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“This is the worst, without a question,” said Jay Kiedrowski, a senior fellow at the University of Minnesota’s Humphrey Institute of Public Affairs.

As the state’s chief financial officer under Gov. Rudy Perpich in the 1980s, Kiedrowski dealt hands-on with the fallout from another major recession.

What’s compounding the current shortfall is that it comes on the heels of already deep budget cuts and under a governor who refuses to raise revenues, he said.

The trends, if left unchecked, will have widespread consequences, from larger K-12 class sizes and higher college tuition rates to bumpier roads and fewer police officers.

“It’s a sad day for Minnnesota,” said Kiedrowski.

The Minnesota Management and Budget Office projected on Wednesday the state is on track for a $1.2 billion budget shortfall for the current two-year budget cycle, which ends June 30, 2011. Most of that, about 70 percent, is due to income tax revenues coming in at a slower pace than expected when the governor and Legislature set the budget last spring.

The $1.2 billion deficit equals about 4 percent of the state’s budget, Kiedrowski said. However, combined with $4.6 billion in spending cuts made by the governor and Legislature before the budget year began and the total cuts represent about 20 percent of the previous state budget.

In other words, for every five dollars the state had to spend last year, it now has just four dollars, he explained.

“I think the governor and the Legislature are going to have a near impossible task trying to find a way to cut that much money out of state government,” Kiedrowski said.

The previous budget cuts have left school districts borrowing money, police departments benching officers and public hospitals turning away patients. The $1.2 billion figure wouldn’t be so imposing “if it weren’t for the fact that the wiggle room is just gone,” said Dane Smith, president of Growth & Justice, a progressive think tank. “There’s no margin for error.”

Another factor that’s making the problem much worse, Kiedrowski said, is Gov. Tim Pawlenty’s budget “gimmicks” and his stubbornness on taxes.

The projected state budget deficit after 2011 has ballooned to at least $5.4 billion after inflation, much of which can be blamed on Pawlenty’s use of short-term fixes and funding shifts to balance the current budget, Kiedrowski said. He cited the governor’s school funding shift, in which $1.7 billion is being withheld from schools until the first day of the next budget year.

“It’s like a person deferring a mortgage payment until January so they can claim they have more money in December,” Kiedrowski said.

In the past, Republican governors including Al Quie, Perpich, and Arne Carlson, have all been willing to increase taxes when it was necessary to balance the budget.

“Gov. Pawlenty is the first Minnesota governor faced with these circumstances that has refused to increase taxes one dollar,” Kiedrowski said.

Pawlenty reiterated that position on Wednesday, saying in a statement following the forecast that state government needs to live within its means and hold the line on taxes.

Kiedrowski traces the state’s budget problems back to the late ’90s when, under Gov. Jesse Ventura, the Legislature permanently cut income taxes while simultaneously increasing spending with dollars rolling in during good economic times.

“As we got into the 2000s, it became clear we overdid it on both the tax and the spending sides,” Kiedrowski said. “We never truly had a balanced budget since.”

Peggy Ingison, who was the state’s budget director from 1996 to 2004, said she believes a “structural imbalance” emerged more recently, in the past couple of years.

“I think we’ve managed to balance our budget, but not necessarily for the long term,” said Ingison, who is now chief financial officer for Minneapolis Public Schools.

Ingison wasn’t prepared to call this the worst deficit forecast the state has ever faced. We’ve had billion-dollar deficits in the past, she said, but the previous budget cuts and the severe national recession make this scenario unique in the state’s history.

“I think we’ve got a long-term problem, and we might not fix it overnight,” she said, “but to the extent we keep pushing it out I think it pretty irresponsible.”

The deficit situation isn’t unique among other states. Minnesota is one of 36 states to report mid-year budget deficits this year, according to Elizabeth McNichol, senior fellow at the Center on Budget Policy Priorities. The average shortfall was 28 percent of a state’s budget. Minnesota was below that threshold going into Wednesday.

“All the states are hurting at the moment,” McNichol said.

Kiedrowski worries Minnesota’s future may look something like California, where revenue problems have ruined the state’s credit rating and stunted its once thriving economy.

“These are not good financial practices,” Kiedrowski said. “Businesses doing it this way would go out of business.”

Originally published Dec. 3, 2009, on BringMeTheNews.com.

A year ago this week, state finance officials broke the news to lawmakers about a projected $426 million budget deficit facing the state. The report set the table for a round of controversial budget cuts by Gov. Tim Pawlenty, who used a once-obscure administrative power called unallotment to take back millions of dollars previously promised to state programs and local governments.

Today, the state’s budget office released this year’s edition of its fall budget forecast, and it showed another looming deficit, $1.2 billion for the current budget cycle. Early this afternoon, Pawlenty confirmed the worst fears of cities and counties, saying that he would prefer to work with the Legislature but that he may need to address the deficit problem this month by unalloting local government aid again.

“The worry is that it will be very large again,” said Steve Peterson, senior policy analyst for the Coalition of Greater Minnesota Cities.

Pawlenty cited the deficit projected in last year’s report as justification for $271 million in unallotment, an emergency budget-balancing power given to the governor under state law. Much of the spending reduction came from local government aid, which accounted for about 2.7 percent of that year’s state’s budget but made up nearly a quarter of the governor’s unallotment cuts.

“There wasn’t a lot of other places to take the money from, because by that point a lot of money was already out the door,” Peterson said. Another round of cuts by the governor in June trimmed the budget for local government aid by nearly $193 million. The rural cities coalition didn’t wait for governor to announce his plans this year before saying enough is enough.

“Repeated cuts to LGA have pushed our communities to the edge, and our ability to provide public safety, libraries, parks and other essential services at an affordable price to property taxpayers is suffering,” St. Peter Mayor Timothy Strand, president of the Coalition of Greater Minnesota Cities, told Forum Communications this week.

The cities’ concerns about unallotment are probably legitimate, said David Schultz, a professor at Hamline University’s School of Law.

Schultz predicts Pawlenty’s presidential aspirations will trump any desire to cooperate with the Legislature.

“It may be foolish, but he’ll do it,” Schultz said. “I can literally see him going around the country, puffing his chest up saying: I will do [the same thing] as president to that huge deficit that Obama created. I think the temptation is going to be too powerful.”

Pawlenty’s office did not return a phone call Tuesday, but in previous reports he hasn’t ruled out the use of unallotment. Pawlenty has used unallotment three times, and twice in the past year alone. Before he took office, the power had only been used two times in the state’s history.

Whether or not the governor could legally use unilateral budget cuts to solve the projected deficit is an open question.

“Under the statute you can’t just snap your fingers and unallot,” said attorney David Lillehaug, who has counseled clients about unallotment issues.

Lillehaug declined to speculate on whether the governor legally could use unallotment in these circumstances, but he said Pawlenty has plenty of other tools. They include waiting for the Legislature to convene early next year, or, if cash flow problems are imminent, calling a special session or exploring short-term borrowing to cover bills until the regular session.

Jay Kiedrowski, a senior fellow at the University of Minnesota’s Humphrey Institute of Public Affairs who was also the state’s finance commissioner under Gov. Rudy Perpich, said based on the governor’s previous interpretation of the unallotment statute, it’s likely that he can and will use it again if he can’t come to an agreement with the Legislature.

The courts, however, have yet to rule on whether Pawlenty’s interpretation of the rule is correct. The governor faces two lawsuits over his use of unallotment. One of them was filed by Legal Aid and the other is a class-action lawsuit in Ramsey County related to the state’s political contribution refund, which was cut in Pawlenty’s unallotment.

One question the courts will likely address is when, during the state’s two-year budget cycles, the governor is allowed to use the power, Kiedrowski said.

“If he were to use unallotment, we are just less than one quarter into the biennium, so he’d be unalloting a fairly substantial amount with three quarters of the biennium remaining,” Kiedrowski said. “There are observers who believe that unallotment was intended for use with far less of the biennium remaining, say the last six months of the biennium.”

Unalloting funding so early in a budget cycle raises other potential issues, Schultz said. For example, what happens if the economy improves or a new federal stimulus bill injects money into the state budget to the point that a surplus is available. “Do we now go back and say we ought to unallot the unallotement?”

Schultz suspects cities and counties will once again bear the brunt of the governor’s budget cuts. Pawlenty has proven himself to be unsympathetic to the concerns of local governments, Schultz said, and slashing local funds also forces the difficult and unpopular decisions about specific program and service cuts onto local officials.

Other constituencies that should be worried this month about having state funds taken back include school districts and health-care programs, Schultz said. A significant portion of the state’s budget goes to health programs, and the people served by them are generally fairly weak and powerless people who aren’t likely to stage a major objection, he said.

“I don’t think that he should be able to use it,” Schultz said. “But having said that, my suspicion is that he might be tempted to do it because, effectively, he’s running for president. What better way to look tough on taxes as you’re running for president than to say, I will do to the federal deficit what I did to the state deficit in Minnesota.”

Originally published Dec. 2, 2009, on BringMeTheNews.com.

Speaking at a private forum for Medtronic employees, the five GOP contenders described a state budget broken from unsustainable spending. And they spoke about an alarming migration trend they see in which businesses are fleeing the state due to taxes and regulation while indigents flock here to take advantage of overly generous social programs.

The solution, according to former State Auditor Pat Anderson: Be more like South Dakota, a state which has no personal or corporate income tax and fewer public services and amenities.

Minnesota should do “the exact same thing,” Anderson said. “I think the key is to have a good South Dakota-style business climate and then get out of the way.”

But state Rep. Marty Seifert said calling for the elimination of income taxes is “pandering” to voters and that state government needs to use certain subsidies in order to accomplish its goals.

The exchange was one of a couple barbs traded between Seifert and Anderson in what was otherwise a friendly and uncontentious forum, sponsored by Medtronic’s employee political action committee and moderated by Rick Kupchella of BringMeTheNews.com.

Other candidates who participated were state Rep. Tom Emmer, former state Rep. Bill Haas and businessman Phil Herwig.

The candidates generally agreed on a desire to cut taxes, eliminate regulations and shrink state government.

“In Minnesota we’re losing our competitive edge mainly because the tax and regulatory climate,” Seifert said. “My goal is to downsize, rightsize, economize government.”

On health care, the candidates blamed medical malpractice lawsuits and excessive regulation for driving up costs. They spoke about giving consumers more pricing transparency and the ability to buy policies for sale in other states. And they criticized the state’s mandatory coverage rules, which require insurers to cover certain treatments and procedures in every policy.

“If you want insurance that covers alcoholism, that would be your privilege, but it would also be your privilege to pay for the premium for it,” said Herwig.

On energy, the candidates enthusiastically endorsed nuclear power as the “cleanest” and most “cost-effective” form of energy. They said the state should do away with a 15-year-old ban on new nuclear power plant construction. Herwig touted the jobs such projects would bring, while Seifert questioned the reliability of the wind turbines being built his own district.

“If your mom or dad are hooked up to a heart or lung machine at the Mayo Clinic, do you want them plugged into a wind mill or into a nuclear plant?” Seifert said.

On education, the candidates stressed the importance of math and science skills and talked about making it easier for retired professionals to obtain part-time teaching licenses. Seifert accused “special interest groups,” specifically coaches, bus companies and teachers’ unions, of conspiring to shorten the school day. And Herwig proposed saving money by consolidating the state’s 380 school districts into 27 districts.

On the budget, the candidates said the state should stop borrowing money for big construction projects in every session. Seifert defended the use of bonding bills to pay for certain projects such as recovery following a flood or tornado. Haas said the state should base spending to what’s collected rather than using budget projections. Answers frequently led back to household metaphors.

“Everybody seems to want to charge up the credit card before you balance the check book,” said Emmer.

A recent Rasmussen poll shows the 2010 race for governor in Minnesota is still wide open. On the Republican side, Seifert led among declared candidates with just 11 percent of respondents saying they’d vote for him. Meanwhile, “not sure” received 26 percent of responses.

The Medtronic employee group will host a forum for DFL gubernatorial candidates next month.

Originally published Nov. 19, 2009, on BringMeTheNews.com.

Climate scientists believe if we don’t respond appropriately in the next decade or so, global warming will cause oceans to rise, disease to spread, droughts to prolong, storms and wildfires to intensify, and scores of species to go extinct.

The U.S. Chamber of Commerce, however, foresees a different apocalyptic vision: a future in which American businesses are forced to do their part to help avert the crisis. (Continue reading…)