Minnesota state budget (2008-2009)

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State Information


Minnesota faced a $4.6 billion projected budget deficit for 2010-2011, with the aid of federal stimulus funds. Without the extra aid, Minnesota would instead be facing a $6.4 billion budget gap.[1] Minnesota faced a deficit for fiscal years 2008-2009; however, the deficit was eliminated by withdrawing the remaining $155 million from the budget reserve and un-alloting $271 million. The state was expected to end the fiscal year with a balance of $236 million and a $350 million cash flow account.[2]

"We're in the worst recession in the post-war era," said state economist Tom Stinson. Unemployment, already at 7.6 percent in Minnesota and nationally, was expected to rise to 9.4 percent in 2009 and double digits "would not be a surprise," Stinson said. Despite the state's budget woes, Gov. Tim Pawlenty said he would "absolutely" oppose any increase in taxes. Although some lawmakers were wary of the use of federal stimulus funds, Stinson said that stimulus dollars "may be hiding the long-term problem, but they're certainly helping the state economy in the short term. In the short term, it's welcome relief."[3] The governor said that the federal stimulus funds, although a one-time source, would allow him to restore $304 million in cuts he had proposed to higher education and pass through a congressional increase in funding for student tuition aid. He also said revisions to his initial budget recommendation would exempt up to $2,400 in unemployment insurance benefits from state taxation for 2009.[4]

Impact of budget woes

See also: State budget issues, 2009-2010
  • In January 2009 Minnesota lost 20,700 jobs, moving the unemployment rate up 10 percent from December to a seasonally adjusted 7.6 percent, compared to a national rate of 7.6 percent. The Minnesota Department of Employment and Economic Development also reported on February 26, 2009 that the state had lost 75,000 jobs over the past year.[5]
  • Minnesota was projected to lose another 70,000 jobs in 2010. Total job losses might have reached 120,000, equal to three years' worth of typical job growth, according to the state's national forecaster, Global Insight Inc..[3]
  • Minnesota saw unemployment benefit claims double in February 2009 compared to February 2008, with the number of claims jumping from 19,196 to 39,634. All categories saw double or triple-digit percentage increases in claims.[6]
  • The Minnesota state colleges and university system had about $146 million cut from its budget in early 2009, but in March 2009 the governor revised his budget recommendations to restore the funds in light of federal stimulus funds. Yet, Rep. Marty Seifert said Southwest Minnesota State University and Minnesota West College might still need to make cuts for 2009 because of money that had already been un-allotted.[7]

Budget background

See also: Minnesota state budget

Minnesota operates on a biennium, covering two fiscal years at a time. A fiscal year begins on July 1 and ends on June 30 of the following year; however, the biennium begins July 1 of odd-numbered years. The process of creating a new state budget begins in even-numbered years. All state agencies submit budget requests for the next biennium along with actual expenditures and receipts for the two most recent fiscal years. The governor then submits a three-part budget to the legislature. Part one is a budget message, part two a detailed operating budget, and part three a capital expenditures budget. Parts one and two are presented to the legislature in January or February of odd-numbered years and part three is presented to the legislature in January of even-numbered years. Both the House and the Senate examine, modify, and enact the final budget.[8][9]

Budget figures

The following table provides a history of Minnesota's expenditures and gross domestic product (GDP).

Fiscal year Expenditures (billions) GDP (billions)
2000 $35.4[10] $185.1[10]
2001 $38.0[10] $190.2[10]
2002 $40.5[10] $198.6[10]
2003 $41.3[10] $208.2[10]
2004 $42.1[10] $223.5[10]
2005 $42.9[10] $232.0[10]
2006 $44.8[10] $242.1[10]
2007 $46.7[10] $255.0[10]
2008 $48.7[10] $268.5[10]
2009 $50.8*[10] $282.8*[10]
  • NOTE: The figures for FY 2009 had not been finalized at the time this data was compiled.

Ideas about why the crisis occurred

  • When state lawmakers adjourned in May 2008, the state expected to have $35 billion in revenues for 2010-2011; however, job losses and the plummeting stock market changed that. The state was expected to receive $4.5 billion less than first projected in tax revenues for 2010-2011. According to state officials, collections of individual income tax for 2010-2011 were projected to decline by $2.4 billion, or 14 percent. Corporate income taxes were expected to drop more than 40 percent, to about $1.2 billion.[1]
  • From January 2008 to 2009, education and health services were the only sectors that had added jobs in the state, growing 4.1 percent, or by 17,600 jobs. The sectors losing the most jobs in January were manufacturing, down 9,600, professional and business services, down 5,900, and government, down 3,900.[5]
  • According to the state's economic experts, real GDP was expected to fall by 2.7 percent in 2009.[2]

Proposed actions

Governor Tim Pawlenty

Under the governor’s revised budget, the total amount of state general fund expenditures in FY 2010-11 would be $32.6 billion, a reduction of approximately 4 percent from the $33.9 billion in general fund expenditures in the then-current FY 2008-09 budget. In the revised plan K-12 education funding was increased beyond the level proposed in January, funding was restored for the University of Minnesota, funding was increased for higher education state grants, unemployment insurance benefits were exempted from state taxes up to $2,400 per individual, and an additional $10 million for operation of state courts was provided. Additionally, the governor proposed freezing Health and Human Services and property tax aids and credits at FY 2010-11 levels for the FY 2012-13 budget period.[11] His proposal would cut hospitalization benefits for childless adults on the state-funded General Assistance Medical Care program, instead trying to manage their care through clinics and care coordinators. Pawlenty still aimed to cut adults from two other subsidized health care programs, but not until January 2011 when stimulus requirements expired.[12]

“This budget is lean and focused,” Gov. Pawlenty said. “In these tough economic times, we can’t do everything, but we will do what’s important to help get our state moving forward. For starters, government will live within its means and not pile a big tax increase on families and businesses who were already struggling.”[11]

In terms of revenue, the governor vowed not to raise taxes and instead proposed a $1.3 billion accounting shift in school payments and nearly $1 billion from selling proceeds from tobacco settlement payments.[12]

Republicans

In light of the state's budget gap, some lawmakers had proposed leveling the state's income tax. A 2009 study of Minnesota's tax revenue revealed that the highest earners paid a lower share of their income in taxes than the rest of the state. However, Republican lawmakers believed that changing the state's tax code was the wrong way to fix the state's budget gap. "That's a killer for small businesses, absolutely a killer," said Senate Minority Leader David Senjem. "That's simply the wrong direction."[13] In an effort to address the state's budget gap, some Republican legislators hoped to temporarily suspend the state's prevailing wage law. Minnesota's prevailing wage law, on the books since 1973, requires that employees working on state-funded construction projects be paid wage rates comparable to wages paid for similar work in the area where the project is located. Rep. Steve Gottwalt and Sen. Chris Gerlach said that the proposition would help balance the budget by reducing costs in state construction projects and saving millions of dollars. The Minnesota Associated Builders and Contractors supported the "time-out" proposal, citing a 2005 study that stated that the law increased state construction project costs by as much as 10 percent.[14]

Democrats

Senate Democrats had a plan to balance the state budget by raising $2 billion in new revenue and cutting spending by 7 percent across the board. The cuts were estimated to equal $2.4 billion and included $973 million in cuts to schools.[15] According to Senate Taxes Committee Chairman Tom Bakk, the new revenue would result from a change in the state tax code. According to a 2009 study, Minnesota's highest earners paid a lower share of their income in taxes than the rest, and Bakk said that this plan proposed to even that discrepancy. The Democratic plan also relied on $2 billion in federal stimulus funds. "It's important to make the hard decisions and take the medicine now," said Senate Majority Leader Larry Pogemiller in response to the 7 percent across the board cut.[13]

Economic stimulus package

Minnesota was expected to receive $4.6 billion from the $787 billion dollar economic stimulus.[16] All told, the federal stimulus plan would create or save 66,000 jobs in Minnesota, based on White House estimates.[17]

According to preliminary reports, Minnesota was expected to receive:[16]

  • $29 million in law-enforcement aid[18]
  • $131 million for weatherization projects for low-income homes[19]
  • $54 million for the State Energy Program[19]
  • $1.8 billion for Medicaid programs
  • $800 million towards schools
  • $500 million towards roads and bridges

Gov. Pawlenty's executive actions announced June 16, 2009, effective July 1, 2009, included:

  • $200 million reduction of local aids and credits to cities and townships
  • $100 million reduction of local aids and credits to counties
  • $67 million reduction of refunds and other payments
  • $236 million reduction in human services spending
  • $100 million reduction in higher education appropriations
  • $33 million reduction in most state agency operating budgets
  • $1.77 billion K-12 education payment deferrals and adjustments
  • $169 million additional revenues through administrative actions

TOTAL: $2.675 billion

Minnesota Consolidated Budget in billions (after governor's executive actions, June 2009):[20]

Year 2007 actual 2008 actual 2009 w/7-09 ex. act. 2010 w/7-09 ex. act. 2011 w/7-09 ex. act. 2012 pln. est. 2013 pln. est.
Revenue $29.7 $31.3 $33.3 $32.7 $32.4 $30.8 $29.0
Total exp. and trans. $25.2 $26.9 $30.6 $30.2 $29.8 $31.2 $30.2
Annual balance $4.5 $4.4 $2.7 $2.5 $2.6 -$0.3 -$1.2
Carried forward deficit -$2.7 -$2.9 -$2.0 -$2.0 -$2.0 -$2.1 -$2.3
Budgetary balance $1.8 $1.5 $0.7 $0.5 $0.6 -$2.4 -$3.5


Budget transparency

Disregarding the mandate of Minnesota House File 548, State Government Omnibus bill (2007), Minnesota did not launch a spending database until March 2009 (over one year after the mandated launch date).[21][22] According to an article in The Star Tribune, the Department of Administration had not launched the website because, "An old state computer system, which was being updated, was not Internet-friendly. It's not clear if the new computer system would include a spending database because the Legislature didn't appropriate the $1 million to $1.5 million needed for it."[23]

The actual expense of building the site was far less than initially expected. Curt Yoakum, Legislative Liason for the Department of Management and Budget in 2009, said that the spending database was developed with existing resources and a $5,000 consulting fee. Apparently, the $1 million plus estimate was a bit high. The site's designers even overcame an antiquated accounting system that appeared unsuited to internet.

According to a press release from the Office of the Governor, "The site was created by Minnesota Management and Budget (MMB) and offers on-line, round-the-clock access to data on state payments for schools, local governments, contractors and other vendors. With just a few clicks, citizens can access detailed information on most state spending. The data is supplied by the state's accounting system and updated nightly."[21] Check it out by clicking here.

Legislation

HF 376 and SF 416 were incorporated into Minnesota House File 548, State Government Omnibus bill, which was signed by Governor Tim Pawlenty on May 25, 2007. Starting in 2008, residents should have been able to search for information on state grants and contracts valued at over $25,000; however, the transparency database was not launched until March 2009. Grants and contracts to local government units would not be included in this database. According to the legislation, information would be stored on the website for 10 years.

Prior to the passage of Minnesota House File 548, State Government Omnibus bill, a report by the Minnesota Office of the Legislative Auditor found that the policies and practices used to award and administer grants to nonprofit organizations were "inconsistent and inadequate to ensure accountability."[24] According to the report, Minnesota paid $4.7 billion to nonprofits in 2005, most of which went to hospitals, health plans and large institutional providers. Of that amount, state or county agencies awarded $1 billion to nearly 1,900 nonprofits.

Government tools

The following table is helpful in evaluating the level of transparency provided by a state spending and transparency database:

Criteria for evaluating spending databases
State database Searchability Grants Contracts Line item expenditures Dept./agency budgets Public employee salary
TAP Minnesota Y
600px-Yes check.png
N
600px-Red x.png
Y
600px-Yes check.png
N
600px-Red x.png
N
600px-Red x.png
N
600px-Red x.png

Limitations and suggestions

As of 2009, Minnesota's "Transparency and Accountability Project" site lacked information about state employee salaries.

Support for the creation of the database

In response to a letter from the National Taxpayers Union, Chief Commissioner Dana Badgerow wrote a letter that attributed the delay in posting the database to a lack of funding. While the legislature passed the bill itself, it failed to appropriate a source of funding for the project.[25][26]

The Minnesota Free Market Institute supported transparency in local government spending, writing, "When local governments receive state money both as 'Local Government Aid' and in special state financed bonding projects, as well as through local property taxes, it's important that citizens get the complete picture of how all their tax monies are being spent at all levels of government, not just the top."

Public employee salary information

See also: Minnesota state government salary

Economic stimulus transparency

  • The Economic Recovery and Reinvestment Act of 2009 designated $787 billion to be spent throughout the nation. Of that $787 billion stimulus package, it was estimated that 69%, or over $541 billion, would be administered by state governments.[27]
  • Minnesota was expected to receive an estimated $2,514,686,494.[28]

See also

External links

References

  1. 1.0 1.1 Finance and Commerce,"Minnesota: Stock market collapse, job losses mean less tax revenue in 2010-2011," March 11,2009
  2. 2.0 2.1 Minnesota Management and Budget,"February 2009 highlights," accessed March 18,2009
  3. 3.0 3.1 Star Tribune," March 4,2009
  4. Star Tribune,"Pawlenty budget plan eases up on cuts," March 18,2009
  5. 5.0 5.1 Associated Press,"Report: Minnesota loses 20,700 jobs in January," February 26,2009
  6. Post-Bulletin,"More first-timers file for unemployment," March 16,2009
  7. The Independent,"Pawlenty cuts higher education a break in revised budget plan," March 18,2009
  8. Minnesota Legislative Reference Library,"Resources on Minnesota Issues State Budget," December 2008
  9. Minnesota Management and Budget,"2010-11 Governor's Budget Instructions & Forms," accessed March 18,2009
  10. 10.00 10.01 10.02 10.03 10.04 10.05 10.06 10.07 10.08 10.09 10.10 10.11 10.12 10.13 10.14 10.15 10.16 10.17 10.18 10.19 US Government Spending,"Minnesota State and Local spending," accessed March 17,2009
  11. 11.0 11.1 Office of the Governor,"Governor Pawlenty's budget recommendations maintain priorities, position state of recovery," March 17,2009
  12. 12.0 12.1 The Seattle Times,"Pawlenty uses stimulus to ease cuts in revised budget proposal in Minnesota," March 17,2009
  13. 13.0 13.1 Associated Press,"Minnesota Senate Dems: Tax wealthy, cut spending," March 12,2009
  14. Star Tribune,"Prevailing wage law targeted," March 18,2009
  15. Associated Press,"Senate Dems: $2B in new revenue, 7% cuts," March 12,2009
  16. 16.0 16.1 Fox News,"Stimulus Dollars at Work," March 12,2009
  17. American Recovery and Reinvestment Act,"Estimated job effect," accessed March 18,2009
  18. Star Tribune,"Minnesota's stimulus aid would include over $29 million for police," March 6,2009
  19. 19.0 19.1 St. Paul Legal Ledger,"Minnesota gets $186 million in stimulus for energy efficiency," March 16,2009
  20. Minnesota Management and Budget, "Consolidated Fund Statement: End of 2009 Legislative Session, Includes July 2009 Executive Actions ," July 17, 2009
  21. 21.0 21.1 Office of the Governor, "OVERNOR PAWLENTY UNVEILS NEW STATE WEBSITE TO ALLOW CITIZENS TO TRACK GOVERNMENT SPENDING ONLINE," March 26, 2009
  22. Minnpost.com, "Many states, including Minnesota, lag in putting their spending on the Internet," February 27, 2009
  23. Star Tribune, "A blogger's quest: Where's the database?" May 15, 2009
  24. Minnesota Office of the Legislative Auditor, "State Grants to Nonprofit Organizations," January 5, 2007
  25. Letter to Commissioner Dana Badgerow, Minnesota Department of Administration, May 28, 2008
  26. Letter to Kristina Rasmussen, National Taxpayers Union, June 5, 2008
  27. National Taxpayers Union, "A Letter to the Nation's Governors: Ensure Transparency and Accountability by Posting Stimulus Expenditures Online," March 10, 2009
  28. Wall Street Journal,"Stimulus Spending by State," March 12,2009