Our first look at the Governor's supplemental budget

The Governor’s supplemental budget proposal for solving the state’s $1.2 billion deficit was released late this morning. (You can see the details of the proposal yourself at the Minnesota Management and Budget web site.) We are pleased the Governor recognizes the importance of additional federal health care aid to the states. However, we are disappointed overall that the Governor continues to focus on balancing the budget solely through cuts, rather than through a more balanced package of revenue increases and tax cuts, which has been a more common path for states to follow.

The largest component of the Governor’s proposal is $387 million from enhanced federal Medicaid funding. Medicaid is a health care program that is jointly funded by the federal government and the states. Under the stimulus bill Congress passed last year, the federal government increased its share of Medicaid funding so that struggling people would not lose their health care during this recession and states would not have to make as deep of cuts into services. This enhanced match was a substantial part of solving the state budget last year. Currently, that funding would end in December 2010, even though the tough economy and state budget deficits are expected to persist. Congress has been discussing extending the increase for another six months. We are glad that the Governor recognizes the importance of this extension in his budget and this further demonstrates the importance of Congress acting quickly to pass the enhanced funding. The Governor acknowledged in his press conference that if Congress doesn’t act quickly, deeper budget cuts will be necessary.

The Governor’s budget also includes $347 million in cuts in health and human services. We will get more details on these cuts on Tuesday and Wednesday as state agency staff explain the cuts to legislative committees, but some proposals include:

• Reducing eligibility for MinnesotaCare from 250 percent of the federal poverty guideline (FPG) down to 75 percent of FPG for adults without children. This would end health care coverage to an estimated 21,500 working Minnesotans who do not have access to affordable health care through their employers, so they pay premiums to access health insurance through MinnesotaCare. This proposal creates a savings to the Health Care Access Fund (HCAF). The Governor’s budget then transfers nearly $160 million from the HCAF to the general fund to help with the state’s budget deficit.
• Cutting  supports to families on Temporary Assistance to Needy Families (TANF), a program that helps people get and keep jobs. This is a federally-funded program, so the Governor’s proposal ”refinances” the federal funds, using them to replace state dollars in order to realize savings in the general fund.
• Reducing state funding for child care assistance and capturing other funds that would have gone to counties for child care assistance.
• Eliminating General Assistance – a safety net program for vulnerable adults without children – and converting it to a short-term assistance grant program.
• Reducing continuing care provider rates by 2.5 percent.

There are also $250 million in reductions to aids to local governments (cities and counties). This is in addition to the $300 million that was cut through unallotment last year. The Governor also proposes to make levy limits permanent, which would put a limit on how much local property taxes could grow.

The Governor proposes $47 million in reductions to higher education. As a result of federal stimulus legislation, the state cannot reduce funding for higher education below 2006 levels through the end of 2010. The Governor’s proposal cuts higher education at the maximum level possible without violating the federal restrictions.

As we mentioned this morning, the Governor’s budget also includes a package of tax cuts. The cost for these cuts is largely a mystery. Although there is only a $20 million cost for the Governor’s package in the current biennium, the price grows to $322 million in the next biennium, and the real cost of these cuts won’t be known until four or five years out, as some provisions don’t have a fiscal impact until that time.

The Governor also asks the legislature to ratify his unallotments from last year. Some of that makes sense – like formally approving the K-12 education shift so there is more certainty in how the shift will be implemented. But some of the Governor’s unallotment actions were never subject to public debate and are very controversial – like the elimination of the special diet program that is being reviewed by the state’s Supreme Court, or the deep cuts to the Renters’ Credit that were rejected by the legislature.

We’ll be examining the details of the Governor’s proposal in the days to come. But remember that there is much we can’t learn from the budget pages. For example, how will local governments respond to additional cuts in state aid? Or, how will state agencies implement the 6 percent cuts to their operating budgets and what effect will that have on services?

The Governor’s proposal is just the starting point. What’s next? Legislative committees will start holding hearings to get more details from agency staff. Then the February Forecast will be released on March 2 and we’ll get the final word on the size of the state’s budget deficit for this year. After that, the Governor will probably need to make some modifications to his budget proposal to reflect the February Forecast and the House and Senate will begin to reveal their own budget proposals.

-Christina Wessel & Nan Madden