Education, transportation, gaming key issues for Minnesota legislators as they try to set budget

One month into the legislative session, the drama at the Minnesota State Capitol in St. Paul surrounds the budget. The central questions are: How much should the state spend on education and transportation? And: Should the state be involved in gambling? Governor Tim Pawlenty and several legislative leaders met with business leaders on February 8 to offer their views.

"We have to make sure our financial house is in order," Gov. Pawlenty told a group made up of 240 professionals from the banking industry, and me. "When I became governor, we had a $4.5 billion budget deficit. It was one of the largest in the country and one of the largest in state history. We will be finishing that budget cycle this summer; we are projecting to have gone from a $4.5 billion deficit to a $500 million positive balance."

Even with a positive balance in the cash flow account, the Republican Governor said the state enters the next budget cycle with a deficit, albeit far smaller than the one the state faced the last cycle. Senate Majority Leader Dean Johnson, a Democrat, put the imbalance at $1.3 billion.

Gov. Pawlenty has proposed a $29.66 billion budget, which is an increase of nearly $2 billion, or 5.8 percent, over the previous budget. Gov. Pawlenty points out "we are growing the state budget at a rate that is higher than the rate of inflation," which he put at 3.7 percent.

In a 15-minute speech, Gov. Pawlenty described a list of priorities, starting with education. He said the budget sets aside money to create incentives for teachers to develop compensation systems based on factors other than seniority.

"We can pay them in a more professional and honored way," Gov. Pawlenty said. In a proposal he called "nation-leading," Gov. Pawlenty said he wants to see teachers compensated according to performance, admitting debate over how to do that is inevitable. But he said, "We can't have a system that's built on a 1940s mentality that says we are going to pay only on seniority."

He also said his administration advocates a system where more students will have an opportunity to take courses for college credit in 11th and 12th grades.

Rising health care costs are making it difficult for businesses to create new jobs, in addition to taking an increasing share of the state's budget. Gov. Pawlenty said his administration is working with business groups to create a health care purchasing alliance that will leverage their combined buying power to obtain lower market prices. The cost of government health care programs is rising at a rate of 18 percent per year; Gov. Pawlenty's goal is to reduce the rate of increase to 15 percent, although he did not offer details about his efforts.

Transportation has emerged as a leading issues this session, and Gov. Pawlenty called the state "15 years behind" on maintaining its roads and bridges. He said, however, that his administration "has put more money into the roads and bridges system than any administration in modern history." Nonetheless, he said, he has put a $7 billion transportation proposal before the legislature.

Senate leaders are advocating for an increase in the state's 20-cent per gallon gas tax to fund road improvements. "Minnesota has not increased its commitment to transportation funding since 1988 when the gas tax was increased from 19 cents," said Sen. Johnson. "You factor in inflation, it's 12 cents today."

Sen. Johnson said that over the next 25 years, the state is going to need road repairs costing $22 billion. Sen. Johnson, and his colleague across the aisle, Senate Minority Leader Dick Day, support a 5-cent increase in the state gas tax. They note that each 1-cent increase in the tax raises $31 million. Sen. Johnson said one more nickel per gallon isn't much to ask. "For an average driver in Minnesota driving 25,000 miles per year, a 5-cent gas tax increase is $38 per year," he said. "I ask you, are you willing to invest $38 per year into our bridges and roads and leverage federal funds as well? I think it is an appropriate investment in our state."

The Governor makes his transportation proposal without increasing taxes. He said proposals to increase the gas tax should be put on the ballot in 2006 so the citizens of Minnesota can decide whether they believe the additional tax is necessary.

Gambling is growing in Minnesota, and Gov. Pawlenty said the state should be sharing in the revenue. "Do not fall for the argument that we shouldn't expand gaming in Minnesota: it is expanding," he said. "We have 18 casinos in Minnesota, a good chunk of them added in the last five to 10 years. The ones that we have are growing on the sites where they are. The lottery is growing, pull-tabs are growing, internet gambling is growing. It's not a question of whether gaming is growing; it's a question of who is going to get the money and is it going to be fairly distributed."

Gaming is an industry in Minnesota that generates about $8 billion annually, with profits of around $1 billion, according to Sen. Day, who also addressed the group. Touting his own plan to put slot machines at Canterbury Park in Shakopee, Day said there are 34,000 slot machines in the state. The Native American Bands, which operate the casinos, pay no state income tax.

Gov. Pawlenty said his administration wants to work with the Bands in some form of partnership. The Governor originally wanted the Bands to share their revenue in recognition of their monopoly status in the gaming industry. That idea fell flat, but Gov. Pawlenty said some of the Bands are willing to work with the state on the construction of a "couple additional facilities" in Minnesota.

Gov. Pawlenty balanced the last budget without raising taxes. People seem to either love or hate the Governor over his campaign pledge not to raise taxes. "When I say we're not going to raise taxes, it's for a reason. It's not because I took a pledge. It's because you cannot be a rational person, survey the states around the nation, and conclude that our problem in Minnesota is that we are under-taxed," he said. "We are a state that is very highly taxed. Our revenues are growing $2 billion. We don't have a revenue problem in this state. We have to make sure our revenues and our expenditures match, and that we live within our means."