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January 31, 2003

Budget talks focus on size of surplus left after cuts

David Phelps
Star Tribune

Published Jan. 31, 2003

House and Senate conferees assigned to solve Minnesota's immediate budget crisis sparred Thursday night over the size of a surplus that should be left once a $356 million deficit is erased, and they raised the specter of letting Gov. Tim Pawlenty do all of the budget-cutting himself.

If Pawlenty were given the task of eliminating the deficit through a process called unallotment, he would have virtually no reserve at all, said Senate Finance Committee Chairman Dick Cohen, DFL-St. Paul. Cohen noted that the state Constitution gives the governor the right only to fix a deficit, not to create a reserve.

"We'll be worse off because we won't have that money in reserve," Cohen said.

The Senate has proposed a $52 million reserve in its package for eliminating the deficit projected through June 30. The House and the governor want surpluses of $136 million.

But House Finance Committee Chairman Jim Knoblach, R-St. Cloud, said the prospect of war with Iraq clouds the economic landscape for everyone.

"If you look at the risks out there, it would be irresponsible not to be looking at very significant reserves," Knoblach said.

Without a reserve, said Rep. William Kuisle, R-Rochester, Pawlenty would be forced to cut into programs that otherwise would be spared, such as K-12 education. "It wouldn't be just ethanol," Kuisle said, referring to Pawlenty's proposal to strip $27 million worth of ethanol subsidies from the budget.

Senate DFLers say the Republican governor and the Republican-controlled House have too many permanent cuts in their respective $468 million proposals without fully understanding the implications of the cuts. Republicans contend that DFLers shift too many spending items from fiscal 2003 until 2004 and don't make enough permanent cuts in their $384 million proposal.

The conference committee has until the end of next week to reach a compromise before Pawlenty will begin unallotting.

In addition to the short-term deficit, the state faces a projected deficit of $4.2 billion for fiscal years 2004-05.

Word on job outlook

Also on Thursday, Minnesota's employment research director painted a lukewarm picture of the state's chances for economic recovery through job expansion.

Jay Mousa, research and statistics director for the Minnesota Department of Economic Security, told the Senate Jobs, Housing and Community Development Committee that the job outlook for 2003 "is not rosy."

Mousa also said the median wage for job openings that do come on the market is $9.50 an hour, compared with $16 an hour for about 38,000 manufacturing jobs lost in the state over the past four years.

"The jobs we are creating in the current environment are on the low end," Mousa said.

He told senators the main demands at the moment are in health care and retail sales, with the demand for health care workers accounting for more than 1 in 5 of the 55,000 job openings in Minnesota at the end of 2002.

The state's short-term unemployment rate will probably increase this year, Mousa said, and wage growth will be slow. But layoffs will decline and some jobs may be added in the second half of the year, he said.

However, a war with Iraq would "have a significant impact on the economic outlook," Mousa said.

Over the next decade, prospects for economic recovery appear stronger, Mousa said, and job growth will outpace the number of workers as population growth slows.

 

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