In grim forecast, Minnesota predicts $4.56 billion deficit

Bruininks rallies support for University legislative budget requests

The Minnesota Daily

Republican Gov.-elect Tim Pawlenty found out Wednesday just how grim the state budget actually is when state finance officials released their latest fiscal forecast.

The new projected deficit is more than $4.56 billion over the next two years – a stark contrast to the $3.3 billion surplus Gov. Jesse Ventura had entering the office four years ago – which might leave the University’s budget requests in peril.

House State Government Finance Committee Chairman Bill Haas, R-Champlin, said the University will likely see even less money than anticipated.

“I assume there is going to be higher tuition for the students Ö but to raise income tax on them or sales tax would hurt a lot more,” Haas said, adding that budget cuts will not be as bad as some fear if services are restructured.

University President Robert Bruininks responded to the forecast at a meeting with University faculty and staff Wednesday, rallying support for the school’s operating and supplemental legislative budget requests.

“This is the toughest set of circumstances in my lifetime at the University,” Bruininks said. “The deficit is larger than people anticipated.”

Bruininks said he is quite certain tuition will increase more than the 4.5 percent increase scheduled for next year if the University does not receive its requested funds.

“We made cuts creatively,” he said. “It will be very difficult to keep doing that. We can only do so much with creativity. We have to keep the University going.”

Donna Peterson, assistant vice president for government relations, agreed with Bruininks’ response to the severity of the budget deficit.

“We’ve known all along there was a deficit looming,” she said. “We just didn’t know what level it would be. This is far more devastating Ö than 10 years ago.”

House Majority Leader Eric Paulsen, R-Eden Prairie, said he stands behind Pawlenty’s pledge to not raise taxes.

“The House Republican caucus is not going to impose Ö increased taxes,” Paulsen said. “Any one of those (tax increases) would erase the budget deficit Ö but it wouldn’t solve the problem.”

In a written statement, Pawlenty outlines his budget crisis solution, which includes restraining any anticipated growth, large spending cuts and utilizing proceeds from the state’s tobacco lawsuit settlement to compensate for the shortfall.

Pawlenty could not be reached for comment Wednesday.

Senate State Budget Division Chairwoman Jane Ranum, DFL-Minneapolis, said the tobacco endowments would not nearly cover budget shortfalls.

“With the recession, the tobacco endowments are also going down,” Ranum said. “Even if he used all the tobacco endowments, it wouldn’t come close to enough.

“(Pawlenty) is tying our hands behind our backs,” Ranum said. “What he’s doing to our education in Minnesota and the quality of life in Minnesota is mind-boggling. He’s saying the state won’t (raise taxes), but property taxes will continue to skyrocket.”

Another forecast will be released in February, but many legislators doubt the next one will be much different.

“This budget is not a pessimistic forecast,” Ranum said. “What happens if we go to war, or if there is another terrorist attack?”

The Legislature also forbade the finance committees from figuring in the expected 2.5 percent inflation rate into the $4.56 million deficit.

Senate Finance Committee Chairman Dick Cohen, DFL-St. Paul, said the enormous deficit left him reeling and unsure of where cuts would be made.

“We had hoped we could stay away from cuts for the 2002-03, but Ö the size of the problem was greater than we anticipated and it exacerbated the problem,” he said.

“If we just rely on cuts, when you look at where the pots of money are, you are going to see cuts in education and cuts in social services,” Ranum said.

The Minnesota Department of Finance handout stated there have been shortfalls in five of the last 11 biennial reports, not all of which have come to fruition.

This type of economic forecast is usually done twice a year to gauge how revenue and spending are matching up.

Pawlenty must submit his final 2004-05 budget draft by the end of February, but Haas said the February numbers will give the final idea of how much money the state has to work with. Despite the deficit, the state is still ranked in the top 10 nationwide for financial management.

Minnesota is not the only state facing large deficits. California is $21 billion shy from even, and Wisconsin is coming up $2.6 billion short.

Ventura’s response

gov. Ventura said Wednesday he warned the state about the worsening deficit and tried to solve it during last spring’s legislative session.

“I wasn’t overly surprised, because I’d warned you for over a year,” he said.

Ventura said the Legislature’s budget plan last spring left the state without the cash reserves it used during the 1991 shortfall.

“They bought themselves six months, eight months’ time – through an election, I guess,” he said.

Ventura said he was pleased Pawlenty is holding to his promise not to raise taxes, but he said he has not conferred with the governor-elect about the deficit report and does not plan to be involved in the next legislative session.

“I’m not going to interfere with the new administration or the new Legislature,” he said.

Ventura also said his tax rebate plan, enacted early in his term, was a good decision.

“What we did with the rebates is we instilled another $2.6 billion back into the economy,” he said. “I’m certain that had the rebates not been given back, that money would have been spent.”

Ventura said higher education is among the largest recipients of state funds, which he predicted would seek more money during the next legislative session.

“I find it hard to believe that K-12, higher education and the insurance we pay will stay status quo,” he said. “These people consider holding zero a cut.”

Richard Pfutzenreuter, the University’s chief financial officer, said the deficit is “a little dark cloud hanging over every conversation and every corridor at the state Capitol,” but he said the University would probably get some capital projects funded.

“Does (the deficit) make our capital request harder? I’d say yes, but I believe they are going to do some capital spending, and we have a good shot at some of those projects,” he said.

Bruininks said the University will still push for extra building and renovation funding, which Ventura vetoed last year.

“It’s a good time for the state to do (those projects) because the interest rates are low, and construction jobs would be a good shot in the arm for the state’s economy,” Bruininks said.

Pfutzenreuter said the University still has a responsibility to tell the Legislature what it needs, and he said Pawlenty and state lawmakers would give the University a fair hearing.

“I think what we would argue is to do the least amount of permanent damage to the University and to education in general,” he said. “You’ve got to be careful not to whack us so hard that you really jeopardize the future of the state.”

Reporters Libby George, Nathan Hall, Andrew Pritchard, Seth Rowe and Brad Unangst contributed to this report.