Tim Pawlenty's New Deal

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

The chickens came home to roost much more quickly than even the legislature's few naysayers had predicted. By the time the 2002 session convened, just a few months after the property-tax overhaul, state economists were predicting a deficit.

Confronted with a shortfall, lawmakers traditionally don't just balance the current budget; they make sure their fixes extend into the next biennium as well. But in 2002, with the leaders of both the House and Senate running for governor and loath to be the bearer of horrific news, that didn't happen. Sen. Larry Pogemiller (DFL-Minneapolis) did propose restoring some of the income-tax cuts, but Pawlenty and Moe instead came up with a plan that took care of the 2002-2003 problems--while leaving the 2004-2005 deficit largely untouched.

They spent most of the state's reserve accounts and cut $106.2 million from health and human-service programs in 2002-2003 and $184.6 million from 2004-2005. The rest of the budget was balanced through such sleights of hand as shifting payments for school districts and local governments into new budget years. In effect, the state floated checks.

When last year's session ended, the lame-duck leaders believed they were leaving a $1.6 billion 2004-2005 mess for their successors. They turned out to be wrong--to the tune of about $4 billion. Two months before Pawlenty was to be sworn in, state economists revised their forecasts. Minnesota was nearly $400 million in the hole for the last six months of fiscal 2003, and would enter fiscal 2004 in July with a $5.5 billion shortfall.

"I can't overstate how difficult this is going to be," the new governor told the Star Tribune. "The magnitude of the problem is immense. If there is a silver lining in all of this, it is that conditions like these create a necessity for change, so it provides opportunity for reform, to streamline government."


All told, from 1997-2001, the Minnesota legislature "allocated" more than $13 million in surplus funds, with $7 billion funding tax cuts or rebates and $2 billion going to the tobacco endowments and state reserve funds. The legislature spent the remaining $3.5 billion on education, transportation, and other services.

Virtually none of the bounty was spent on services for Minnesota's neediest, however. Even though thousands of families were struggling to pay for child care and other necessities while moving off of welfare, a piddling 0.3 percent of the $13 billion surplus went to Department of Children, Families and Learning programs. And despite the fact that medical costs are out of control, funding for health and human-service programs actually fell 0.2 percent.

Yet when news of the projected deficit broke, Pawlenty wasted little time in suggesting that the first thing he'd cut when he began trying to make up the shortfall was Medical Assistance. Minnesota has three programs that subsidize health care. The largest, Medical Assistance, serves as the state's mechanism for caring for seniors, the disabled, and others eligible for the federally funded programs known as Medicare and Medicaid.

The federal government gives states money to help run those programs as the states see fit. Some states simply dole out the money, providing the minimum level of care mandated by federal law. Others, including Minnesota, have chosen to dip into state coffers to pay for better levels of service. Minnesota splits the cost of Medical Assistance with the feds--and receives extra federal dollars to help fund its higher levels of care.

Last year more than 431,000 Minnesotans were enrolled in Medical Assistance. The majority are low-income families, but the vast bulk of the program's expenditures pay for long-term care for seniors and people with disabilities. The number of participants is increasing steadily.

The state Human Services Department also administers MinnesotaCare, an insurance program for low-income families and workers without employer-paid insurance plans. The program is funded by premiums paid by participants, who also may be responsible for co-pays. Enrollment in MinnesotaCare has jumped since the start of the recession; last year the program served more than 150,000 people.

General Assistance Medical Care is the safety net that is supposed to provide for uninsured or impoverished Minnesotans who don't qualify for either of the other programs. GAMC, which is funded entirely by the state, cared for some 36,000 people in 2002; most of them earn less than $554 a month or are facing catastrophic medical bills.

Enrollment in GAMC has skyrocketed since the economy soured. From 2001 to 2002, the number of participants rose 29 percent. And while the program is often thought of as stopgap care for the itinerant, 75 percent of participants work, and the number of children dependent on the aid jumped a whopping 41 percent between 2001 and 2002.

Pawlenty doesn't have to release his proposed budget until February 18, but lawmakers are sure he will propose cutting reimbursement rates for nursing homes and other facilities providing long-term care to seniors and the disabled, to curtail services covered, and to make it harder to qualify for Medical Assistance. Some proposals under consideration would even drop legal immigrants from various programs. There is also talk of the wholesale elimination of General Assistance Medical Care.

Cutting into any of the three programs will be daunting. Lawmakers may be able to stomach the political ramifications of cutting some of Minnesota's "optional services"--prescription drug coverage for poor seniors, and dental, podiatric, and chiropractic care. But beyond that they will be looking at cutting into basic services.

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