Tim Pawlenty's New Deal

How Minnesota's new governor set the table for this year's budget-slashing "crisis" in state healthcare spending

On the first truly frigid day of the New Year, a group of Minnesota's state senators gathered in a basement hearing room to listen to a small, nervous woman reel off statistics. The numbers were mind-numbing, but even so the lawmakers seemed unusually listless.

Faced with the largest budget deficit in Minnesota history, a staggering $5.5 billion, the senators were trying to ferret out waste in the state's public healthcare system. It was clear to pretty much everyone in the chilly room that it was going to be hard to find any fat.

The senators wanted to know whether every participant was paying his or her fair share for MinnesotaCare, the state's healthcare plan for the working poor. In response, the woman at the microphone was trying to explain the challenges to tracking month-to-month variations in participants' income. Often the families' cash flow is impossible to predict, she noted, because the workers are hourly, in and out of jobs, or otherwise barely making it.

Earnest as it seemed, the exercise was mostly beside the point. Short of a tax hike, there simply isn't any way to take care of the people covered by the plan and balance the state's budget over the next three years. Indeed, the budget crunch will be felt all over, but the healthcare cuts being contemplated are positively Dickensian: General Assistance Medical Care, the last-ditch program for the truly destitute, may be eliminated; legal immigrants may be dropped from state health programs; people using state health care may no longer be allowed medical procedures not judged to be "cost-effective"; already bare-bones services for the disabled and the elderly will be cut even further.

Pay attention to local news and you're likely to think that this harsh reality is the product of a sour economy. That the dismal stock market alone has stanched the flow of funds into state coffers. That it's Osama bin Laden's fault that Minnesotans can't continue to count on the state's historic quality of life.

It's tempting, too, to blame recently departed governor Jesse Ventura, the architect of the sales-tax rebates of recent years. And it is true that leaving the rebate money in the state's reserve accounts would have softened the coming blow.

But it's also true that over the past five years, the Minnesota Legislature has crafted a series of permanent tax cuts that are some of the largest in the nation, and they're exactly the size of the projected deficit. To add insult to injury, far from providing the promised tax "relief" to the average Minnesotan, the cuts overwhelmingly benefit the state's wealthiest residents.

The leader of the charge to create these regressive tax cuts? That would be Gov. Tim Pawlenty, the man so often quoted in the last month as saying there was no way anyone at the capitol could have predicted the current crisis.

 

In April 1998, as the Minnesota Legislature prepared to close the last session of Gov. Arne Carlson's administration, the outgoing Republican made a point of publicly applauding the DFL- controlled lawmakers he had sparred with for eight years. "It's obviously been a wonderful session, a well-balanced session," he gushed. "Things did work out."

Indeed, with a $1.9 billion surplus to play with, lawmakers found it easy to conjure something for nearly everyone. They handed down $1.1 billion in tax cuts and rebates and still managed to find $1 billion for big public-works projects and directed new money to education, parks, and roads.

Still, the brand-new house majority leader, Eagan Republican Rep. Tim Pawlenty, was unhappy that his colleagues spent so much of the bounty on services instead of making even larger tax cuts.

He got his way the following year. In April 1999, the legislature passed a 2000-2001 budget that included the largest tax-relief package in the nation: $2.7 billion, or $575 per Minnesotan. (Minnesota uses a two-year budget cycle, called a biennium. The 2000-2001 biennium covered fiscal years that ran from July 1, 1999 to June 30, 2001.) Eager to claim credit for ensuring that lower- and middle-income families were sharing the wealth, DFLers scrambled to sign on and the legislation passed the House 119 to 13 and the Senate 65 to 1.

Nationwide, state governments, flush because of the bullish economy, were cutting taxes. But nowhere were the numbers as dramatic as in Minnesota. Connecticut's cuts were the next largest at $216 per resident. Most states cut rates by about $100 per person.

But in Minnesota the giveaway continued more or less unquestioned. In 2000, Senate Majority Leader Roger Moe brokered an unprecedented "tripartite" deal in which the House, Senate and Gov. Ventura each got to spend a third of the projected $569 million annual long-term surplus. The Republican-controlled House used its third to fund income tax cuts; the DFL-led Senate used its share to increase education funding. Ventura used his to lower car-license tab fees.

The most revolutionary restructuring took place in 2001. After six months of debate, lawmakers passed a sweeping, permanent change to the property-tax system. They slashed the tax rate for homes valued at $500,000 or more and on agricultural and business land. On top of the overhaul, legislators also rebated some $700 million in sales taxes.

House analysts calculated the cost of the cuts made between 1997 and 2001 at $2.78 billion for fiscal year 2005 alone: Property-tax cuts account for $1.74 billion of that amount; lower income taxes for $835 million; and lower car-license tab fees for about $190 million. When critics warned that any slowdown in the economy would send the state into the red, the Republican leadership replied that there was no reason to think that Minnesota's economy would change.

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