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House and Senate Republican leaders released their 2012-13 budget targets Thursday, and the numbers, predictably, raised more questions than they answered about what state government will look like if the GOP Legislature prevails over DFL Gov. Mark Dayton in balancing a $5 billion projected deficit.

GOP budget targets ax $3.6B

 Peter Bartz-Gallagher)

House Speaker Kurt Zellers and Senate Majority Leader Amy Koch offered few details about particular cuts to the state programs that comprise the general fund budget. GOP leaders and committee chairs are working to meet a March 25 budget deadline. (Staff photos: Peter Bartz-Gallagher)

Biggest hits fall to HHS, local aid, higher ed and state government

House and Senate Republican leaders released their 2012-13 budget targets Thursday, and the numbers, predictably, raised more questions than they answered about what state government will look like if the GOP Legislature prevails over DFL Gov. Mark Dayton in balancing a $5 billion projected deficit.

GOP leaders from both chambers held state Capitol news conferences to announce their targets. As expected, they both proposed to continue the $1.4 billion school-aid shift. Both sets of targets likewise checked in at about $34.5 billion in spending for the biennium.

Their proposals differ in some significant ways, however. The single largest gap in their sector-by-sector targets is a $174 million differential in their state government spending. The chambers’ tax plans are distinct as well: The House made a previously unannounced call for tax breaks for low-income and middle-class Minnesotans, while the Senate is continuing its push to cut the state’s corporate income tax in half.

While those seemingly competing tax proposals were said to be paid for in the GOP budget, leaders offered few details about particular cuts to the multitude of state programs that comprise the general fund budget.

Deputy Senate Majority Leader Geoff Michel hastened to note that the targets don’t constitute a budget – and may even change as the process advances. They are focused on broad sectors of the budget, and the leadership generally deferred to committee chairs on more specific questions about where the cuts might fall.

“This is a heavy lift over the next couple of weeks,” Michel said.

The Senate GOP was engaged in a closed-door caucus Wednesday evening as they wrapped up the targets. The House also crammed to the point that they weren’t sure until late Wednesday whether they could release targets the following day. The GOP leaders and committee chairmen are up against a March 25 deadline to craft a budget.

But the proximity of the two chambers’ targets in many sectors may ease one part of the process later on, according to Michel. “We don’t anticipate there will be hours and days and weeks of conference committees necessary,” he said. “We are working under the assumption that, like it or not, we are married to the House. …It will be hopefully a less messy process than in the past, where you’ve had the Senate running one way and the House running another,” Michel said.

Dayton’s budget, released last month, stands in stark contrast to the direction Republican legislators take in their targets. On health and human services, the Senate and House clock in at $1.6 billion less than the $12.3 billion state finance officials have forecast based on current law for the 2012-13 budget period. Dayton’s HHS spending proposal hovers around the current law estimate.

House Majority Leader Matt Dean said the health care committee’s directive from leadership is to protect health care for the poor and elderly.

“That is a very complicated target,” Dean said. “We’re going to see implications within all health care delivery – physicians and hospitals will see this. Where we have tried to protect, and what the chair’s mission and goal will be, is to protect direct care, safety-net care and nursing homes,” Dean said.

The HHS proposal, however, concerns the Senate’s ranking DFLer on the Health and Human Services Committee, Linda Berglin. She noted that federal maintenance-of-effort requirements mean that state lawmakers’ hands are tied when it comes to a significant portion of the HHS budget.

“Maintenance of effort applies to eligibility and most services. But it doesn’t apply to how you pay for provider services,” she noted, adding that cuts to provider payments “could have a definite impact on the viability of services.”

It appears that Republican point people on HHS are trying to work with Dayton on obtaining waivers from the federal government to get permission to have greater flexibility at the state level.

“We are looking at significant Medicaid reform,” said Senate Health and Human Services Chairman David Hann. “We have met with the governor’s office at least a couple of times, and he has indicated a willingness to work with us in seeking waivers, if needed, from the federal government to help us bring about reform.”

On local aids and credits, the House spends $2.6 billion and the Senate $2.7 billion for the biennium. Those figures appear to represent cuts of $780 million in the Senate and $850 million in the House.

Both sums are considerably more than the $600 million in cuts that were rumored before the targets were unveiled. But these figures may not be of much use in assessing the eventual extent of city and county aid cuts. “I wouldn’t even necessarily characterize this number as what’s going to happen in LGA,” Senate Majority Leader Amy Koch said of the Senate aids and credits target.

That’s in part because the GOP majorities in both chambers are proposing additional tax cuts whose cumulative impact will depend on which ones ultimately pass. And they also face the prospect of enacting federal tax conformity measures that would cost the state another $300 million or more in 2012-13 revenues.

Local aid has already proven a difficult matter for the House and Senate to agree on. The issue exacerbates tensions in the caucus between suburban legislators, whose districts feel little impact from the aid, and rural legislators, whose communities often rely heavily on the assistance. In the so-called phase one budget bill earlier this session, the Senate proposed permanent LGA cuts while the House made temporary ones that apply only to 2012-13. House and Senate conferees eventually reduced the size of the LGA cuts and made them one-time.

Dayton, who didn’t cut LGA in his budget, vetoed the phase-one bill.

The House didn’t specifically name tax aids and credits on its spreadsheet as the Senate did. Instead House leaders identified the budget area simply as “Taxes.” House Speaker Kurt Zellers said the target included $300 million in tax relief for lower- and middle-income Minnesotans, an intention that he hadn’t previously mentioned.

“If you let them keep it, they will then spend it, and we will reap the rewards here at the state in our revenues,” Zellers said.

The details behind the K-12 education budget are also difficult to pin down. Without legislation drafted, it’s unknown how Republicans will make up for roughly a half-billion in federal stimulus money that the state received in it 2010-11 budget, said Sen. LeRoy Stumpf, the ranking DFLer on the Senate Education Committee.

“They have to fill that up. It doesn’t say how they do that,” Stumpf said.

Both chambers proposed deep cuts to state government, but the Senate’s targets are markedly steeper: The House would reduce current-law ’12-’13 spending of $912 million to $587 million, a 36 percent cut; the Senate proposes spending $412 million, a 55 percent reduction.

The House targets raised eyebrows with a 58 percent cut to economic development. The House’s target for economic development is $81 million, which is down from $168 million forecast for the biennium in the February forecast. House Jobs and Economic Development Finance Chairman Bob Gunther will do the heavy lifting on crafting those cuts. (The Senate proposed $103 million in economic development spending.)

House Ways and Means Chairwoman Mary Liz Holberg said she thinks some savings can be realized by consolidating economic development programs.

“It’s a tough target number. We’re in tough times,” Holberg said.

The Senate’s targets include $242 million under a category referred to by the Senate as “other/reserves.” That money, Michel said, represents Republicans’ proposed rate reduction for the corporate income tax and a reduction in the statewide property tax.

Rumors that higher education cuts would exceed $300 million proved correct. The House and Senate Republicans have set identical targets of $411 million (14 percent) in cuts, which DFL legislative leaders assailed as a recipe for tuition increases.

On a broader level, House Minority Leader Paul Thissen jumped on Republicans for accepting $34 billion worth of revenue for the biennium. Before the February forecast revised the state’s revenues upward, Republicans insisted on $32 billion.

“Apparently, ‘living within our means’ is not as easy as the Republicans made it seem to Minnesotans on the campaign trail,” Thissen said. “Republicans promised Minnesotans that $32 billion was more than enough to balance the budget and that it could be done holding schoolchildren, seniors and the disabled harmless. [The] release of Republican budget targets proves that the magic act Republicans promised Minnesotans is running into hard reality. The $32 billion that was enough a week ago is now more than $34 billion.”

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