Officials examine how raising debt ceiling will affect federal dollars to state

Many state officials are still waiting to learn more about the federal government's debt ceiling deal and how it will change the flow of federal money to St. Paul.

Minnesota is one of just a handful of states that pay more in federal taxes than comes back in federal funding. But that imbalance won't spare the state from potential cuts, which could include highways, schools and health and welfare programs.

A report published this week in The Economist showed that from 1990 to 2009, Minnesota received more than $503 billion in federal funding. During that same 20-year span, the state paid more than twice that amount in federal taxes. When adjusting for the size of the state economies, only Delaware had a bigger disparity.

Cuts are unavoidable, given the federal budget situation, said State Sen. Joe Gimse, R-Willmar, who is also transportation committee chair. Gimse wants to make sure Minnesota gets back its fair share of federal money.

"We want to see those returned to Minnesota for our road and bridge project, and we'll be pursuing that," Gimse said.

Gimse plans a hearing this fall to look closer at the federal changes. The debt ceiling measure sets spending levels, but doesn't lay out specific spending cuts. That has state officials bracing for less federal funding without knowing which programs might get hit.

The bill will likely mean reductions each year for the next 10 years, said Charlene Briner, a spokeswoman for the Minnesota Department of Education. Those federal cuts will impact special education, programs for low income students and school lunches, she said.

"If there's any good news in it, it's that federal funding makes up a relatively small portion of state funding," Briner said. "However, in the context of diminished resources and financial pressures on schools already, I think that any reduction in federal funding is certainly a concern for us."

While the lasting effects are to be seen, some are already clear. The agreement did not include an extension of unemployment insurance benefits, and means thousands of Minnesotans will see their federal benefits expire this year or early next year. The state's unemployment rate was 6.7 percent in June.

Krista Denn of Brooklyn Park lost her human resources job last year. Now looking for a job, Denn said her benefits will end in December.

"Either way I want to get something as soon as I can get something," Denn said. "But it's just added extra pressure that makes everything more tense."

Some federal programs escaped the initial cuts. Medicaid funding to Minnesota and other states will continue for now, but it could be targeted in the fall when a new congressional committee begins tackling additional budget savings.

Pell Grants for college undergraduates were also preserved. During the past year, more than 181,000 Minnesota students received $606 million in federal Pell Grants.

However, graduate students will lose their federally subsidized Stafford Loans beginning next year, which concerns Sheila Wright, director of the Minnesota Office of Higher Education.

Under the proposal, Wright said it's estimated that some students could owe as much as $7,000 more in their federal loans by graduation.

"At a time in which we have graduate students in professional programs, more graduate students than ever in school, there's a great deal of tension around that aspect that will need to be thought through in the years ahead," Wright said.