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Pawlenty considers new local aid cut

Gov. Tim Pawlenty says the $1.2 billion deficit reported Wednesday in the current two-year state budget can be solved. He said he wants to work on it with lawmakers, but prefers to plug the gap with budget cuts. Pioneer Photo/Don Davis

ST. PAUL -- Gov. Tim Pawlenty may target local governments as he looks for ways to plug continued budget deficits.

Shortly after his aides announced that the current budget contains a $1.2 billion hole and the next two-year budget is $5.4 billion short, Pawlenty on Wednesday said his first action could be chopping a state payment due to local governments later this month. Then he complained that school districts appear to be giving raises to employees after he asked them to freeze wages.

A year ago, Pawlenty cut $110 million from payments due cities and counties, $73 million from human services programs, $40 million from colleges and $40 million from various state agencies.

For the two-year budget that started July 1, he already has cut $2.7 billion from state spending on his own since the Legislature adjourned in May and now is looking at what to do to solve the new budget crisis.

"Whether we do it at all is yet to be decided," he said of the $400 million payment cities and counties are to receive in late December.

The governor said he hopes to work with legislative leaders, but said the only plan he is considering to balance the budget is making cuts.

Democratic legislative leaders said on Wednesday they have not decided how they will approach the deficit, but left the door open to higher taxes.

Wednesday's budget report, one of two each year, sets the stage for battles during the upcoming legislative session, which begins Feb. 4, much like Minnesotans have witnessed in recent years: The governor emphasizes cutting government and Democrats who control the Legislature want tax increases in the mix.

The deficit announcement came as no surprise, but no state leader offered a specific plan about how to deal with it.

The current deficit is 3.7 percent of the state budget.

State Finance Commissioner Tom Hanson blamed a weak economy and said the recovery will be long, meaning the state will face budget problems for some time.

"The projected deficit certainly is significant," Pawlenty said, "but it is solvable."

The governor said all states other than North Dakota and Montana are facing similar problems.

"We will do everything we can to make sure Minnesota grows out of this crisis quickly," he added.

City leaders were furious at Pawlenty's comments that he may consider cutting their aid again.

"Communities are repeatedly targeted for cuts, yet the state's long-term structural budget problems persist," Wadena Mayor Wayne Wolden said on behalf of the Coalition of Greater Minnesota Cities. "This news couldn't come at a worse time for Minnesota cities. The result of additional cuts to LGA ... will mean that Minnesota families will see even higher property taxes and deeper cuts to police, fire and winter snow plowing."

Wolden called for Pawlenty and lawmakers to "show some backbone" and solve the problem. "Minnesotans have had it with the lack of leadership at the Capitol."

If he cuts state payments to cities, Executive Director Jim Miller of the League of Minnesota Cities said that the consequences will be dire.

"We certainly have been called upon for more than our share," Miller said.

Senate Taxes Chairman Tom Bakk, DFL-Cook, plans to hold a Dec. 18 hearing in which he will solicit comments about how aid cuts could hurt local governments. He credited a similar hearing he held last year with convincing Pawlenty to maintain aid to small cities.

The governor was upset that school districts appear to be giving raises after he asked them to freeze salaries. He said he will investigate.

In the past, Pawlenty has tried to avoid making cuts to schools, but he obviously was upset upon hearing reports of pay raises.

The governor already has told his agency heads to hold back 3 percent of their budgets. Rep. Loren Solberg, DFL-Grand Rapids, said that would save just $120 million.

Senate Majority Leader Larry Pogemiller, DFL-Minneapolis, said that while the $1.2 billion shortfall is bad enough, he wants to concentrate on how to fix the $5.4 billion deficit for 2012 and 2013. While Pawlenty said it is a spending problem, Pogemiller disagreed.

"This is a revenue problem," the senator said. "We have reduced spending significantly."

But Pogemiller said that "we are not that far along" to say if his party supports a tax increase.

Both parties said that new jobs are vital to the state's recovery.

"We have to goose up the job strategy for the state," Pogemiller said, strongly hinting that Economic Development Commissioner Dan McElroy has to go.

Republicans called for reduced business taxes as a way to encourage them to hire more Minnesotans.

Senate Minority Leader Dave Senjem, R-Rochester, summed up the controversy: "You live within your means or you raise taxes."

The biggest problem finance officials reported was a $1 billion drop in revenues, mostly due to lower individual income tax collections. Sales and corporate taxes were about what they expected earlier in the year.

Pawlenty this summer cut $2.7 billion out of the two-year budget that began on July 1, leaving the state to spend less than $32 billion.

A leader of one of the state's major labor unions, the Minnesota Association of Professional Employees, said there are ways to trim the state budget that have not been tackled.

"Last May, MAPE outlined millions of dollars in waste that included out-of-state travel, uncollected revenue and the Pawlenty administration's bloated management," union Executive Director Jim Monroe said. "The result of MAPE shining the light on certain administration practices was $10 million trimmed from out-of-state travel and the Department of Revenue stepping up collection efforts on money owed to our state. These are positive steps, but more action is needed to cut waste to preserve vital services for Minnesotans."

Monroe asked that Pawlenty "put your presidential aspirations on hold, focus on the job you were elected to perform, sit down with us and work together to resolve the state's ongoing economic crisis."

Don Davis works for Forum Communications Co., which owns the Bemidji Pioneer.