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Pawlenty demands deal by tomorrow or he'll cut budget
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Senate Finance Committee Chair Richard Cohen, DFL-St. Paul, and House Finance Committee Chair Jim Knoblach, R-St. Cloud, confer during a meeting of the Legislative Advisory Commission. The two are the main negotiators in the effort to reach a budget-cutting deal. (MPR Photo/Laura McCallum)
Gov. Tim Pawlenty told lawmakers on Wednesday that he's prepared to cut spending on Friday if legislative leaders don't reach a budget deal. The House and Senate haven't agreed on how to eliminate a projected $356 million deficit in the current fiscal year. If Pawlenty uses his authority to cut spending unilaterally, the cuts could include school aid to Minneapolis and St. Paul, ethanol subsidies and an Iron Range development fund.

St. Paul, Minn. — Gov. Pawlenty told legislative leaders he'd prefer that they agree on a short-term budget fix. But if they don't, he says he'll use his authority to cut spending, a procedure called unallotment, on Friday. Pawlenty says the state's fiscal situation is serious and urgent. He says the Legislature needs to deal with the immediate shortfall before moving on to a deficit ten times as large in the next two-year budget.

"We can't spend much more time or energy chasing a mosquito around the room when we've got a Tyrannasaurus Rex in the room. And that is, we've got an '03 problem that is very modest and minor compared to what's to come," he said.

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Image Gov. Pawlenty speaks

Pawlenty didn't tell lawmakers exactly what he plans to cut. But his finance commissioner, Dan McElroy, says the cuts will be more painful than those first proposed by the governor. That's because Gov. Pawlenty can only unallot money from the state's general fund. He cannot use reserves from special funds, such as the state airports and workers compensation funds.

McElroy says he believes the governor can cut an Iron Range development fund, because it was created with general fund money. He says Gov. Pawlenty will have to come up with as much as $100 million in additional cuts that weren't in his budget proposal.

"And they may include programs like compensatory and compensatory concentration aid or other K-12 aids that are very, very high priority, but don't rise to the constitutional obligation to balance the budget without short-term debt by June 30," according to McElroy.

Compensatory aid provides more money to school districts with high concentrations of children in poverty.

Minneapolis and St. Paul are by far the biggest recipients. Minneapolis is scheduled to get $69 million in compensatory aid this school year. The district's chief operating officer, David Jennings, says if the governor unallots any education funding this late in the school year, Minneapolis can't absorb the cuts.

"It would immediately require cuts and layoffs in personnel. It would require immediate action on our part," said Jennings, a former Republican state legislator who served in the early '80s, when Gov. Al Quie used his unallotment authority to withhold school payments and local government aid.

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Image Sen. John Hottinger

Jennings says unallotment is not a precise tool. He describes it as a blunt instrument that's very painful for those affected by it. Jennings says legislative leaders appear to be playing a game of chicken with the governor to see who gives in first.

"The things that have been specifically mentioned by Commissioner McElroy just coincidentally happen to involve direct impact on the urban centers and the Iron Range, and that's not accidental. Those happen to be areas that are near and dear to the heart of the conferees from the Senate that are involved in this whole discussion," Jennings said.

Jennings says the House, Senate and governor are staking out positions in preparation for the larger budget debate that begins next week.

House and Senate negotiators haven't met publicly since last week, although offers have been traded. House Republicans and the governor want Senate DFLers to agree to more permanent spending cuts. They also want the Senate to agree to allow the state to outsource some functions performed by state employees to the private sector.

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Image Pawlenty's 'point man'

DFL Senate Majority Leader John Hottinger of St. Peter says issues such as outsourcing should be worked out in conference committee. "We've called for conference committee meetings since Sunday. Since Friday, actually ... As the speaker indicated, he wants to do it in public - so do we! So let's have a conference commitee meet, let's get the details worked out on this budget deficit and get it done!"

The lead House negotiator says he won't call a conference committee meeting until the Senate responds to the latest House offer. Senate DFLers say they've agreed on an overall target of $461 million. That eliminates the deficit and leaves a financial cushion in case the state's economy worsens. Senate leaders say the rest should be negotiated publicly.

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