Ways and Means Chairman Loren Solberg, DFL-Grand Rapids, said the governor won't get all he wants in his budget proposal. In some cases, Solberg said, Pawlenty asked for overly extravagant programs.
Pawlenty and DFL leaders agreed there will be no property tax rebate this year, although law requires the governor to submit a plan for one.
The forecast and reaction to it appeared to set up a debate about raising taxes.
"For new spending, you need to add revenue," Senate Majority Leader Larry Pogemiller, DFL-Minneapolis, said.
After reporters pressed him, he said that means raising taxes.
"The worst thing we can do is use word games and convince them (Minnesotans) that they are getting something for nothing," Pogemiller added.
Langseth said Democrats have yet to decide whether a tax increase is needed.
House Minority Leader Marty Seifert, R-Marshall, promised that Pawlenty will veto any tax increase, and fellow Republicans will stand behind him.
Democrats over-promised spending programs in last year's campaign, Seifert and Pawlenty said.
Pawlenty said increasing taxes "is not responsible and not sustainable."
The February forecast will mean tightening the state's belt in places, Rep. Al Juhnke, DFL-Willmar, said. That could begin with phasing in all-day, every-day kindergarten measures rather than instituting a statewide plan in one year, he said.
"I don't feel an overwhelming appetite for a general tax-type increase," Juhnke said, noting that deficits are projected in upcoming years.
Juhnke said he now plans to take an up-close look at Pawlenty's budget. That will likely mean some of the governor's recommendations not moving forward, though Juhnke didn't say which.
"There will be changes," he said. "I can confidently say that."
The forecast didn't reveal much of a change in the budget, but did offer a "dose of reality" to legislators with long spending wish lists, Rep. Morrie Lanning said.
"We're not going to have the revenue to meet all of the expectations that have been built up here," Lanning, R-Moorhead, said.
Funding priorities should remain education, health care and property tax relief, Lanning said. Pawlenty's budget proposal includes new spending in all of those areas, he added.
That there was little difference between the November and February forecasts left Rep. Bernie Lieder, DFL-Crookston, with a net-zero reaction.
"It's not bad news and it's not good news, is what it amounts to," he said. "It pretty much will hold things stable."
Lieder, who chairs a House transportation committee, added that he doubted the new forecast would affect transportation efforts much.
Senate Transportation Chairman Steve Murphy expressed concern that while the state calculates inflation into its expenses, it doesn't when it comes to revenue. Hearing Stinson's assessment of the state's economic future left Murphy worried.
"Our state is right on the edge of having some serious problems," the Red Wing Democrat said, adding that any spending initiatives should have a corresponding funding source.
Rep. Sandy Wollschlager, DFL-Cannon Falls, said the forecast shows that it is even more important to stay focused on key priorities for Minnesotans.
"We luckily don't have to make painful cuts, but the state isn't flush with excess cash," Wollschlager said. "It's going to be important to maintain fiscal discipline and any new investments should be targeted to education, health care, and tax fairness for working families."
"We only have the resources to fund needs," Wollschlager added. "The Legislature must now take a hard look at the budget and ensure we stick to the basics."
Rep. Frank Moe, DFL-Bemidji, said he wasn't surprised by the forecast's figures, but added that time spent in finance committees will include judging bills "very closely on their merits."
"Now we have to live within the budget and work together with the governor to meet the needs of the taxpayers," Moe said.
The latest financial outlook for Minnesota won't compromise what he hopes to include in the Human Services Department budget, said Rep. Tom Huntley, DFL-Duluth.
That department represents one third of the state's budget, he said, calling it something "that we're just going to have to fund."
Huntley chairs a House health care finance committee. He said revised figures from the state means health care issues he's pushing - covering all Minnesota children, changing how providers are paid - will remain on the table.
"Everything we've been talking about in the past, we'll still be talking about," Huntley said.
Rep. Brita Sailer, DFL-Park Rapids, called the forecast "kind of a good news, bad news scenario."
"The good news is that we won't have to make the kind of painful cuts we've seen in the last few years, and we can continue a strategic focus on good schools, better health care and property tax relief," Sailer said in a release. "But the bad news is that the forecast doesn't allow much flexibility to go beyond those basics."
Rep. Dave Olin, DFL-Thief River Falls, said that while he would like to have seen bigger numbers, he said there should be adequate funding for proposals he supports. That means property tax relief, education, health care and transportation all seeing support he said.
If transportation projects mean a hike in the state's gas tax, Olin said legislators may have to come to grips with funding realities.
"We need to bite the bullet and do something on the transportation issue," Olin said.
Rep. Rod Hamilton, R-Mountain Lake, said the February budget forecast shows Minnesota's economy is in good shape.
"A budget surplus is always good news," Hamilton said in a release. "But we have to make sure we don't use this windfall as a reason to increase spending across the board. We still have to live within our means."
Hamilton tempered his optimism as he looked to the tighter fiscal years of 2010 and 2011 predicted by the state economists.
"We will continue to take testimony in our committees to find out where our most pressing needs our, and determine what is the best way to allocate this money," Hamilton said.
Rep. Doug Magnus, R-Slayton, said that while he's happy with the state's fiscal position, he's concerned that some legislators may go spend-happy.
"We heard a lot of bold talk and big promises from the new legislative leadership after the elections about priorities," Magnus said in a release. "They promised all-day kindergarten and health care reform. Now they say they won't do all-day kindergarten and they might tackle health care reform next year."
The outlook, he said, leaves questions.
"Even though we have an extra $2.1 billion to spend, it's still not enough to fulfill their campaign promises," Magnus said. "Where do we go from here? Your guess is as good as mine."
State Capitol Bureau reporter Mike Longaecker contributed to this story.