ST. PAUL (AP) - Gov. Tim Pawlenty's budget fix comes with a twist: In addition to spending cuts, he's proposing a statewide sales tax reduction.
The 1/8th of a percent cut to the sales tax would actually deepen Minnesota's anticipated deficit, which economic forecasters say will hit $935 million. Pawlenty, a Republican, said Friday that the sales tax cut would provide an economic stimulus and cost the state treasury $77 million over the next 16 months.
"This is a modest tax cut, but it's a step in the right direction," Pawlenty said.
His plan seeks to use $250 million from the state budget reserve and shifts another $250 million from a health care fund to cover subsidized care for disadvantaged Minnesotans.
"Nobody will be removed" from government health programs, he said. But he said a planned expansion of coverage would be canceled.
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Tax collectors would pull in $102 million more by doing away with an exemption some corporations used to shield income from overseas operations.
He said more than $340 million of the fix comes in the form of cuts. Public colleges would lose a combined $54 million, although Pawlenty cast that as a reduction in a planned increase in state money for them.
He's also seeking 4 percent reductions to most state agency budgets. He said the departments of Veterans Affairs, Military Affairs, Transportation, Public Safety and Corrections are either exempt from cuts or would see minimal reductions.
Two big pots of money are off the cutting table: allowances to schools and local governments.
Minnesota's projected deficit must be erased before the middle of next year because the state constitution requires a balanced budget. This two-year budget exceeds $34 billion.
The Legislature will consider Pawlenty's plan over the next several weeks.
Democrats said they expect committees to pore over the fine print of Pawlenty's recommendations and tease out all the implications.
"His budget is like an onion, and you've got to peel away the layers and see exactly what happens," House Majority Leader Tony Sertich said earlier Friday.
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"Sometimes the onion in the middle is a little moldy, so you've got to get all the way inside before you can figure it out," added House Speaker Margaret Anderson Kelliher.
One area of conflict could be the $338 million surplus in the Health Care Access Fund, an account funded by taxes on medical providers and health plans that pay for the MinnesotaCare program for the working poor. Pawlenty has turned to the fund before in lean budget times, and Democrats have fought back hard.
Kelliher and Clark both said they won't go along with using that money for items other than health care.
The budget plan also provides up to $40 million for a special compensation fund for victims of the Interstate 35W bridge collapse, although the governor said the final package could be smaller.
