In St. Paul, capitol crowd braces for wild budget ride

State lawmakers are bracing for an economic forecast on Tuesday likely to reveal a staggering budget shortfall approaching $6 billion or even $7 billion over two years.

The state already was reeling from the $4.8 billion deficit projected in November's forecast. Since then, the economy has tumbled, with state unemployment rocketing to 7.6 percent last week.

"This is not a roller coaster we're on, it's a corkscrew or one of those crazy upside-down rides where everybody gets sick," said House Speaker Margaret Anderson Kelliher, DFL-Minneapolis. "I hate rides, and I really hate this one."

If legislators are feeling woozy, the main symptom so far has been a sort of paralysis that has gripped the State Capitol. Two months into the legislative session, just five bills have passed, and an alternative to Gov. Tim Pawlenty's budget proposal, which would slash state spending by $2 billion, has yet to emerge.

Starting this week, the ride will accelerate. The Legislature and Pawlenty have just 11 weeks to fix the budget mess before the legally required May 19 adjournment.

"Waiting at the mailbox for the check from the feds is not a budget plan," said Sen. Geoff Michel, R-Edina, who complains that Republican cost-cutting proposals, such as selling state property, freezing public employee pay and ending political contribution refunds, have fallen on deaf ears.

But DFLers, who control the House and Senate, say they have been forced to await two crucial pieces of information: Tuesday's forecast, which historically sets the framework for budget talks, and details of a federal stimulus package that could send anywhere from $4.5 billion to $9 billion rushing through every federally funded program in the state.

In the two weeks since the stimulus bill passed, finer points of the plan continue to emerge, bedeviling state number-crunchers.

Details such as: How much of the stimulus money can they count in the forecast? Answer: Less than $2 billion. Or: Will strings attached to federal health care dollars prevent cuts in state spending? Latest answer: No, but the cuts would be delayed until the federal money runs out in 2011.

"We're still trying to untie this thing, see where all the pieces fit," said state Budget Director Jim Schowalter.

Kelliher said legislators typically don't present an alternative budget to the governor this early.

"It would be particularly irresponsible to present a budget that we knew would be obsolete as soon as we got these [new] numbers," she said. Kelliher said a DFL budget proposal will take shape by mid-April. By the middle of this month, Pawlenty will present a revised budget proposal.

What everyone acknowledges is that federal help alone will not solve Minnesota's budget problem, which will extend far past the day the stimulus money runs out.

Minnesota Management and Budget Commissioner Tom Hanson said Tuesday's forecast will be one of the most complicated ever presented.

And while the stimulus could serve to drive down the state's deficit, a nosediving economy could bump it right back up, essentially leaving the state where it started. Economists predict little or no recovery until late 2009 or early 2010, Hanson said, and the federal money runs out in 2011.

"This may not be our last painful forecast," Hanson said.

Dismal choices

Legislators have spent nearly two months asking Minnesotans to "bring their ideas" to the Capitol.

Instead, Senate Taxes Chairman Tom Bakk, DFL-Cook, and others have witnessed a parade of supplicants whose most common refrains are: "don't cut my programs" and "don't raise my taxes."

In the end, Bakk said, no matter the outcry, legislators will have to do both or deal with a larger problem three or four years down the line.

Among the tax possibilities: a fourth-tier individual income-tax rate aimed at the wealthiest Minnesotans; a 10 percent surcharge on all individual income taxes; a temporary sales-tax increase and applying the sales tax to clothing or services.

On spending, Bakk said, the fight is shifting to whether to make across-the-board cuts or protect some favored areas, such as K-12 schools and veterans programs. Pawlenty has promised to shield both, but DFL Senate leaders are lining up to challenge him, in the process taking on what has been one of their baseline constituencies: schools.

Bakk, along with Senate Majority Leader Larry Pogemiller, DFL-Minneapolis, and Senate Finance Chairman Dick Cohen, DFL-St. Paul, say that an across-the-board cut of 6 percent would nick everyone hard, including schools, but would spare any one program from catastrophic cuts.

That plan would leave DFLers with the politically improbable task of cutting school funds at the same time they propose raising taxes -- a feat that House Minority Leader Marty Seifert, R-Marshall, doubts they can pull off.

"Democrats have to think about this," Seifert said. "Are they going to raise the cigarette tax on top of the 61 cents a pack the feds just raised? Is the state going to raise the income tax on the wealthy on top of the federal increase? Obama is making it harder for them to put a responsible budget together because he's closing off their options."

The budget's 'Big 3 and 3'

As complex as the state's $37 billion budget is, there are a few simple truths about it. Hanson calls them "The Big 3 and 3."

On the spending side, 85 percent of the budget goes to just three items: health care, education and local government aid.

On the revenue side, 85 percent is raised by just three taxes: individual income, sales and corporate.

Pawlenty's budget taps just two of the six areas, with deep cuts to health care and local aid. He also would halve corporate taxes, which he says would stimulate growth, but which also cuts deeper into revenue.

Kelliher said that Minnesotans may be ahead of legislators on the need for shared sacrifice. The question is how much.

"We'll know that on Tuesday," she said, "and I have a feeling that when we find out, we'll all be feeling a little ill in the bottom of our stomachs."

Patricia Lopez • 651-222-1288