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State officials look for ways to shave costs

By Brian Bakst

Associated Press

ST. PAUL -- Legislators began searching under every rock in state government Thursday for ways to get at a $4.56 billion projected deficit within the no-new-taxes parameter set by the incoming governor.

State economist Tom Stinson added to the task when he advised a panel of senior House and Senate members to consider rebuilding a reserve even as they try to balance the budget. Stinson said it would help cushion future blows if the economy doesn't meet forecasters' expectations of healthy growth.

"Without a budget reserve and having exhausted all the easy shifts and transfers, the state is going to be facing more serious problems" if the economy worsens, Stinson told the Legislative Commission on Planning and Fiscal Policy.

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A reserve account also would help Minnesota keep its top bond rating. Only seven states have a AAA rating, which allows them to borrow money for public works projects at lower interest rates.

The legislative commission meeting offered a chance to delve into the deficit causes and begin assembling a menu of potential solutions. Gov.-elect Tim Pawlenty wants to correct the problem without raising taxes.

The deficit is a result of lower-than-expected tax collections combined with higher-than-anticipated spending commitments.

A good-sized portion of the extra spending -- $541 million worth -- can be traced to increased health care demands. Minnesota's medical assistance program serves 450,000 people with physical and developmental disabilities, poor families and the frail elderly.

Minnesota could shave costs by changing income eligibility for the program or providing fewer benefits and services. But that, too, could have a downside because federal matching money could be lost if revisions don't conform to federal guidelines.

Another widely discussed target is aid for local governments. For 2002, the state budget contained $1.3 billion in intergovernmental aid. The aid even flows to some cities and counties that have plentiful reserves.

Retiring Rep. Dave Bishop, the Rochester Republican who heads the joint commission, said the Legislature should review fund balances before making payments.

"The state is in the situation now that we don't find that out until we pass out the next helping of money," he said.

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It wasn't as clear cut to Sen. Dennis Frederickson, R-New Ulm. He said some local governments have large reserves because they are saving for fire trucks or other big purchases, and others show surpluses because money doesn't go out at the same time it comes in.

A day after hearing the awful budget news, few around the Capitol were ready to commit to anything.

Republican Rep. Dan McElroy, Pawlenty's pick to head the Department of Finance, said, "It's too early to do a 'back of the envelope' on this."

Pawlenty intends to wait until a Feb. 18 deadline to release his 2004-05 budget, McElroy said. But the new administration hopes to come forward in early January with a plan to patch a $356 million problem for the remainder of fiscal year 2003, which runs through June.

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