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Stimulus shakes up budget debate

State Budget Director Jim Schowalter, left, and finance Commissioner Tom Hanson tell legislators Thursday there still is unknown information about how the federal economic stimulus plan will affect Minnesota. Congress is expected to pass the legislation in the coming days.

ST. PAUL - Minnesota's ailing state coffers could get a $2 billion jolt from the federal economic stimulus package, but the funding comes with conditions and will complicate Capitol budget talks.

State finance officials said Thursday that early number-crunching shows Minnesota could get more than $3 billion from the $790 billion economic recovery plan nearing completion in Congress. At least $2 billion of that could be directed to the state's general fund, which pays for most state services.

"I think it's very helpful," said Tom Hanson, state budget commissioner.

Democratic legislative leaders said the one-time federal funding is a temporary fix for the state as it grapples with a budget deficit that could reach $7 billion. They said the federal package nullifies Republican Gov. Tim Pawlenty's two-year budget proposal and that he will need to submit a new one to the Legislature.

The Legislature's main job this session is to pass a two-year budget.

A December budget forecast showed Minnesota with a $4.8 billion deficit in the next two-year budget period, beginning July 1, but the deficit is worsening. Pawlenty said an early-March update could show a deficit of $6 billion to $7 billion in the next budget period.

Pawlenty's initial budget proposal, introduced last month, will need a major overhaul because he proposes spending cuts that cannot be made if the state is to accept federal stimulus dollars, said Senate Majority Leader Larry Pogemiller, DFL-Minneapolis.

"With this information, we know it doesn't work," Pogemiller said of the governor's budget.

But Hanson, Pawlenty's finance chief, said much of the $33.6 billion budget proposal is not affected by the federal aid.

A national legislative organization that briefed lawmakers Thursday on the stimulus package said states should get more detailed information in the coming days about federal aid headed their way. The U.S. House and Senate are expected to pass the massive legislation by this weekend.

The plan, called the American Recovery and Reinvestment Act, includes a package of personal and business tax cuts and credits, and a sweeping spending plan that funds health programs, public school education, college grants, infrastructure projects and energy initiatives. Congressional Democrats and the Obama administration estimate that it will create at least 60,000 jobs in Minnesota.

Negotiators rushed to reach agreement on the legislation in recent days, but state finance officials said Minnesota will see its stimulus aid come in over the next two years.

"It won't all happen next week," said Jim Schowalter, state budget director.

The stimulus package is meant to provide an immediate boost to the weak economy, however, and some state and local government spending is expected within a few months.

The package is expected to include nearly $30 billion for transportation projects around the country, half of which is to be dedicated for specific road and bridge work within four months.

Minnesota has plenty of projects ready to go when its share of those federal funds start rolling in, said Rep. Bernie Lieder, DFL-Crookston. Lieder, who is the House transportation committee chairman, said local and state officials have identified road and bridge projects to complete with the money.

"They're ready to go," Lieder said.

As is the case with other parts of the stimulus package, it is not clear how much federal aid Minnesota will get for transportation projects. Lieder said some estimate it will lead to a doubling of road and bridge work over the next two years.