>>MN Budget balancing agreement sparks special session

[Update: May 17 – Bill headed for Governor’s desk, http://www.house.leg.state.mn.us/hinfo/sessiondaily.asp?storyid=2295 ]

This is a late night posting of the latest MN budget happenings as put together by Christina Wessel of minnesotabudgetbytes.org.

While you were sleeping: Budget balancing agreement sparks special session

The legislature and Governor arrived at an agreement to balance the state’s budget shortly before midnight on Sunday night. Facing a midnight deadline for passing a bill during the regular legislative session, the Governor called a special session beginning at 12:01 a.m. on Monday (5/17) to allow the legislature to pass the bill today.
The final agreement drops progressive revenues from the solution, adopts most of the Governor’s unallotment actions from last year, and drops the possibility of providing health care for low-income adults through Medicaid for this session.
There were several significant differences between the legislature and Governor that kept negotiations going for days. Let’s look at how these issues were resolved (a spreadsheet with more details is available):
Health care coverage for adults without children under Medicaid. The legislature’s health and human services bill took advantage of a new opportunity to cover very low-income adults without children under Medicaid (called Medical Assistance in Minnesota). The action would have drawn down more than $1 billion in federal dollars, provided recipients with a clear set of benefits and offered health care providers higher reimbursement rates. The state would have paid its share of the cost by using a surcharge on certain health care providers to draw down even more federal dollars. The Governor vetoed the bill, objecting to the funding mechanism and the long-term costs. The final agreement does not take advantage of this opportunity, but does allows Governor Pawlenty or the successive governor to opt-in to Medicaid (with a deadline of January 15, 2011).
General Assistance Medical Care. One of the main motivations for covering adults without children through Medicaid was that many hospitals, especially in Greater Minnesota, were reluctant to participate in the recently approved General Assistance Medical Care compromise. The final agreement makes some modifications to the program, including adding $10 million to the uncompensated care pool.
The Governor’s unallotments. The final agreement ratifies many of the Governor’s unallotments, including $100 million in cuts to higher education, a $52 million reduction in the Renters’ Credit and $160 million in cuts to health and human services. (Unallotments that are ratified in this bill but were not part of the first budget balancing bill are: FY 2011 unallotments to county mental health grants, child support enforcement grants, nursing facility construction grants and personal care assistance hours for individuals with disabilities). Most of the approved unallotments are only in FY 2010-11 and are not made permanent. The bill includes language that voids all unallotments that are not ratified in this legislation.
Other health and human service reductions. The final agreement includes almost all of the cuts that were made in the health and human services bill that was passed by the legislature last week – reductions in services that will have a negative impact on struggling families, people with mental illness and other Minnesotans with disabilities. The major changes – surcharges to hospitals, HMOs and facilities for individuals with disabilities that would have drawn down $65 million in federal dollars have been dropped from the bill. Also, the bill originally included a 10 percent reduction in payment rates to providers for services to low-income adults without children on MinnesotaCare – that is increased to 15 percent.
K-12 payment shift. The final agreement ratifies the K-12 education shift the Governor originally implemented through unallotment, although the percentage of the payment shifted to next year is increased from 27 percent up to 30 percent for FY 2011. The shift now saves the state close to $2 billion in the current biennium. The bill specifies that the shift will be paid back in the next biennium. However, with no funding mechanism in place to pay the price tag, this promise adds to the size of the state’s looming budget deficit in the FY 2012-13 biennium.
Other shifts. The final agreement expands on the Department of Revenue’s existing authority to delay corporate income and sales tax refunds by up to 180 days to save the state $152 million in the current biennium.
Cash flow account. In negotiations, the Governor objected to a half-percent cut to state agencies and surcharges on certain health care providers. When those items were dropped in negotiations, the Governor proposed transferring $84 million from the state cash flow account. The final agreement includes this transfer.
Federal extension of enhanced Medicaid rates. For months, Minnesota policymakers have been waiting for Congress to pass a bill that would extend an enhanced Medicaid matching rate, potentially bringing $408 million to our state. If Congress does pass the bill, the funds will drop to “the bottom line,” helping with the state’s cash flow situation and preventing additional cuts to critical services if a new deficit opens up later in the year. (On a side note, none of the funds will be used to help fill a deficiency in the state funding for financial aid for higher education, as the legislature originally proposed.)
Revenue raising. At the Governor’s insistence, the legislative proposal to add a fourth tier to the state’s income tax was dropped.
With revenues out of the picture, the final agreement does not represent a balanced approach to addressing the state’s budget troubles, but instead relies heavily on cuts to services and timing shifts. The agreement makes no headway in reducing the state’s future budget problems – the deficit figure remains at $5.8 billion for the FY 2012-13 biennium (this assumes the state pays back the K-12 education shift).
-Christina Wessel

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