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In budget-cutting game, state employees worry that they're the target
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Judy Zelio of the National Conference of State Legislatures says states cut spending on education, corrections, health care and welfare. Some laid off state employees, froze hiring, and banned travel. (MPR Photo/Laura McCallum)
A national expert on tax and budget issues says Gov. Pawlenty is taking an ambitious approach to Minnesota's budget problem. The governor says he'll eliminate a deficit that's about 14 percent of the state budget without raising taxes. An official with the National Conference of State Legislatures on Thursday told Minnesota lawmakers what other states are doing to balance their budgets. Also today, Minnesota business groups released their ideas to balance the budget, and public employee groups aren't happy about it.

St. Paul, Minn. — The National Conference of State Legislatures -- NCSL -- says 36 states have budget gaps that combined total $26 billion in the current fiscal year.

Judy Zelio, who tracks tax and budget issues for the NCSL, says half of those states raised taxes to balance their budgets. Most common were hikes in cigarette and tobacco taxes.

"This last year was the first time in seven years where there was a net tax increase among the states. States had cut taxes for seven years in a row in the aggregate," she said.

Zelio says states also cut spending on education, corrections, health care and welfare. Some laid off state employees, froze hiring, and banned travel. Zelio says the budget problems for the next fiscal year are even more severe.

Thirty-six states report budget gaps totaling more than $68 billion, and that number is likely to grow when the rest of the states report their financial situations. Zelio says Gov. Pawlenty is among a small group of governors who say they won't raise taxes to resolve the problem.

"It is an ambitious approach, but states often in the past have made tough decisions; this is probably one of the years where most states are going to have to make really tough decisions," she said.

Zelio's testimony before the House Ways and Means Committee sparked discussion of Minnesota's tax ranking. Gov. Pawlenty and other Republicans argue that Minnesota can't afford to raise taxes to balance the budget, because the state has one of the highest tax burdens in the country.

Ways and Means chairman Jim Knoblach, a Republican from St. Cloud, released a census bureau ranking that lists Minnesota third in the nation in state tax burden. "The point of this is not are we three, are we eight, are we five? The point is: we are a high tax state, I don't think anyone doubts that."

I think the credibility of the business community on this would be heightened a lot if they came to the table first saying, 'we'll freeze our profits, we'll freeze our prices.'
- Peter Benner

Some Democrats say the more relevant ranking is how Minnesota's state and local taxes compare to other states as a percentage of personal income. DFL legislators say Minnesota ranks 22nd in the country, because personal incomes are growing faster than government spending.

The debate over Minnesota's level of taxation will get louder next week, when Gov. Pawlenty releases his budget proposal. Minnesota business groups back the governor's no-tax-increase stance, and are recommending a number of government reforms to cut spending.

The recommendations fall heavily on public employees. The Coalition of Minnesota Businesses suggests a two-year pay freeze, and a two-year elimination of pension contributions for public employees. Employees would also be asked to pick up a greater share of their health care costs.

Sen. Geoff Michel, R-Edina, supports the recommendations. "Wisconsin's talking about layoffs, Iowa is considering a pay freeze, Idaho has already imposed a salary freeze, Connecticut has layoffs and they're talking about other concessions now, and Oregon is laying off 2,500 and freezing salaries. So this is not some wild-eyed extremist proposal."

But state employee unions say the business groups' numbers don't add up. Pete Benner, executive director of AFSCME Council 6, says the state's revenue forecast already assumes that there will be no wage increases for public employees.

Benner says if businesses really want to help the state control costs, they should agree to freeze prices on goods and services they sell to the state.

"The public employees are going to take the hit, or citizens whose services are going to get cut are going to take the hit. And I think the credibility of the business community on this would be heightened a lot if they came to the table first saying we'll freeze our profits, we'll freeze our prices," Benner said.

Business leaders say the private sector has been hit hard by the recession. They say businesses have enacted pay freezes and laid off employees. Public employees say they expect to be part of the budget solution, they just don't want to bear the brunt of it.

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