The debt ceiling deal adopted in Washington on Tuesday has left state officials bracing for an unknown crush of new budget cuts and thousands of jobless Minnesotans facing the harsh knowledge that their benefits could expire within months.
"As of right now, it's certain -- unemployment insurance will end," said Lee Nelson, chief attorney for the Minnesota Department of Employment and Economic Development. "If you are laid off today, there's no extension" beyond the 26 weeks the state offers.
Minnesota budget officials, fresh from beating back their own massive state deficit, now must scramble to deal with a round of possible cuts in federal spending outlined in the deal President Obama signed Tuesday. While the agreement averted the calamity of a potential U.S. default and the freezing of federal funds, it also sets in motion a slow wave of reductions that will wash across all states. In Minnesota, it could mean less for road projects, school funding, medical assistance and services for low-income Minnesotans.
"There's a new sheriff in town, and its name is Reality," said state Rep. Mike Beard, a Shakopee Republican who is chairman of the House Transportation Policy and Finance Committee. "We are going to have to suck it up and learn to make do with what we have. Reality has hit, and it is going to be painful."
Figuring out the extent
The plan to trim nearly $1 trillion nationally in the coming decade could have painful implications in Minnesota. Federal funds make up about 27 percent of the state's $62 billion total two-year budget. Most of that goes to Medical Assistance, cash and food assistance, highway projects and school funding. Exactly how those cuts will ripple out is not yet known, but job cuts may be in the offing. Federal money helps pay the salaries of at least 15 percent of Minnesotans.
The agreement also did not include any extension of unemployment insurance benefits, a provision long sought by Obama and Democratic legislative leaders but scrapped to reach accord with Republicans.
If the president and Congress do not extend unemployment insurance after the August recess ends, the federal benefit will begin to wind down in January. That could affect 124,737 Minnesotans now on unemployment.
State budget leaders are still poring over the agreement, trying to figure out how the cuts will affect Minnesota.
Department of Human Services Commissioner Lucinda Jesson said she was relieved that Medicaid, known as Medical Assistance in Minnesota, is exempted from the initial cut.
That doesn't mean the new bipartisan commission charged with driving down the deficit won't come after it once the panel breaks out the budget knife.
"We are going to track it very closely," Jesson said Tuesday. She said her department will also keep a close watch on child protection, food support and other assistance for seniors.
Deeper cuts, higher demand
These new cuts could come as a sagging economy has intensified demand for government services.
As of May, 524,689 Minnesotans got food assistance -- up about 100,000 from the year before.
"I am concerned about any significant cuts in federal funding for critical programs that serve vulnerable people," Jesson said.
Minnesota's weather-beaten roads could take a hit, too -- not from Mother Nature, but from federal cuts that could delay or scrap road projects or new transit initiatives.
Transportation staffers are cobbling together lists of projects slated for coming years, prioritizing those aimed at reducing risk for motorists and pedestrians, said Senate Transportation Committee Chairman Joe Gimse, R-Willmar.
"Maybe some of the lower-priority projects will be delayed," he said.
Advocates for nonprofit organizations worry about long-term implications of the debt agreement.
Many of the worst cuts will come toward the end of the 10-year agreement, a provision designed to ensure that spending reductions don't snuff out the nation's already anemic recovery from the worst recession in decades.
That could wreak havoc on agencies that serve low-income residents.
Steve Francisco, a federal policy expert with the Minnesota Budget Project, frets that literacy programs, special education and mental health block grants all could become targets.
"In the first year, you probably aren't going to notice it," Francisco said. "But as it goes out, people will really feel it."
That's a lot of uncertainty for a state that just patched together a budget largely through one-time fixes and postponed the politically poisonous reality of deeper cuts or tax hikes.
The federal reductions should have little effect on the state's general fund, which covers the day-to-day operations, Minnesota Management and Budget Commissioner Jim Schowalter said.
If Washington leaders decide to slice away some Medicaid money, "that would be a place there is some risk," he said.
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