New Minn. Ruling Cast Greeted By Old Budget Woes

ST. PAUL, Minn. (AP) -- Minnesota's budget hole is so large that laying off every worker on the state payroll wouldn't fill it. Neither would shutting the doors to every state agency.

So when a new governor and a new cast of lawmakers take over next week, their options in tackling the two-year, $6.2 billion shortfall will be few and all of them grim.

"We've pretty well played all the cards that we had, and you're going to have to find a different way of dealing with this one," said State Economist Tom Stinson.

On the campaign trail, Republicans said they could extract considerable savings from state government. The new Democratic governor wanted to ease the deficit by raising taxes on the wealthy. But both notions will soon run headlong into reality.

The state has already exhausted rainy-day accounts and even established a bank line of credit that may have to be accessed to cover bills. Lawmakers amassed more than $1.4 billion in IOUs to public schools. And they covered ongoing costs with $2.3 billion in federal stimulus money, which is soon to expire.

The 2011 session is sure to detour into debates over public subsidies for a new Minnesota Vikings football stadium, a photo ID requirement for voters and attempts to change policies for abortion and gay marriage.

But the budget fix will be the main event.

The daunting deficit isn't the product of a single shot of bad economic news. Rather, it's a reflection of the growing mismatch of tax revenues and increasing costs of running schools, nursing homes and public health care programs among others. Efforts to plug past gaps by deferring bills have contributed, too.

Minnesota voters sent a mixed message in November's election.

In Gov.-elect Mark Dayton, a Democrat, they opted for a chief executive who campaigned openly on a tax increase platform. In fact, 56 percent of the vote in the three-way race went to candidates suggesting higher taxes to repair the budget.

But voters also wiped out large Democratic majorities and gave the GOP both chambers of the Legislature for the first time in modern state history. The Republican legislative candidates almost universally campaigned on fiscal restraint and a continuation of outgoing Gov. Tim Pawlenty's no-new-tax approach.

While both sides talk about working together, they've also taken aim at one another's core philosophy.

Dayton said he won't abandon his tax-the-rich plan.

"I will continue to insist that those state and local tax dollars be collected more progressively, so that all Minnesotans pay their fair share for the essential services all Minnesotans need," Dayton said in his first news conference as governor-elect.

Republicans are standing firm, too.

"We're not going to go back to taxpayers and ask for more money," said House Speaker-designate Kurt Zellers, R-Maple Grove.

Zellers and his allies are spreading a live-within-your-means message. They note that actual revenues will climb by 5 percent in the next two years, to $32 billion.

But consider this: Minnesota spends an average of $250 million a month on state employee paychecks, meaning every worker would have to be let go for two years and even then it wouldn't entirely close the budget gap. Combined, Minnesota state agencies take about $1.5 billion to operate each year.

What gets played down is that rising school enrollments, more people on public assistance and springbacks in spending stopped on a one-time basis substantially exceed the new money.

About 75 percent of state dollars that get spent annually go to schools, cities, counties, colleges, people receiving public aid and construction bond debt service.

Public employees are nervous about the upcoming session and fear they'll be in the crosshairs, said Mike Lindholt, president of the American Federation of State Counties and Municipal Employees union local that represents road maintenance crews and snowplow drivers. Behind the workers are services large and small.

"People have grown accustomed to having their roads cleared. It just magically happens overnight for them," he said, adding, "I know we're in a budget crisis. But we can't be cut any more than we are. If you start cutting us anymore we're going to start losing critical services."

Something will have to budge.

Republicans say they will try to protect spending for schools and nursing homes. But the state's K-12 budget alone eats up more than one-third of the Minnesota budget, more if past IOUs are paid back as required by law.

School districts across the state have turned to short-term borrowing to pay their bills as state money comes in slower. Consulting firm Springsted, which helps arrange such financing for schools, has seen the number of districts in its borrowing pool climb. The amount borrowed by Springsted's 73 clients totaled $271 million in summer 2010, more than double the amount taken out by 64 districts the year before.

Charlie Kyte, executive director of the Minnesota Association of School Administrators, said districts are already bracing for more delays in aid, which they consider preferable to outright funding cuts. But education groups plan to seek a repayment timetable in law.

"We can live with it for awhile because we understand how big the (state's) financial problem is," Kyte said.

During the campaign, Dayton said he would work to boost the state's commitment to public schools each year, "no excuses, no exceptions." Since the election, he has rhetorically retreated, saying only he would "do my utmost" to abide by the commitment.

There are untapped revenue options that both Dayton and the Republicans have kept on the table. Chief among them is expanded gambling.

Authorization of a new state-run casino in the Twin Cities or slot machines at existing horse tracks could steer tens of millions of dollars into Minnesota coffers. But there are open questions about whether voters would have to consent, how soon any money would materialize and if American Indian tribes would head to court to protect their casino monopoly.

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