Jan. 4: The budget squeeze

THE ISSUE: The task that will overshadow and determine the shape of all others will be erasing a projected $4.8 billion budget shortfall for the 2010-11 period. And that's without assuming any inflationary spending increases. Already last month, Gov. Tim Pawlenty acted to eliminate a $425 million deficit for the remainder of the current budget period, which ends June 30. Collapsing revenue from income taxes, sales taxes and capital gains taxes has produced the daunting deficit, which totals around 13 percent of the projected $35.7 billion budget for the two-year period starting July 1.

THE OUTLOOK: Legislative leaders and Pawlenty are pledging a new spirit of cooperation, in recognition of the enormous challenge they face. But that is likely to be tested quickly. Pawlenty says he will adhere to his no-new-taxes mantra. He will present a budget proposal, but the Legislature, where DFLers hold heavy majorities in both chambers, will craft the final version.

State agencies and local governments already are bracing for large cuts, with agencies expected to absorb reductions in the 5 to 10 percent range. State aid to local governments already was targeted to help fix the short-term deficit for the current budget cycle, and many local communities are threatening significant cuts in basic services such as police and fire protection if the reductions continue. Pawlenty has dismissed those concerns as the-sky-is-falling rhetoric and said that cities and counties that cut public safety have misplaced budget priorities.

Many other possibilities exist, including the sale or lease of state assets such as public land, the State Lottery and the airport. Senate Majority Leader Larry Pogemiller, DFL-Minneapolis, said he is interested in long-term structural change in the budget process and doesn't want mere budget shifts to mask the problem. But it's reasonable to assume that every available shift will be made.

THE ISSUE: Despite a general tighten-the-belt-and-cut-first mentality, the state is likely to look for new sources of revenue to help balance its books.

THE OUTLOOK: There are signs that such ideas as closing corporate tax loopholes and exemptions are on the table, as well as the possibility of some fee increases.

One of the hottest topics is likely to be debate on expanding (rather than increasing) the state's sales tax, possibly to include such things as clothing, car repairs and tax preparation services. Senate Tax Committee Chairman Tom Bakk cautions, though, that the sales tax is regressive, saying it unfairly hurts those with lower incomes.

THE ISSUE: The state's large capital improvements bills are usually passed in even-numbered years, but the prospect of a federal economic stimulus package might spur state action on this front.

THE OUTLOOK: Watch for salivating over the announcement of any federal package. Legislative leaders will hope to dovetail any state borrowing for building projects to maximize the federal dollars.

Government building means construction jobs. Roads and bridges will probably be high on the list of potential targets, but money could also be directed toward other infrastructure, such as sewer and water facilities.

Some Republicans are cautioning about ringing up the state's credit card for another bonding bill at such perilous times. "We don't believe government make-work jobs spur the economy," House Minority Leader Marty Seifert, R-Marshall, said recently. Countered Senate Majority Leader Pogemiller: "If you are out of work, I don't think you view those as make-work jobs. I think you view those as food on your table."

THE ISSUE: A huge plan designed to reform school funding and add hundreds of millions of additional state dollars to schools' annual budgets will be introduced. It's designed for gradual phase-in over many years.

On other fronts, legislators will consider changing Minnesota's 11th-grade graduation requirement test in math, rolling back some district spending mandates, and raising the minimum school dropout age from 16 to 18.

THE ISSUE: Health care makes up a rapidly growing part of the budget and that has made it a prime target for cuts in these lean times. Gov. Pawlenty has already used his "unallotment" powers to reduce some spending in the short term. DFLers have opposed him for the most part, but acknowledge that there is little hope of shielding health care from the budget reductions that lie directly ahead.

THE OUTLOOK: Both sides would like to continue the incremental health-care reforms begun last year, setting course for expanded use of results-based reimbursements and more information on costs and quality for consumers. But few think that the reforms would save the kind of money needed to stanch the flow of red ink from publicly subsidized health care.

THE ISSUE: After a turbulent 15 months, the Minnesota Department of Transportation hopes to find itself less in the spotlight this year. In a mid-December address to employees, Transportation Commissioner Tom Sorel said the agency "will be OK in 2009" and added that "there will be a small deficit that can be addressed internally" with no layoffs, at least in the foreseeable future.

Those words followed a year in which MnDOT faced intense scrutiny as a new Interstate 35W bridge replaced the one that collapsed in August 2007. In an official report on the collapse issued late last year, the National Transportation Safety Board largely cleared the agency's maintenance of the fallen bridge as a reason for the disaster.

THE ISSUE: Legislators will consider new strategies to reduce greenhouse gas emissions and move further toward goals that they and Pawlenty set two years ago.

THE OUTLOOK: Most visible will be tougher emissions standards for cars and light trucks sold in Minnesota, in tandem with proposals to get gasoline producers to develop more "low carbon" fuels from corn, grasses and other non-fossil sources. New land use policies will also be proposed, aimed at getting people to drive cars less. Greenhouse gas emissions may be added to environmental impact assessments, and legislators may explore nuclear energy as a new power source, said Sen. Yvonne Prettner-Solon, DFL-Duluth, chairwoman of the Senate Energy, Utilities, Technology and Communications Committee.

A carbon "cap and trade" plan, which would affect the cost of both producing and using energy (and, some hope, encourage new technologies), is not likely to advance this session, Prettner-Solon added. It's being superseded by regional and national efforts and, in Minnesota, by the state's budget shortfall.

THE ISSUE: In the next 15 months, the University of Minnesota football team and the baseball Twins will leave the Metrodome for new homes built in part with public help, and the Vikings have been seeking a new stadium as well.

THE OUTLOOK: The Vikings, who say that construction of a stadium might be a worthy, jobs-creating public works project, may come calling, and legislators may listen. But money for a refurbished Metrodome or for a new football stadium isn't likely to flow this year, when many other programs will face cuts. Still, on any given session, anything is possible.