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Minn. shutdown causes added pain, costs millions

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MARTIGA LOHN
July 7, 2011
— While Minnesota's political leaders haggle over how much the state should spend in the next two years, state coffers are bleeding millions of dollars as a result of the state's week-old government shutdown.

"It's going to be a slow force on the economy," said Tom Stinson, a University of Minnesota professor who is laid off from his job as state economist.


Minnesota stands to lose tens of millions of dollars in the nation's only state government shutdown, as lottery tickets go un-purchased, tax cheats go un-pursued and 22,000 laid-off state workers collect unemployment and health benefits.


The government interruption also threatens to slow an already sluggish economic recovery as the state employees in limbo and others who lose state-dependent jobs including construction workers and nonprofit staffers tighten their spending.


Stinson said the shutdown isn't likely to cause a recession but "it's clearly not good the longer that it goes on."


The political dispute that has closed state government centers on how to erase a $5 billion deficit. Republicans who run the Legislature want to cut projected spending to match the amount of revenue the state will collect over the next two years. Gov. Mark Dayton hopes to avoid some of those cuts by raising income taxes on the highest earners; he has also said he's willing to consider other ways to bring in new revenue.


Budget talks were continuing but the basic divide persists, and a meeting Wednesday yielded no meaningful progress. Dayton's latest offer asked Republicans to choose between a temporary top-tier income tax increase or a $1-a-pack cigarette tax hike; they said they're not interested in either. No further talks were scheduled.


State officials won't be able to calculate the shutdown's full cost until it's over, but they have quantified some of the notable losses: $1.25 million a day on the lottery, $1 million a week on state parks, $52 million a month in uncollected tax revenue that idled state auditors would have brought in. The cost of other shutdown casualties including 100 closed road construction projects has yet to be calculated.


"Nobody believes the state is saving money," said John Pollard, spokesman for Minnesota Management and Budget, the state's finance agency.


State parks are losing $1 million a week in camping fees, park passes, concessions and gift shop sales, according to the Minnesota Department of Natural Resources.


The state Transportation Department is losing $40,000 to $50,000 a week on passes to use express highway lanes, spokesman Kevin Gutknecht said.


Laid-off state employees are eligible for half their pay in unemployment and the state's share of their health insurance costs. State agencies will be billed for the estimated $8.5 million weekly cost of unemployment once the shutdown ends, said Kim Isenberg, a spokeswoman for the Department of Employment and Economic Development.


Jennifer Munt, a spokeswoman for the biggest state employee union, Council 5 of the American Federation of State, County and Municipal Employees, said the health benefit continues for up to six months. The Star Tribune reported the cost of health insurance for the laid-off workers as $4.7 million a week.


"We believe it carries a huge cost both in terms of people and in terms of dollars and cents," Munt said of the shutdown. Several hundred laid-off state workers rallied on the Capitol grounds Wednesday evening, demanding lawmakers support the top-tier income tax increase and end the shutdown.


Without the mass layoff, the state would be spending about $23 million a week paying those employees, Stinson estimated.


State taxpayers are far from the only losers in the shutdown.


In northern Minnesota, Knife River Corp., a Bismarck, N.D.-based construction company, plans to lay off 40 to 50 employees who had been working on a state highway project, one of the business' five road projects idled by the shutdown, said company executive Tom Stockert.


Some of Knife River's other Minnesota workers have been shifted to county jobs, but if the state government closure drags on much longer, he said Knife River likely will move some equipment and crews to North Dakota. That could trigger a payment of as much as $50,000 from the state of Minnesota, and Stockert said those crews might not make it back to the state this construction season.


"We won't be able to just move the plants back and forth at this point at the will of St. Paul," Stockert said. "It's an expensive proposition."


Gutknecht said contractors working on state projects can try to come back to the state to recoup costs they incurred while the work was suspended.


Stinson said a shutdown lasting a month or longer would drain about $20 million a week in spending power from Minnesota's economy, as those who lost jobs to the shutdown cut back on eating out and other small luxuries. That's less than 1 percent of total spending power in the state, where last month's 6.6 percent unemployment rate was well below the national rate of 9.1 percent. But Stinson predicts the effect will be felt in the private sector as families forgo trips to restaurants, amusement parks and other indulgences.


"The public sector provides a lot of jobs for people, and when those jobs disappear, the spending that comes from the people that were employed in the public sector falls off and can fall off pretty dramatically. And that affects the private sector," he said.


Meanwhile, Pollard estimated that state agencies spent about $3 million preparing for the shutdown and locking down everything from highway rest stops and park buildings to the state Capitol, which is now closed to the public. He said Minnesota Management and Budget spent $20,000 to notify 36,000 state employees of the pending layoffs, while other agencies sent out similar notices to state vendors and those who get public health care and other social services. Most of that cost has yet to be tallied.


"You're spending money that you would otherwise not spend," Pollard said. "Let's say you make up some money on salaries you're spending it in other areas."



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