~ Proposed measures resolve $2.7 billion shortfall for Fiscal Years 2010-11; military & veterans, public safety, K-12 education among programs shielded from cuts ~

Saint Paul – Governor Tim Pawlenty and Management and Budget Commissioner Tom Hanson today announced recommendations to resolve a projected $2.676 billion budget gap through use of executive actions.

Today’s recommendations from Commissioner Hanson to Governor Pawlenty follow Hanson’s determination last week that “probable receipts for the general fund will be less than anticipated, and that the amount available for the remainder of the [2010-2011] biennium will be less than needed.”

Through a process known as unallotment, the Governor and Commissioner Hanson have the authority to reduce the amount of state spending to prevent a deficit. Minnesota’s Constitution requires a balanced budget.

“Families and businesses are battling their way through this prolonged economic downturn by reexamining their budgets, cutting expenses, and tightening their belts. State government must do the same,” Governor Pawlenty said. “The overall impact of these reductions will be to have state government live on about 96 or 97 percent of what it’s living on right now. The impact will be felt, but we will get through this difficult economic period and position Minnesota for future growth by reining in government spending and keeping our state competitive.”

The reductions and deferrals in state spending protect funding for K-12 education, public safety, military, and veterans. As much as possible, the recommendations are weighed toward the second year of the two-year FY 2010-11 budget period, so that those impacted have an opportunity to plan ahead and the legislature can consider other options during the 2010 legislative session, which begins in February.

“I appreciate the suggestions we received from stakeholder groups, legislators, and more than 3,000 citizens as we assembled these recommendations,” Governor Pawlenty said. “Their input can be found in the way we exempted certain cities and counties and in our targeted approach to human services reductions, among other proposals.”

The proposed unallotments and other administrative actions announced today will be presented to the Legislative Advisory Commission at a meeting this Thursday called by Commissioner Hanson. The Governor and Commissioner Hanson will be able to incorporate suggestions from legislators and others before finalizing the plan. The reductions would begin to take effect at the start of the new fiscal year, which begins July 1, 2009.

The budget solution includes:

TOTAL: $2.675 billion

Reduction in local government aids and credits - $300 million ($200 million to cities and townships, $100 million to counties)

State aids and credits to cities and counties are proposed to be reduced by $300 million. The reductions would be split so that 1/3rd of the amount is reduced in FY 2010 and 2/3rds are reduced in FY 2011.

County aid would be reduced by $33 million in FY 2010 and $67 million in FY 2011. This amounts to a reduction of no more than 1.19 percent of each county’s annual aid plus levy for 2009, and a reduction of no more than 2.41 percent for 2010. The five counties with a population of approximately 5,000 or less are exempted from these reductions (Kittson, Lake of the Woods, Mahnomen, Red Lake and Traverse).

City and township aid (LGA) would be reduced by $67 million in FY 2010 and $133 million in FY 2011. No city’s reduction exceeds 3.31 percent of annual aid plus levy for 2009, and 7.64 percent of annual aid plus levy for 2010. No township’s reduction exceeds 1.74 percent of annual aid plus levy for 2009, and 3.66 percent of annual aid plus levy for 2010.

Small counties, cities, and townships have less flexibility and fewer options to deal with budget challenges. Cities and townships with an adjusted net tax capacity per capita less than the statewide average and which have a population of less than 1,000 are exempted from these reductions. In total, 53 percent of Minnesota cities (454 of 854) and 35 percent of Minnesota townships (629 of 1,802) will not experience a reduction under this plan.

Unlike other parts of the budget, local aids and credits were not reduced as part of the recently enacted 2010-11 budget. Reductions made through unallotment are the total change in local aids and credits for the upcoming biennium.

“We have capped LGA reductions to no more than 3.31 percent in the first year and 7.64 percent in the second year,” Governor Pawlenty said. “In addition, smaller counties, cities and townships with limited tax capacities are exempted altogether. These reductions are less than proposed in my budget in January. Cities should be able to handle them without making cuts in priority areas like public safety.”

Reduction of refunds and other payments – $67 million

Refunds for political contributions made between July 1, 2009 and June 30, 2011 are proposed to be eliminated, resulting in a savings of $10.4 million for the biennium. This would not impact individuals electing to make contributions to the State Election Campaign Fund through the check-off on state income tax returns, nor those contributions.

The renters’ refund would also be reduced to more accurately reflect actual property taxes paid, saving $51 million. In addition, sustainable forest investment payments would be capped at $100,000 per enrollee, impacting only four of the 1,100 program enrollees for one year, resulting in $5.5 million in savings.

Reduction in human services spending – $236 million

Human Services expenditures make up roughly 28 percent of the state general fund and are largely responsible for dramatically increasing state government costs. In an effort to limit direct impacts to individuals, as well as avoid further reductions to hospitals and nursing facilities, targeted reductions to grants, provider payments, authorized services, and operations are proposed.

Key items include:

· Ending General Assistance Medical Care (GAMC) coverage on March 1, 2010. This ends GAMC coverage one and one-half months sooner than would have occurred as a result of the line-item veto of GAMC funding for FY 2011.

· Reducing grants to counties for mental health services, chemical dependency treatment, housing and basic needs in emergency situations, child support administrative costs, and other flexible social service purposes. The availability of new federal stimulus funding in many of these areas will mitigate the impact of the reductions.

· Reducing rates an additional 1.5 percent for specialists and certain other non-primary care services. Inpatient hospital services are exempt from these additional rate cuts. Primary care, mental health, dental, and other critical services will be also be excluded, just as they were excluded from the ratable reductions passed during session. Medical education and disproportionate share quarterly payments to hospitals are also exempt from these reductions.

· Lowering the maximum number of hours one Personal Care Attendant (PCA) can work from 310 to 275 per month. Even with this cap, Minnesota still has a generous PCA program when compared to other states.

· Suspending nursing facility rebasing for FY 2010. This does not reduce current rates paid to nursing facilities, but suspends an increase for FY 2010. The 2009 legislature suspended rebasing from FY 2011 to FY 2013.

· Redesigning the State Operated Services (SOS) system towards specialty health care. The Department of Human Services will better meet the needs of clients through lower intensity, lower cost services and savings will be realized as a result. The Minnesota Sex Offender Program will not be impacted by these changes.

· Refinancing transitional MinnesotaCare. Individuals eligible for transitional MinnesotaCare will continue to receive coverage, but all six months will be paid out of the Health Care Access Fund, instead of the General Fund, until enrollment in GAMC ceases.

Reduction in higher education appropriations – $100 million

The general fund operating budgets for the University of Minnesota and the Minnesota State Colleges and Universities System (MnSCU) would each be reduced $50 million for a total savings of $100 million. All reductions are proposed for the second year of the biennium. These reductions leave sufficient state spending in place to ensure compliance with federal maintenance of effort requirements created by federal stimulus legislation.

These reductions represent an approximately 3.6 percent change in total general resources (state appropriations plus tuition and fees) and an even lower percentage of total revenues for the U of M and MnSCU.

Reduction in most state agency operating budgets – $33 million

The recommendations include a reduction to most state agency operating budgets of approximately 2.25 percent. This results in a savings of $33 million for the biennium. This reduction is in addition to the approximately 5 percent reduction many, but not all, state agencies experienced as part of the recently enacted FY 2010-11 budget. Specific reductions will be identified over the next two weeks. Areas exempted from these actions include public safety, military and veterans affairs, corrections, State Operated Services and the Minnesota Sex Offender Program within the Department of Human Services.

The Governor’s Office will be included in these reductions. Other constitutional offices, the legislature, and the courts will maintain their current levels of funding.

K-12 education payment deferrals and adjustments – $1.77 billion

Beginning in FY 2010, aid payments to schools will be temporarily reduced, generating $1.17 billion in savings. The reduced portion of those payments will be deferred such that school districts will receive 73 percent of their first year entitlement that year and the remaining 27 percent in the second year.

This deferral is similar to the school aid payment deferral proposal in the Governor’s budget and the proposal passed by the legislature.

In addition, under Minnesota Statutes 123B.75, the Commissioner of Education will require school districts to recognize a portion of their levy revenues when they are received. The savings resulting from such recognition of school district property tax receipts would be implemented in FY 2011, generating state general funding savings of approximately $600 million. This will result in a one-time savings in state aid similar to the property tax recognition shift passed by the legislature last month.

In total, these changes do not reduce aid entitlements to schools.

Additional revenues through administrative actions – $169 million

Two administrative actions are also recommended. Modifying Minnesota’s income tax reciprocity agreement with Wisconsin will generate $106 million in additional revenue for the biennium. Currently, Wisconsin takes on average 17 months to reimburse Minnesota for tax losses under this program. Governor Pawlenty recently sent a letter to Governor Doyle requesting Wisconsin pay tax amounts owed to Minnesota in the same fiscal year in which the tax loss was incurred.

In addition, temporarily delaying FY 2011 capital equipment sales tax refunds for three months would generate $63 million. All refunds would be released immediately in FY 2012.

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