Governor's revised budget proposal has a few big changes

This morning we posed some questions to consider when the Governor released his budget today. As usual, we end up with more questions than answers. (You can view the Governor’s press release, his letter to legislators,  the revised budget plan for FY 2010-11 and the budget plan for FY 2012-13.)

At first glance, the Governor’s budget appears to be a house of cards in the face of a real long-term economic crisis. His revised budget appears to utilize all the major sources of federal stimulus funding, relies very heavily on one-time solutions for solving the FY 2010-11 deficit, only recommends a few (but important) changes to his original spending reductions, and presents an unrealistic plan for solving the FY 2012-13 deficit.

Federal stimulus. Remember, the most significant stream of funding from the federal stimulus package comes in the form of increasing the rate the federal government matches state Medicaid spending (from 50% of costs to about 60% of costs). The Governor’s revised budget proposal apparently relies on all $1.8 billion in increased Medicaid matching funds – an estimate which is based on current law levels of Medicaid spending. To meet the strings that are attached to triggering that extra federal funding, the Governor delays cuts in eligibility for Medical Assistance and MinnesotaCare for parents (those cuts would be pushed out to January 2011). However, most of the other cuts in health care spending that he proposed in January are still in his revised budget. These changes are allowed by the federal stimulus bill, but they decrease the level of state Medicaid spending. So, as Senator Linda Berglin has repeatedly pointed out, that means we will not be able to draw down the full $1.8 billion in matching federal funds. To put it simply, if we cut state Medicaid spending, we will lose some of those federal matching dollars. The Governor’s budget does not appear to recognize that reality.

In education, the Governor uses the federal stimulus dollars to enhance the increase in K-12 funding – increasing it $27 million more than the increase he proposed back in January. The Governor also uses the federal stimulus funds to negate the cuts to Higher Education he proposed in January.

One-time solutions. It also appears the Governor continues to rely on the $1.3 billion in education shifts and $980 million in bonds. Then there is $2.6 billion in federal stimulus dollars (according to his statement during the press conference). I don’t want to guess at a total percentage until I can see more details – but it’s safe to say a lot of the Governor’s FY 2010-11 solution is one-time. A lot.

Spending reductions. It seems most of the spending cuts the Governor proposed in January are still in place…including cuts in aid to counties and cities. The big changes to his budget that the Governor mentioned in the press conference include some additional funds for the state to take over incarceration of short-term offenders from the counties and reductions in cuts to the courts (they would still be cut by $15 million). The Governor also proposes to exempt the first $2,400 in unemployment insurance benefits from state income taxes in 2009 – matching the new federal benefit.

But the biggest change comes in health care. The Governor proposes a significant change to General Assistance Medical Care for adults without children. The details are still rough, but the change would focus on providing outpatient care to divert people away from emergency room care. It would eliminate hospital and inpatient coverage, with hospitals getting reimbursed through an uncompensated care pool. Representative Tom Huntley will be hearing the proposal in his committee on Thursday…so hopefully we can share more information then.

Balancing the budget in FY 2012-13. Ah, this part is rather fascinating for those who enjoy deciphering spreadsheets. The Governor does say he balances the budget in the following biennium, but calls it a “scenario” rather than a proposal. To accomplish this, he appears to continue the shift in education funding through the FY 2012-13 biennium. Beyond that, he literally keeps spending in most areas of the budget at the same level of spending as FY 2010-11. There are some exceptions: higher education would finally get the cut the Governor proposed back in January (about $300 million), K-12 education would see an increase in funding, and state government would see a cut.

The most dramatic recommendation, however, is that spending in health and human services would be $9.9 billion in FY 2010-11 under the Governor’s proposal and $9.9 billion in FY 2012-13. This is a stunning recommendation since many services in this area of the budget are “forecasted” – meaning that spending estimates are automatically adjusted for cost increases and growth in enrollment. So to keep funding flat would require huge changes in how the programs are structured. When asked about how he would accomplish this, the Governor cryptically responded by saying that we need to “switch that from a forecasted program to an appropriated program.” Wow. We’ll see if that’s just talk – or if the Governor actually has a plan for doing that.

Stay tuned for more.

-Christina Wessel

About Christina Wessel

Christina served as the Minnesota Budget Project's deputy director until January 2014.
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