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Gov. Tim Pawlenty delivers his seventh State of the State address on Jan. 15, including a long list of business tax breaks among his proposals. Behind him is House Speaker Margaret Anderson Kelliher. (Don Davis/St. Paul Bureau)

Schools spared chopping block in Pawlenty's proposed budget

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ST. PAUL -  Gov. Tim Pawlenty would chop many parts of the state budget - including dropping 84,000 people from state-funded health care programs - but promises to increase public school funding and keep public safety programs mostly untouched.

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The Republican governor's solution to a nearly $5 billion deficit that most experts expect to grow dramatically in coming weeks included deep cuts in state aid to cities, eliminating boards governing humanities and arts programs and a 5 percent cut in most government programs. He gains $1.3 billion by delaying some state payments to schools.

Even with thousands losing health care funding, health and human services spending would rise 9.6 percent under the Pawlenty proposal. Public school funding would go up 1.9 percent.

Pawlenty's proposed budget would spend $33.6 billion in the two years beginning July 1. The current budget is $34.4 billion, but an economic recession has reduced the amount of taxes and other revenue flowing to state government.

Legislators who must approve a budget said they had few details of the Republican governor's plan and mostly held off on criticism, but city leaders were highly critical of what they called a devastating funding cut.

Pawlenty touted that his plan would not raise taxes, and would cut many business taxes. He said the state must "live within its means."

Balancing the budget will not be easy, the second-term governor said.

"This is a challenge," he said. "It is going to take strength. It is going to take courage."

Highlights of Pawlenty's two-year plan include:

•Spending $41.5 million more on public education and requiring all school districts to pay teachers based on their performance, not on seniority. Some districts are doing that now, but he would force all districts into his Q Comp program, giving many districts $300 more per student. Another bonus would be possible when students meet certain academic standards.

•Children would remain covered by state health care programs, but 84,000 adults would lose care, Human Services Commissioner Cal Ludeman said.

•State aid paid to cities would fall 25 percent, with the bulk in the second year of the budget. City officials say that means parks programs and libraries might close, snow removal would be delayed and police and fire protection may suffer.

•An 8.2 percent higher education funding drop should not be covered by higher tuitions, the governor said, adding he wants tuition increases limited to the inflation rate.

•While most health care providers paid by state programs would see a 3 percent cut in payments, nursing home rates would be frozen.

•The state would use $920 million of expected federal economic recovery funds to help balance the budget.

•Pawlenty wants pay of all government employees, from the local level on up, to be frozen, but so far has stopped short of formally proposing that.

•Pawlenty proposes a different way to pay for public works projects, borrowing $1 billion against payments coming in from a 1998 settlement with big tobacco companies.

•Among programs eliminated would be the state Arts Board and Humanities Commission, House Minority Leader Marty Seifert, R-Marshall, said. Many small boards would face the same fate and state agencies overall would lose 5 percent of their budgets.

Pawlenty said the financial problem is simple: Two years ago, the economy grew at a 2.1 percent annual clip; now the economy is shrinking by 2.5 percent. Fewer Minnesotans have jobs today.

Democratic-Farmer-Labor Party leaders, who control the Legislature, plan to get public reaction to the governor's proposal by holding legislative hearings around the state, starting in about two weeks.

House Majority Leader Tony Sertich, DFL-Chisholm, offered the strongest legislative criticism, saying he fears the Pawlenty plan will boost local property taxes, increase college tuition and force needy people off health programs.

"What we don't want to happen is any Ponzi schemes in the governor's budget," Sertich said, referring to an investment fraud in the news recently.

Legislative Republicans liked what they saw in the Pawlenty budget, but not necessarily everything.

"I'm hoping it gets a little better," Assistant Senate Minority Leader Joe Gimse, R-Willmar, said of local government aids.

City leaders offered up strong criticism.

"The governor's proposal would devastate communities," said Wadena Mayor Wayne Weldon, Coalition of Greater Minnesota Cities president.

Minnesota budget reaction

ST. PAUL - Comments about Gov. Tim Pawlenty's proposed two-year budget:

"To pull this amount of money out of our city budget will be very painful, and every citizen will be paying the price - whether it's through higher property taxes or a decrease in city services. This is one area of the governor's budget I'll need to hear much more about."

- Rep. John Persell, DFL-Bemidji

"We support balancing the budget without additional tax increases in our already high-tax state. Minnesota ranks high on virtually any analysis regarding taxes."

- Mike Hickey, Minnesota state director for the National Federation of Independent Business

"We can scarcely afford to be penny wise and pound foolish about how we balance the budget. Keep in mind that for every dollar of funding we cut from the state HHS (Health and Human Services) budget, we will lose an additional dollar in federal funding, which doubles the loss, doubles the impact and doubles the pain for those who depend on HHS services and supports."

- Pat Mellenthin, Disabilities funding advocate

"What the governor has laid out is an opportunity for reform."

-Rep. Tim Kelly, R-Red Wing

"The governor's proposal would devastate our communities. Here is what it means for families: the loss of thousands of jobs, huge increases in property taxes, and cuts in core services to our communities, such as police and fire protection, libraries, parks, snow plowing and pothole repair."

- Wadena Mayor Wayne Wolden, president of the Coalition of Greater Minnesota Cities

"Thank you, Governor, for giving us a solution."

- House Minority Leader Marty Seifert, R-Marshall

Minnesota state budget timeline:

March 4: Release

of budget forecast telling size of state deficit.

Later in March: Governor revises budget proposal based on budget forecast.

Late March or April: Legislative Democratic leaders release their budget plans.

May 18: Legislature must adjourn (although special session is possible).

July 1: Two-year budget begins.

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