Minn. budget crunch pushes against midnight deadline with no deal between lawmakers, Pawlenty

MN budget crunch pushes against midnight deadline

ST. PAUL, Minn. — A deal to resolve Minnesota’s $3 billion budget deficit eluded state leaders as a crucial Sunday deadline approached.

Shortly after sunrise, Democrats who control the Legislature sent Republican Gov. Tim Pawlenty a budget bill he hadn’t agreed to sign. The bill would ratify most of the spending cuts he made last year without legislative consent and rely heavily on delayed payments to schools.

The hitch: The bill contains a controversial health care initiative for the poor relying on federal money. Pawlenty spokesman Brian McClung said the governor will veto the bill because it increases health care spending instead of reducing it and didn’t attract bipartisan support.

Pawlenty and top lawmakers are scheduled to talk again at 3 p.m. Sunday.

The pressure on the players and the stakes for the state were high.

Without a solution to Minnesota’s $3 billion deficit by the midnight deadline set in the state constitution, Pawlenty and lawmakers were looking at undesirable options:

—They could resume work in a special session, a risky proposition for legislators eager to hit the campaign trail and particularly for those seeking higher office. Two gubernatorial candidates, Democratic Rep. Margaret Anderson Kelliher and Republican Rep. Tom Emmer, would face time and fundraising constraints during a special session.

—Pawlenty, a potential 2012 Republican presidential candidate, could be forced to deal with an unprecedented cash crunch with limited tools at his disposal. Some steps could be withholding tax refunds, delaying state grant awards, putting off construction projects and possibly canceling contracts with vendors. But Minnesota’s top-notch credit rating would likely suffer, making future borrowing for construction projects more costly.

House Majority Leader Tony Sertich said Pawlenty was getting more than 90 percent of what he wanted in the budget bill.

“What more can we do? I don’t know,” said Sertich, a Democrat from Chisholm.

Republican lawmakers said the health proposal was blocking a budget deal. Democrats were hoping to enroll thousands more low-income patients in a federally sponsored Medicaid program that required the state to put up $188 million. In return, an estimated $1.4 billion in federal money could be sent Minnesota’s way over the next few years.

“We just simply don’t have the money,” said Rep. Laura Brod, a Republican from New Prague. “It’s like those home loans. We’re going to get people into a house for zero-down loans, and by the way, they can’t afford the payments on the home. That’s the situation we’re in.”

Republicans have been pushing for an alternative that would give Minnesota officials more power to design the coverage.

In brief comments to reporters earlier Sunday, Pawlenty said he was still hopeful an agreement would be struck.

A budget settlement was deemed imperative because the state’s available cash is set to dip below $200 million in the coming weeks and could drop into the red this summer.

“It leaves the state in an extremely precarious situation,” Pawlenty said.

Lawmakers pledged to stay at the Capitol until the final moments in hopes of a late change of heart. After working until about 6 a.m. Sunday, the House was scheduled to convene again at 2 p.m. and the Senate at 3 p.m.

The budget bill would push off almost one-third of schools’ expected aid checks into the next budget year, forcing short-term borrowing in some districts and use of reserves in others. The accounting mechanism would save the state $1.9 billion in the current budget — $200 million more than was previously counted on.

By putting the school shift in law, there is some assurance that districts will get paid back when the state’s economic conditions improve. An aid deferral that Pawlenty attempted on his own last year offered no such promise. The Minnesota Supreme Court found earlier this month that the governor exceeded his authority in making the cuts without lawmakers’ approval.

“We think it’s going to be about 10 years before it’s paid back,” said Charlie Kyte, who heads the Minnesota Association of School Administrators. “This is a huge hit to the schools for how much money we’re going to be borrowing for many, many years.”

Another major component would slow down sales tax refunds to businesses that buy heavy equipment, making them wait up to six months for refund checks instead of three months under current law.

The bill relies on about $160 million in cuts to health and social service programs through restructuring, grant cuts and reduced reimbursement rates to providers.

Other cuts fall largely on the state agencies — from the Department of Natural Resources to the Minnesota Historical Society.