2009 Session Overview: Budget
The 2009 Legislative Session will be best remembered for the largest-in-state-history budget deficit. The February forecast revealed the size of the budget deficit that would have to be resolved before the May 18th constitutional adjournment of the legislature.
The forecast predicted a $6.4 billion dollar gap between what the state is scheduled to spend and what it will collect over the next biennium. The federal American Recovery and Reinvestment Act of 2009, better know as the federal stimulus, filled $1.8 billion of that gap, leaving $4.57 billion that needed to be addressed.
Legislative leaders in the House and the Senate immediately declared that all options would be on the table, including ongoing revenue increases. The Governor reiterated his long standing position that any new tax increases sent by the legislature would immediately be vetoed.
The Governor’s supplemental budget proposal included a total of $32.6 billion in state spending for the FY 2010-2011 biennium. The central piece of the Governor’s budget proposal was to borrow over $1 billion through an appropriation bond. In addition, he proposed $1.3 billion in K-12 shifts and $820 million transfer from the Healthcare Access Fund to the General Fund.
Senate Democrats proposed an across the board 7% cut in all areas of state funding, including K-12 education for a total of $1.7 billion in cuts and $2 billion in tax increases which included a income tax increase on all brackets and the creation of a 4th tier income tax and a surtax on lenders’ interest income over 15%.
In their plan, House Democrats held early childhood through higher education harmless, made $1.6 billion in spending cuts and $1.5 billion in tax increases comprised of a 4th tier income tax, increases in alcohol and tobacco taxes, and some reforms to make the tax system more progressive and transparent, resulting in the elimination of business subsidies and tax expenditures.
Most provisions from the House and Senate plans never emerged from conference committee.
End of Session Negotiations
The House and Senate leadership opposed the Governor’s appropriation bonds (also referred to as the tobacco bonds) stating the need not to borrow and spend, but to create a permanent revenue source to address the state’s current and future needs. Offering the Governor another option to fill the revenue needs, the House and Senate passed HF885, raising just under $1 billion by creating a 4th tier income bracket at 9% for those earning over $250,000 for join filers, increasing the alcohol tax, and putting a surcharge on lenders that charge their customers more than 15% in interest charges.
The Governor vetoed the bill and an override attempt by the House was unsuccessful.
After the Governor again sent the clear message to the House and Senate that a tax increase was not going to be considered, negotiations between the legislative leaders and the Governor stalled. Legislative leaders maintained that while 5/6th of the budget problem could be addressed through federal stimulus dollars, cuts, and shifts, the remaining 1/6th would have to be filled by permanent ongoing revenue in order to stabilize future state budgets.
On Thursday May 14th, four days before the constitutional deadline of May 18th, Governor Pawlenty revealed what may be considered by many to be the “nuclear option.” He outlined a plan to use executive action to balance the state budget using his line item veto authority as he signed every budget bill sent by the legislature and would wait until July 1st, 2009 to use his “unallotment” authority to make budget shifts and reduce spending during the biennium.
The Governor’s first action was to veto $381.1 million in General Assistance Medical Care (GAMC) funding in FY2011. The GAMC program provides healthcare services for uninsured childless Minnesota adults with incomes of less that $8,000 annually. DHS Commissioner Carl Ludeman characterized these Minnesotans as the “sickest and poorest among us.”
By Saturday, May 16th legislative leaders countered with an offer to close the remaining $2.7 billion gap after the GAMC line-item veto. Their offer included $1.775 million in the K-12 shift, reductions to local aids and credits totaling $120 million, permanent revenue of $986 million, increasing efficiency in government to capture $169 million and a reduction of spending from their previous spending bills of $52 million and a restoration of GAMC.
The Governor countered with an agreement on the education shift but rejected the revenue increase and insisted on greater cuts in the areas of higher education, local aids and credits, and health and human services.
With a negotiated budget out of reach, the House and Senate passed the remainder of their global budget proposal – the Omnibus tax bill – off each floor in the last 15 dramatic minutes of the legislative session. The veto of the bill was predetermined, leaving a $2.7 billion gap in the budget unresolved as the legislature ran up to its midnight deadline on May 18th.
Unallotment
Unallotment has been used only four times in the state’s history. Two of those unallotments were done by Governor Pawlenty -- $271 million in reductions this year and $281 million in 2003.
Governors Quie and Perpich each used the authority once during their terms in the 1980s for $195 million and $109 million respectively.
A nearly $3 billion unallotment would be the largest in state history by more than 10 fold.
If you have questions, please contact a member of the Government Relations Group.