Share

Governor Wants More City Cuts, Hints at More Unallotment

The session tone quickly sours as the governor and legislators point fingers.
(Published May 5, 2010)

On May 4, Gov. Pawlenty held a news conference to announce the outline of his plan to end the 2010 legislative session and balance the remaining state budget deficit. The rough plan is focused on the uncertainty of additional $408 million in federal funding for Medicaid and includes a third round of deep cuts to cities for the 2010 calendar year that could be as high as $102.5 million.

The governor also announced that if the Legislature does not finish the budget-balancing work, he would possibly use unallotment to balance the budget himself.

The governor’s plan is largely based on his original supplemental budget recommendations, which were unveiled in February. That plan included $125 million in cuts to cities for 2010. However, the plan now includes an additional but unspecified cut of $30 million to local aid programs, which will also impact cities and possibly counties.

The League has not been able to receive clarification on whether all of the $30 million would be cut entirely from city programs or whether the cuts would be split with other local units of government.

Although the governor has signed into law the first phase of the supplemental budget that includes cuts to cities, the new law did not include the governor’s supplemental recommendations. Instead, the first supplemental budget bill cut city aid and credit payments for the remainder of 2010 by $52.5 million.

Impact on cities
Please note that the plan Gov. Pawlenty released on May 4 contained few details, but League staff believe that the following analysis is an accurate accounting of how the revised plan will impact cities:

  • Governor’s February proposed cut: $125 million
  • Additional May 4 proposed cut: $15 million to $30 million
  • Less already enacted Phase-One supplemental cuts: -52.5 million
  • Balance (additional proposed cut to cities): $87.5 million to $102.5 million

Keep in mind, as noted previously, the League has not received information from the administration on whether the additional May 4 proposed cut would be made entirely from city aid and credit programs or if it will be split between other local units of government. If the reduction is allocated to counties or townships, the impact on cities would be reduced.

Add this to 2010 cuts already made
These proposed cuts would be in addition to the $128 million in 2010 unallotments enacted by the governor, and the $52.5 million in additional cuts enacted in the first supplemental budget bill. With these proposed cuts, the total city reduction in 2010 local government aid (LGA) and market value homestead credit (MVHC) reimbursements would be as high as $283 million, which represents 45 percent of the total original appropriation to cities for 2010.

Overall 2010 impact of cuts to cities (including the new proposed cuts announced on May 4):

  • 2010 unallotment reductions: $128 million
  • 2010 supplemental budget cuts: $52.5 million
  • Governor’s additional proposed 2010 cuts: $87.5 million to $102.5 million
  • Total 2010 cuts to cities: $268 million to $283 million

Legislature needs a Plan B before adjourning
The other surprise in the governor’s announcement was his insistence that the Legislature not leave St. Paul on May 17 without a balanced budget that does not rely on the yet-to-be-approved federal Medicaid funds. Legislators and even the governor have been structuring their respective supplemental budget recommendations in anticipation of the receipt of the additional federal Medicaid payment.

Unfortunately, the legislation that contains the extension of the stimulus funding has stalled in Congress and is not expected to be passed until after the Legislature adjourns. The League has communicated with the Minnesota congressional delegation on the issue and urged them to seek passage of HR 4213 as soon as possible.

The governor’s May 4 press conference is the outgrowth of a hearing held last week of the Legislative Commission on Planning and Fiscal Policy Subcommittee on a Balanced Budget. At that hearing, legislators and Management and Budget Commissioner Tom Hanson discussed the uncertainty of congressional action on legislation that would extend by six months the increased federal contribution to the cost of Medicaid.

At the conclusion of that hearing, Senate Majority Leader Larry Pogemiller (DFL-Minneapolis) asked Commissioner Hanson for the governor’s recommendations on addressing the uncertainty with the pending federal funding. The May 4 press conference was held to announce the governor’s proposal.

Contingency plan would need agreement
Based on discussions League staff had after the press conference, legislators appear to be angling for a contingent supplemental budget that would include $408 million in additional cuts that would take effect if Congress does not act on the Medicaid extension. However, that bill would need the approval of the governor and, based on the tone of the governor’s press conference, an agreement may be difficult to reach.

Read the current issue of the Cities Bulletin