CHICAGO — The new governors of neighboring Minnesota and Wisconsin, in their inaugural addresses this week, offered similar pledges to tighten their states’ belts and focus on job creation, but veered far apart on the issue of tax increases.
Minnesota’s Mark Dayton, the first Democrat to win the state’s governor’s office in two decades, warned of a need for a tax hike to deal with a looming $6.2 billion deficit in the next two-year budget cycle that begins July 1.
“My proposed budget solution will be reasonable, balanced, and painful because I see no easy alternative,” he said.
Dayton called for unity with Republicans who took control of the Legislature following the November election, but that is a difficult task, since the GOP campaigned against tax increases while Dayton made clear his position favoring tax hikes as part of the budget solution.
“To those who sincerely believe the state budget can be balanced with no tax increase, including no forced property tax increase, I say if you can do so without destroying our schools, hospitals, and public safety, please send me your bill so I can sign it immediately,” he said. “Otherwise, let’s begin tomorrow, and in May conclude, the challenging, complicated, and essential process by working together.”
Dayton, a former U.S. senator, replaces Republican Gov. Tim Pawlenty, who did not seek re-election amid speculation that he will be a candidate in the next presidential election. The Legislature was previously controlled by the Democratic-Farmer-Labor Party, the state’s version of the Democratic Party.
Dayton named job creation and education funding as top priorities. To create jobs, he said he would press for a $1 billion bonding bill to fund capital projects.
The state typically passes an operating budget and small capital budget in odd years and then a larger capital budget in even years. The fate of a funding package for a new professional stadium for the Minnesota Vikings will rest with Republicans. Dayton has said he could support a stadium deal if the public benefits are sufficient, but it is up to Republicans to propose one.
In Wisconsin, Gov. Scott Walker took the reins of a state facing a $3.3 billion deficit in its next two-year budget, which begins July 1. He vowed to focus on job creation, called for a special session to pass measures aimed at spurring the economy, and vowed not to raise axes.
“Let me be clear on one thing — increasing taxes is off the table, as it will counter our efforts to provide economic growth,” Walker said in his address.
It is unclear how Walker plans to balance the budget, especially while protecting priorities like education. He has called for limiting state government and received national attention for opposing a high-speed rail line between Milwaukee and Madison that stood to receive $810 million in federal funding.
Walker, the former executive of Milwaukee County, said he would press lawmakers to pass legislation easing regulations on business, providing tax breaks for business owners and tax credits for health savings account contributions, and requiring a two-thirds majority vote in the Legislature to increase income and sales taxes.
“My top three priorities are simple: jobs, jobs, and more jobs,” he said. Walker campaigned on the pledge to create 250,000 jobs during his term.
Walker will benefit from Republican control of the Legislature. Democrats lost their majority in the November election. Walker replaces Jim Doyle, a Democrat, who did not seek re-election.
Walker tapped state Rep. Mike Huebsch, R-West Salem, as secretary of the Department of Administration, which includes the capital finance and budget departments. Huebsch is a former Assembly Speaker who was on the Legislature’s powerful Joint Finance Committee.
Brian Hayes, a former legislative aide and administrative law judge for the Department of Administration, will be budget director. Many in the agency had expected Hayes would lead the department.
The state’s current budget director, David Schmiedicke, who has worked in the budget office since 1990 and been director since 2001, will become deputy director. Longtime capital finance director Frank Hoadley will continue to run the debt management division.
The latest deficit figures, though high, are easier to digest than the gap of $5.4 billion the state faced two years ago. That number eventually grew to $6.6 billion. Revenues are expected to grow by 4.2% in the next fiscal year and by 3.4% in the second fiscal year of the next biennium.
The DOA expects tax collections to rise by $515 million, or 4.2%, this year, leaving the state with a narrow ending balance of $10 million on June 30.
The department attributes the state’s ability to remain in the black during the current biennium to employee concessions, an income-tax increase on top earners, spending cuts that included a 3% cut in school aid and $600 million from Medicaid, and $2.2 billion from the federal stimulus.
Republicans want to repeal the tax increase. The $61.8 billion fiscal 2010 and 2011 budget also relied on restructuring $285 million of state debt.
Fitch Ratings, Standard & Poor’s, and Moody’s Investors Service all affirmed their double-A ratings on Wisconsin’s $6.5 billion of general obligation bonds over the summer.
Credit strengths cited by rating analysts include a diverse economy, moderate debt levels, and strong pension funding levels. Weaknesses include an ongoing structural budget imbalance and weak reserve levels.
Dayton elevated Jim Schowalter to commissioner of Minnesota’s Office of Management and Budget from deputy commissioner. Schowalter joined the office in 1994. He was state budget director for six years and was named deputy commissioner earlier this year.
“Of all the applicants for this position, Jim Schowalter has unparalleled knowledge of the state budget and the Department of Management and Budget,” Dayton said in a statement.
A search is ongoing for a new debt manager to replace Kathy Kardell, who resigned earlier this year to take a position on Hennepin County’s finance team. Debt management has been handled in the interim by Schowalter and financial analyst Sue Gurrola.
Minnesota’s latest forecast boosted the deficit estimate by $590 million, but it also contained some good news — an expected surplus of $399 million when the state closes its books June 30 on the current biennium, which is operating on a $57 billion budget.
Revenue for the 2012-2013 period is forecast to grow 5%, or $1.5 billion, over the current two-year span, but spending is projected to grow by a full 27.5%, or $8.3 billion.
The deficit is due mostly to the use of non-recurring, one-time savings to support the current budget. Those measures include federal stimulus aid and shifts in K-12 school payments, which have allowed Minnesota to balance its budget without major cuts or tax increases.
The governor uses the annual November forecast to craft a budget for release in mid-February. The Legislature’s final spending plan is based on figures from an annual February forecast.
All three major rating agencies affirmed the ratings on Minnesota’s $4.2 billion of general obligation debt ahead of a summer GO sale. The state is rated AAA with a stable outlook by Fitch and Standard & Poor’s, and Aa1 with a stable outlook by Moody’s.
Elsewhere in the Midwest, Republican Rick Synder took office as Michigan’s governor, saying his top priority is to balance a new budget with spending cuts and without raising taxes. The state faces a general fund shortfall of up to $1.85 billion, according to recent estimates. Snyder has said he would try to erase the deficit without new money but so far has not released any details.
The new governor also said he aims to have a two-year budget signed into law by July 1 — months ahead of the Oct. 1 start of the fiscal year. Michigan traditionally signs 12-month budgets, but Snyder said he wants to implement a two-year budget in order to better manage the state’s fiscal picture.
Michigan lawmakers have for years bickered over new budgets until hours before the start of the fiscal year on Oct. 1. Former Gov. Jennifer Granholm and top lawmakers have in the past tried and failed to pass a final budget by July 1.
Snyder last month tapped Utah’s top budget official, John Nixon, as his new budget director. He named former Democratic House Speaker Andy Dillon as treasurer.