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Minnesota faces the mother of all deficits

Fri, Dec 6th, 2002
Posted in Features

The latest revenue forecast from the State of Minnesota projects a $4.6 billion deficit. Journal Editor John Torgrimson spoke with State Representative Greg Davids about his reaction to that news and how he sees the state legislature working to solve the states financial problems. In 1991, Davids was in the legislature when the state faced a $1.8 billion deficit out of a budget base of $14 billion. Governor-elect Tim Pawlenty faces a $4.6 billion deficit out of a budget base of $28 billion. And with his pledge of no new taxes, the Pawlenty Administration will have to come up with creative ways to balance the budget. A summary of Torgrimsons interview with Representative Davids follows:

Journal: With the latest revenue forecast, it looks like the state of Minnesota has a $4.6 billion deficit. Whats your initial reaction to this?Davids: I was very surprised that it was that high. I had anticipated about a $3 billion deficit; $4.6 billion is a staggering amount. What has happened here, and there are several drivers, the stock market went from 11,000 to about 8,000. What that means is that as we go toward the end of the year where we should be getting money in on capital gains for sales of assets, sales of stocks and businesses - their values are less now and we are collecting less. So that is one driver. Another driver thats putting us down is health care costs. We have fixed health care costs; we are going to take care of people that cant pay that are in nursing homes and hospitals and thats over $500 million more than we had budgeted for.So the two big drivers are the stock market going down, and health care costs are simply out of control.To look at the bright side, if there is a bright side; what this is going to allow the legislature and the governors office to do is to be able to analyze what we are spending our money on and finding out if we are getting good value for that dollar. Journal: What do you think the governor is going to do?Davids: Governor-elect Paw-lenty has made a pledge that there be no new taxes. They have a couple months to put a budget together. I think he has surrounded himself early with the best and the brightest. I think his new Finance Director, Dan McElroy is extremely capable and they have a mission to put this deal together without raising taxes. It is the governors office to present us with a budget and the legislatures job - we say the governor proposes, the legislatures disposes - so we will take a very close look at it. Both Republicans and Democrats will be very open to what he has to say because it is a problem for all of us. Its a very huge deficit to try and get our hands around. And of course, I didnt sign any no new tax pledges because I wanted to be able to see what needed to be done. Journal: During your campaign you said that, in the face of the deficit, you would continue to support K-12 Education, Nursing Homes and Local Government Aid (LGA). Has anything changed?Davids: I am a very strong supporter of our K-12 schools, I dont want to see cuts in K-12. I dont want to see cuts in Nursing Homes or LGAs. Now if we start cutting local government aids, in my mind thats a direct tax increase because if we cut the city of Spring Valley, or the city of Preston, or any of the cities down here, they have already fine-tuned their budgets as close to the bone as they can, so if the state shifts some of the burden on them, they are going to have to raise property taxes.Journal: So if the state cuts LGAs, it is the same as raising taxes because it creates a reactionary shift of burden?Davids: We have two huge problems here. One problem is if we cut LGAs this late in the year, they dont have the time to get other monies quick enough. The other huge problem is we have levy limits in place so they couldnt raise them high enough if they wanted to.So, if they are going to cut LGAs, which I do not favor, but if they would, we would have to get rid of the caps. We would have to get rid of the levy limits. If there are cuts, I will be the first one to have an editorial in every paper in this district, saying that the mayor, or the city council, or the township officer, or the county commissioners didnt do this, the legislature did.We didnt come through with what we said we would come through with, the moneys not there, and they shouldnt have to take the heat for it. I should have to.Journal: Governor-elect Pawlenty said that he wants to protect K-12. What percentage of the budget is this?Davids: I think if you take K-12 and Higher Education, I think you are just short of half the budget. Its huge. So, to take that off the table and not raising taxes - I dont know. I am excited about Tim Pawlenty being governor. I am going to withhold judgement and see what they are proposing to do and this is where party designations are thrown out the window. Journal: How creative do you think the new governor is going to have to get in balancing the budget? What about bonding?Davids: I think bonding will be one of the solutions because anything that we can shift over to bonds and not raise taxes will help. And bonds are at very low interest rates; now is the time to bond.It is going to be a great debate. To solve the budget deficits from last year, we did the shifts, we took the surplus. I think if I was banking on being a part of Tobacco Endowment money, I would look for a new job right now. I would say before anyone is going to vote to raise taxes or cut K-12, Nursing Homes or LGAs, theyre going to go after Tobacco Endowment money. Journal: I have heard it said that if LGAs are cut, that local units of government will challenge being forced to take state mandates, possibly in the courts.Davids: Right. Thats a very real possibility. But when I meet with county boards or the cities, and we hear mandates, mandates, I always tell them, Well, give me a list that you want to get rid of and I havent got a list yet. I was a local elected official. I was the mayor. When the state told me to do something, I didnt like it. In some cases, it comes through Health and Human Services, which is usually pass through money. One area that would really help the state budget is if the federal government would come through with what they had promised to give us for Special Education. That was one thing that the late Senator Paul Wellstone had worked hard on and was never able to accomplish. We were suppose to get 35% to 40% of our Special Education taken care of because they are mandated by Federal Law. We are getting 7% to 8%.If they would live up to what they said theyd pay us there, you are talking hundreds of millions of dollars.You have to look at all the pieces of the puzzle to close this gap, but that would help a lot.Journal: Do you have any thoughts on how this will all play out in the end? Any crystal balling?Davids: I want to give the governor-elect a chance. I still have my three areas that I am trying to protect or hold harmless. But we are not going to be able to hold harmless if there is no way to raise taxes. You look at possibly the Mall of America putting a sales tax on clothing. People coming from all over the world, this would raise $40 to $50 million doing that. But should we tax clothing? And then are you going to have any new tax vetoed, so do you have the votes to override?Governor Pawlenty is a smart individual, hes not going to be making comments about not raising taxes unless he has some plan to make this work.Journal: This sounds like a bad year for new things like stadiums? Davids: (laughs) I havent voted for a stadium bill yet, even those milk toast bills that have been out there that someone could have voted for. I told them I would vote for a stadium when they decided to build it in Fillmore County. It is going to be a bad year for any increased spending. Especially, just the appearance of bailing out millionaire ballplayers and billionaire owners when they are looking at cutting the classroom, grandma and grandpa in the nursing home, and cutting our local small towns. Itll get no attention from me at all. The time to do that would have probably been in the upswing of the 90s.Another misconception people have been calling me on. They say, well, you shouldnt have sent that money back in the rebates. Well, that seems to make sense, but two points:That money that was sent back in checks of $250 to $1,000, whatever it was, every body spent it. It went through the economy seven times and we got that money back. Number one. Two, the most devastating thing had we not done that is we (state) would have spent it. That would be in the budget, and we would have a higher base to sustain now. And we would be in worse shape had we not sent that money back. When you think about it your first reaction is Well, if you hadnt sent that $800 million back! the debt would be this much less. No, the debt would be that much more.Journal: Do you see government shrinking in the state of Minnesota over the next few years? Do you see the move toward privatization of certain services?Davids: I think that one way the governor-elect might go is to cut the state budget and not to have to raise taxes by privatizing certain services. I also want to be clear on this whole budget, this is such a huge issue. This is not just Minnesota. The majority of states are all in the same boat. For example, in California the Democratic governor is planning on cutting education $5 billion. This will cause one of the greatest debates weve ever had. This is the mother of all deficits, the biggest deficit weve ever had. Were just going to have to take the bulls by the horn and work it through. On each issue youll find interesting coalitions develop. I might be hand in hand with my neighbor from downtown Minneapolis and St. Paul on LGAs. Ill be against my good friends in the suburbs on LGAs. Its issue by issue, and youll have different folks that you will work with on each issue. Journal: Are there going to be any winners in this process?Davids: Well, the taxpayer, the taxpayer is going to win. Some people say that its not that we are taxed too little, its that state government spends too much. Youve seen that, and thats why we are in the situation we are in. Its going to be a fascinating debate. Keep in mind that about 1/3 of the legislature is brand new. Its going to be a huge problem for them; theyre going to be wondering Why did I run. Ive been through two of these before (deficits). So it is going to be very interesting how new legislators handle this.The other issue is its actually easier to function as a legislator when you have deficits, because you dont have all these groups coming up to you demanding things. They are not playing offense, everyone right now is in a defensive mode - protect my program. I too want to protect my programs - K-12, Nursing Homes, LGAs.Journal: Any final thoughts?Davids: We are in for interesting times and I am excited to get into it. I said before the campaign, when we thought it was a $3 billion deficit projected, that this is going to be the meanest, ugliest, roughest, rottenest session ever in the history of Minnesota state politics. I cant wait to get into the middle of it.The good thing about the situation we are in is we are going to re-evaluate who we are, what should state government be doing for the citizens of this state, and what price should we pay. Its like a whole new ballgame. Its like the books are all opened up, here it is, and what are we going to do.

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