CHICAGO — After working through the night to resolve differences, the Minnesota Legislature yesterday approved a budget agreement that cuts spending, including aid to local governments, and pushes off $1.8 billion owed to schools into the next budget cycle to address a $3 billion shortfall.
The plan was approved by the House 97 to 32 and by the Senate 52 to 14 during a special session. Both chambers are controlled by the Democratic-Farmer-Labor Party.
Republican Gov. Tim Pawlenty called the special session as lawmakers were unable to finalize and vote on the plan before a required adjournment date of before Sunday midnight.
“We were able to resolve a $3 billion budget deficit without raising taxes. I feel very good about the negotiated settlement,” Pawlenty said. The state is nearly midway through its $57 billion biennial budget.
Democrats claimed success in protecting schools, human services, and public safety from further cuts.
They also were able to include in the package a provision that would expand the number of low-income state residents eligible for Medicaid under a federal expansion of the program.
The measure, however, requires Pawlenty or his successor next year to approve the move that the governor and Republicans had resisted. Pawlenty is not seeking re-election in November.
The budget agreement marks the end to two weeks of political and financial upheaval that had threatened the state’s cash flow.
With Minnesota trying to eliminate $500 million of red ink, the state Supreme Court ruled earlier this month that Pawlenty last year overstepped his authority in using his “unallotment” powers to cut spending in the fiscal 2010-11 budget approved by the Legislature.
Though the ruling came in a challenge to just a small piece of the $2.5 billion in unallotments, it threw the entire action into question.
Democrats last week rushed through a budget-repair bill that would have ratified most of Pawlenty’s cuts, but also would have raised an additional $400 million through the creation of a new tax bracket for top earners in order to reduce the level of cuts.
Pawlenty quickly vetoed that legislation.
Under the new budget-repair legislation, schools will bear the brunt of cuts. School lobbyists warned that districts will have to cut deeply into their own budgets and will be forced to use short-term borrowing to manage through the delays.
State department budgets were cut by about 1.5% and the state also will delay corporate and sales tax refunds.
Some lawmakers also expressed concern over the decision to rely so heavily on a timing maneuver to balance the budget and the added pressure it will pose to them as they work next year on a new budget.
February revenue estimates warned that the state faces a $5.8 billion deficit next year as it crafts a fiscal 2012-13 budget.
Minnesota carries top AAA ratings from Fitch Ratings and Standard & Poor’s. Moody’s Investors Service, following its recalibration, left the state’s credit at Aa1 but revised its outlook to stable from negative.