FRED DE SAM LAZARO: Minnesota is coming off a heady streak of economic prosperity. In each of the three years since Independent Governor Jesse Ventura's surprise election, taxpayers have gotten large rebate checks.
GOV. JESSE VENTURA, Minnesota: My entire campaign for governor was based upon the fact that there was a $4 billion surplus.
FRED DE SAM LAZARO: Property taxes have been cut, as have car license tabs. Public school funding went up, and the state actually increased its budget to provide health benefits and wage subsidies to help welfare recipients enter the workforce.
At job placement agencies like Lifetrack, which places many welfare clients, the joke was, all you needed to get a job was a pulse. All that changed last September. The economy had begun to slow by summer, but the attacks on the 11th hit key sectors very hard, says Lifetrack director John Mohr.
JOHN MOHR, Director, Lifetrack Resources: Three that have had very significant declines in terms of job openings are manufacturing, the hospitality industry, and thirdly, transportation, airport, air-travel related activities.
All three of those have been significant magnets for us in terms of placing people. All three of those have had tremendous hits, and what that's meant is that it's much tougher for people we're helping move into employment to find entry-level work.
FRED DE SAM LAZARO: Overall, unemployment has almost doubled, from 2 percent to 4 percent, and the consequences have rippled quickly here to the state capital. Tax revenues are projected to fall short by $2.3 billion.
That's almost 10 percent of the state's budget for the next two years. And that shortfall could worsen to more than $3 billion for the years 2004 and 2005.
By law, the budget has to be in balance, but tackling the deficit has been complicated by the distinctive political makeup of Minnesota state government. The state House is controlled by Republicans; the Senate, by the Democratic, or DFL Party, as it is called in Minnesota; and Ventura ran from the Reform Party.
In past years he has allied himself with Democrats sometimes, usually on social issues; Republicans at other times, often on fiscal matters. This year, he's expressed disdain for all legislators, saying they're afraid to make tough decisions like across-the- board cuts and some tax increases, as he's proposed.
GOV. JESSE VENTURA: The problem with legislators is they only have a vision to the next election. You know, they call this public service. Well, the result of that is self-serving. It's not serving the public, it's serving themselves.
ROGER MOE, (D) Majority Leader, State Senate: We have, in fact, reached an agreement on the 2002-2003 portion of the budget.
FRED DE SAM LAZARO: Responding to Ventura's criticism, lawmakers put aside their historic differences, and in just three weeks, reached a budget accord.
ROGER MOE: The sooner we act, the sooner our state can begin its economic recovery. We feel that we have tried to address some of the major concerns by holding education all but harmless, by reinstating some additional resources for the Dislocated Workers Fund and other important issues.
FRED DE SAM LAZARO: The legislators managed to avoid any tax increases. Instead, they proposed cuts in health and human services, and some reductions to education-- mostly public universities.
They would also dip heavily into a $1.3 billion reserve fund set up as a cushion for tough times. The lawmakers called it step one in tackling the multiyear budget problem, and urged Governor Ventura to sign the bill.
STEVE SVIGGUM, (R) Speaker, State House: I have zero idea why he would not agree with this. I would give him my humble advice, my humble direction, that he ought to sign this bill; he ought to take it with the good- faith first installment that it is.
GOV. JESSE VENTURA: If I were to grade it like in a schoolroom, if it were a report for a class, and I was a teacher, I would give it an "incomplete."
FRED DE SAM LAZARO: Governor Ventura said lawmakers were depleting reserve funds with short-term fixes-- not dealing with inflation, with future deficits.
The governor proposed what he called permanent fixes: Deeper cuts across the board, and tax increases on gasoline and cigarettes.
GOV. JESSE VENTURA: It wasn't easy for me. I'm a person that ran on, you know, "We're not going to raise any taxes." But I couldn't foresee the result of September 11 and what it did to us, and you have to do what has to be done and not be afraid of it.
FRED DE SAM LAZARO: But Republican House Speaker Steve Sviggum said it wasn't necessary to raise taxes, especially to tackle deficits in the future.
STEVE SVIGGUM: Governor Ventura's recommendations were wrong. They created havoc, wrong priorities-- cutting schools, raising taxes. When you're trying to solve a budget three and a half years out to 2005... there's only one other state that's doing that-- only one other state. And you know, I ask anybody in a rhetorical sense, you know, "where are you going to be in 2005? What type of moneys are you going to be making?" We're going to have seven budget forecasts before then.
GOV. JESSE VENTURA: I am vetoing House File 351.
FRED DE SAM LAZARO: Charging that they were shirking their duties in a period of war, Governor Ventura vetoed the legislators budget plan. He was asked if overriding the veto was would be unpatriotic.
GOV. JESSE VENTURA: Yes, you're darn right I'm saying that. The trickle-down of this attack has now hit Minnesota in our economy, and I'm asking Minnesotans to step up to the plate and be patriots instead of carpetbaggers.
TIM PAWLENTY, (R) State Representative: The governor is saying that anyone who opposes his tax increases is unpatriotic, and that is ridiculous and it's shameless. And I think we don't want to stand here and be lectured by him about public service at the legislature.
SPOKESMAN: And House File 351 is repassed, notwithstanding the veto of the governor.
FRED DE SAM LAZARO: Legislators managed to override Ventura's veto. However, their bill does not erase all the deficit, so more reductions will be needed, dragging out an already tough session. The biggest hit from budget reductions will come in health and human service programs. That worries counselors at Lifetrack, many of whose clients are becoming ineligible for assistance under welfare reform.
JOHN MOHR: Families now are beginning to hit up against that five-year time limit that they can receive welfare benefits, and so that's working a tremendous hardship on a goodly number of families here in this area. It's an irony that at a time people need it the most, the resources are also being threatened significantly.
FRED DE SAM LAZARO: For their part, policymakers say exceptions will be made for hardship cases. But the best hope for everyone, they say, lies in an economic recovery. As the upper Midwest sorts through one of its worst slowdowns, few economists are expecting that anytime this year.