~ Governor’s plan solves $935 million deficit facing the state in current two-year budget ~

Saint Paul – Governor Tim Pawlenty today released his plan to solve the state’s projected $935 million deficit, make strategic investments and balance the budget without raising taxes.

The Governor’s budget solution reduces the growth in state spending by $341 million, uses $250 million of the $653 million budget reserve, and uses $250 million from the surplus in the Health Care Access Fund to maintain health care programs and eligibility for the disadvantaged.

Highlights of the Governor’s budget plan include:

• No new taxes

• Statewide sales tax cut of 1/8th percent

• No reductions in funding for K-12 education

• No reductions in funding for local government aid

• New initiatives including Strategic Entrepreneurial Economic Development (SEED), military and veterans support, and K-12 education reforms

• Reductions to most state agency budgets of 4% and other targeted spending reductions

Overall, approximately 40% of the budget plan comes from spending cuts and additional revenues, 35% from balances or surpluses in non-general fund accounts and 25% from the state budget reserve. Even with the proposed spending reductions, the FY 2008-09 budget would increase by 9.2% over the previous two-year budget.

“Minnesotans are concerned about the economy, rising costs and government’s seemingly endless demands on their wallets,” Governor Pawlenty said. “This plan balances our budget without adding to the burden facing Minnesotans. We’ll tackle this deficit by holding government accountable, tightening our belts and using available resources, not by raising taxes.”

As part of the proposal, Governor Pawlenty called for a 1/8th percent cut in the statewide sales tax to partially offset the impact of recent tax increases passed by the DFL-controlled legislature and provide some additional economic stimulus on the state level.

The $935 million projected deficit for the FY 2008-09 budget represents slightly less than 3% of the state’s $34.5 billion general fund budget.

Under the Governor’s plan, most state agencies would receive a 4% cut to their operating budgets. The Departments of Veterans Affairs, Military Affairs and Transportation would be exempt from these operating cuts. Reductions to critical functions such as the Departments of Public Safety and Corrections are minimized.

A number of state programs would see reductions. However, K-12 education and local government aid funding would not receive any cuts.

In addition to his budget balancing plan, Governor Pawlenty’s sales tax cut of 1/8th percent would save Minnesotans an estimated $77 million during the current budget period and $179 million in FY 2010-11.

“There has been bipartisan support on the federal level for tax cuts and rebates,” Governor Pawlenty said. “I am hopeful the legislature will pass my proposal to cut the state sales tax to keep more money in the hands of hardworking Minnesotans. This is a modest tax cut, but it’s a step in the right direction.”

The budget plan also includes a measure that will align Minnesota’s definition of a “foreign operating corporation” with the one used by the Internal Revenue Service and a program to collect money from individuals who owe back taxes to the state by matching data with financial institutions.