Minnesota’s 201 legislators are headed to the state Capitol for the noon Tuesday beginning of their 2013 session, with by far their most important task writing a two-year budget.
There are some catches, the most unpredictable of which may be how the federal government’s budget problems will affect Minnesota.
A third of the state’s $60 billion all-funds budget for the current cycle comes from Washington, an amount in question as Congress and President Barack Obama prepare for another round of national debt debate.
Gov. Mark Dayton plans to release his budget plan Jan. 22, and revise it when more is known about what Obama and Congress do.
The state economist advises lawmakers to include plenty of padding in their budget, since it is impossible to predict what will happen in Washington. Legislative leaders, on the other hand, appear less concerned about the federal fiscal outcome.
“We are going to have to take that into account,” House Speaker-designate Paul Thissen, DFL-Minneapolis, said, but added: “At the end of the day, the federal government always has come through with their commitments to the state, to a large degree.”
Washington politicians never have faced a $16 trillion debt they need to chop down.
One of the unknowns is how continued federal budget debate will affect Americans’ spending habits and businesses employment decisions. Both could force down state revenues.
Dayton and lawmakers must agree to a budget during the session required to end by May 20.
Even if the budget will be the session’s focus, other issues will come up. Thissen said lawmakers can do more than one thing at once.
Among the other topics expected to rise to the top include setting up a system to buy health insurance, a response to the federal law known as Obamacare. Also on the agenda are issues as wide ranging as whether to legalize gay marriage, if a public works financing bill is needed, whether unions should be allowed for personal care attendants and home day care operators, election reform and if sand mining needs more regulation.
Raising taxes will be part of the budget debate, likely centered on Dayton’s long-held belief that the rich should pay more. Sales, property and other taxes also will be debated.
The tentative congressional plan is to trim $1.2 trillion from federal programs over the next decade as part of the debt solution. Given the large percentage of the state budget coming from Congress and the White House, some is bound to disappear during the federal debt battle.
Based on a New Year’s federal tax deal, “we just don’t know how this is all going to work out,” State Economist Tom Stinson said, prompting his recommendation to leave a big cushion in the budget to cover congressional changes.
Democrats who control the Senate and House agree a sizable budget reserve is a good idea.
“Even in a more normal time, we should add money to the reserve,” said Sen. Richard Cohen, DFL-St. Paul, who will be Senate Finance Committee chairman.
For years, the Legislature has tapped the state’s reserves to balance the budget.
After Dayton releases his initial proposal, House and Senate committees will begin going over the document. With a third of lawmakers new this year, that may take more time than usual since they will need to get up to speed on state spending.
“The Senate DFL has the most junior members that we have had since the 1970s,” Cohen said.
While the country may reach the debt limit in March, there is no guarantee any action will be prompt. If a federal decision is delayed too much, it could bump into the state Legislature’s May 20 adjournment deadline.
The state must have a budget in place by July 1, the start of a new two-year cycle, or state government will shut done, like in 2011. No one is predicting that now, especially since Democrats are in control of the governor’s office, House and Senate.
Cohen said that the worst-case scenario is that federal officials take action that affects Minnesota after state lawmakers adjourn. The senator said such a move could force Minnesota legislators to return to St. Paul to change the budget.
Thissen and Cohen said a federal cut in Medicaid, called Medical Assistance in Minnesota, is their biggest concern. However, Thissen said, Obama has made a commitment to bolster health care programs for the poor and disabled, so severe Medicaid cuts are unlikely.
“In the short term, I am not overly worried,” Thissen said.
Added Cohen about any new federal debt legislation: “My best guess is it won’t touch anything that will impact the states.”
U.S. Rep. Collin Peterson is frustrated with recent Washington fiscal moves and was not as confident as Thissen and Cohen.
“They shouldn’t get in a position where they are relying on us…” the western Minnesota Democrat and former state lawmaker said. “States expect us to send them money, but we are broke. You shouldn’t be in a position where you are expecting money from somebody who is broke.”
Earlier story: Minnesotans wonder if budget will grow
Minnesota’s taxpayer-supported budget rose from $638,623 in 1962-63 to $35 billion in the current two-year cycle, and now Minnesotans and a new crop of lawmakers are wondering what the state’s new budget number will be.
A growing political gulf, rising health-care costs, demands for more services and a myriad of other reasons have made the budget a more difficult problem to solve every two years.
Driven largely by health care-related costs that soar far more than overall inflation, recent years’ budget solutions have featured cuts in some programs and slowing growth in many others. The budget debate has grown sharper the last few years.
“We are still not out of the hole we dug for ourselves in the last couple bienniums,” Democratic Gov. Mark Dayton said. “That is the first reality.”
Legislators and governors who came to the negotiating table with split agendas have done what is known in the Capitol as “kicking the can down the road.” In other words, they used temporary solutions to balance the budget, while not solving it long-term.
Whatever the solution in 2013, Dayton insists that the state not resort to “shifts or one-time gimmicks.”
Borrowing money from schools is called a shift, something Dayton opposes and most legislators decry, even as they voted for it through the years.
Among other tactics the governor defines as gimmicks is the Republican plan, enacted in 2011 to help end a state government shutdown, to borrow money against a tobacco lawsuit settlement windfall the state receives.
For the past few budget cycles, state leaders have said the easy budget fixes have been used and future action will hurt. Now, as they prepare for the session to begin Jan. 8, they give few specifics about Minnesotans can expect in the next budget.
Most are waiting for Dayton to release his proposal in January, something he is working on almost daily, including weekends. It likely will be revised, maybe dramatically, after a new state revenue report is released by early March.
“We will get our fiscal house in order and see where we go from there,” Dayton said.
The budget could top $37 billion for the two years beginning July 1. That is how much money the state is due to collect from taxpayers under current law, and some Democrats hint at tax increases to provide more money for programs that they feel have gone underfunded.
Incoming Senate Majority Leader Tom Bakk, DFL-Cook, agreed with other Democrats when he said that many state programs “have been grossly underfunded, like early childhood education.”
However, he quickly warned: “They are going to have to restrain themselves some. … The Legislature is most likely going to pass a budget that has further spending reductions.”
Many cuts have come from state health-care spending, which is growing far faster than other spending. Existing health spending, lower than many health-care advocates want, may not be safe.
“I hope we can find additional ways to find savings in that area of the budget,” Bakk said.
Democrats do not need the support of Republicans to pass a budget since they control the House, Senate and governor’s office.
Republicans said they would like to continue down the path they took when they were in the majority.
“It’s fair to say we will continue to focus on controlling spending and not adding to revenue,” Sen. Dave Thompson, R-Lakeville, said.
He said that Republican approach has been “vindicated” in a lower deficit for the next two years than originally predicted.
The state will start its new budget cycle with no money in the bank and a $1.1 billion deficit in the next budget if nothing is done. But since the Constitution does not allow a deficit, Dayton and lawmakers must plug the gap.
One of the reasons state legislators cannot say much about what they will do with the state budget is due to uncertainty about how Washington will deal with federal financial problems, and if its solution will work in the long-term.
What happens in Washington affects the Minnesota budget.
“We are doing better, but not good enough,” Sen. Rod Skoe, DFL-Clearbrook, said. “My hope is the federal government will make fiscal stability their priority.”
Rep. Denny McNamara, R-Hastings, said the state will receive about $2 billion more in revenues in the next two years than during the last biennium, but projected spending also is expected to eclipse that.
“We need to look at the revenue coming in and say, ‘What are our priorities?’” McNamara said. “We need to decide, ‘Do we actually need more revenue?’”
Democrats say lawmakers must look beyond the next two years.
“I think that a good goal for this legislative session is to find a budget that helps to solve some of the long-term structural problems that the state has faced because of imbalance in its budget in the past,” Assistant Senate Majority Leader-elect Katie Sieben, DFL-Cottage Grove, said. “We’ve had year after year of rollercoaster swings in our budget. I’m hopeful we can correct that or begin to correct that in this legislative session.”
While doubting Democrats’ ability to control spending, Republicans say their example of fiscal restraint should be followed.
“I’d like to see us continue the same type of fiscal restraint we practiced in the last biennium,” agreed Rep. Steve Drazkowski, R-Mazeppa. “If we are able to continue to practice the type of fiscal responsibility we did the last two years, we’ll stay on a very good trajectory.”