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Long-term Budget Imbalance

Minnesota has a long-term revenue and expenditure imbalance: we spend more than we take in. We have had this problem since 1999 when, believing that the prosperity of the late 1990’s would last forever, the state officials cut income taxes and increased spending, both too much.

While the national recession is partly to blame for the current deficit, Minnesota entered this latest downturn with only a $157 million budget reserve and a projected imbalance of $1 billion from the failure of the governor and legislature to make critical decisions last year.

Governor Pawlenty’s budget proposal does little to address the permanent imbalance. First, the governor proposes new spending and cuts corporate taxes to add $860 million, increasing the deficit to $6 billion. Then, he proposes permanent spending cuts of only $2.5 billion (Some of these spending cuts will result in higher property taxes and higher health insurance costs.).

Questionable one-time solutions are used to address the remaining $3.5 billion. As a result, the governor’s own budget analysts show that the next budget is out of balance by $2.5 billion (even ignoring another $1 billion of inflation costs).

Recently, the bi-partisan Minnesota Budget Trends Study Commission urged the governor and legislature to balance both the current budget (2010-2011) and the next budget (2012-2013). The governor’s proposal clearly fails to balance the 2012-2013 budget putting Minnesota in jeopardy of constant budget deficits even in good economic times.

Technical Flaws

The worst proposal in the governor’s budget recommends that the state sell $1 billion of long-term bonds to fill the operating budget hole. It would pledge future tobacco settlement dollars to repay the bonds. This is like stealing from your child’s piggy back with no intent of repayment.

The governor’s proposal also includes an accounting gimmick of $1.3 billion by shifting school aid payments from one fiscal year to another making it appear that the school payments aren’t current obligations. School districts will have to finance the cost of the missing dollars at the expense of educating our children.

The third flaw is the general use of the Health Care Access Fund financed by a dedicated tax on hospitals and health care providers to support health care for those employed but underinsured. In essence, the governor will finance some of his spending increases or corporate tax cuts with dollars that are to be used for health care.

Values Premise

In his state of the state address, Governor Pawlenty spoke about a family around the kitchen table trying to balance its budget and admonished the legislature, "Please don’t raise their taxes.� His underlying theme is that it is better for them to spend their dollars on what they want, rather than have the government spend it on broader needs.

A week later, President Obama challenged the nation to address our common problems. Obama sees a "…new era of responsibility — a recognition, on the part of every American, that we have duties to ourselves, our nation, and the world.� If he were observing Governor Pawlenty’s symbolic family, he would argue that some of the family’s dollars should be afforded for taxes and distributed to those with greater problems. Collective needs are as important as individual needs, a traditional Minnesota value.

Alternative Budget Approach

The legislature should revise the governor’s budget proposal:

• Make sure that the 2012-13 budget is also balanced assuring Minnesotans that the permanent imbalance in revenues and expenditures is fixed;
• Drop any consideration of long-term borrowing to offset the current budget deficit;
• Reject many of the governor’s cuts in human services to keep a strong safety net for those most in need in our state;
• Restore cuts to local governments to avoid higher property taxes;
• Create a balanced cut spending and increase revenue budget solution that does not cut the corporate tax for existing companies, but increases revenue by eliminating the 1999 income tax cut permanently and assesses a surcharge on the sales tax until the recession ends; and,
• Preserve the budget reserve and cash flow reserve in the governor’s proposal.

Minnesotans are willing to sacrifice some of our current spending and we are willing to pay more in taxes for the common good of our state. Legislature, please approve a budget of which we can be proud.