Dangers of “Give It Back”—Remember Jesse Checks?
Conservative leaders want to return the entire $1.233 billion state budget surplus to Minnesotans through a “Give It Back” Act, which—in addition to tax cuts Governor Dayton and other progressives already embraced—would include estate tax reductions and other tax cuts yet to be determined.
The “Give It Back” Act is reminiscent of the heady days of 1999 to 2001, when state policymakers responded to a string of state budget surpluses with a string of tax cuts, including two large income tax reductions, sales tax rebates (remember the “Jesse checks”?), and the elimination of the general education property tax.
The aftermath of these policies left the state with insufficient resources to cover its long-term commitments, resulting in recurring budget deficits over the next several years. Because anti-tax leadership could not fathom the notion of state tax increases to counteract the problems caused by the state tax cuts of 1999 to 2001, the only available option was a string of spending cuts that led to large real per pupil cuts for K-12 education, increasing class sizes, soaring higher education tuition costs, cuts in local government budgets combined with perennial property tax increases, and a disinvestment in state infrastructure needs. In short, the last time state policymakers “gave it all back,” the outcome was not what anyone predicted or desired. Let’s not repeat past mistakes.
The thing to remember about the $1.233 billion budget surplus revealed in the February forecast is that it is only a projection of state finances for the current biennium that is only one-third complete. The revenues anticipated to enter state coffers over the next 16 months may or may not meet expectations. If they do not, the state will be back in budget deficit mode—which will mean renewed funding cuts for education, more local property tax increases as state budget woes are shifted to local governments, and renewed disinvestment in important public assets.
By the same token state policymakers should also be cautious to avoid permanent spending increases that would place state finances in a similar fiscal conundrum. Fortunately, there is a course for dealing with the current surplus that is both sensible and bi-partisan. In 2009, the Minnesota Budget Trends Study Commission, consisting of members appointed by the then DFL-controlled legislature and Republican Governor Tim Pawlenty, recommended that the state budget reserve—currently at $661 million—be increased to $2.1 billion in order to “manage cyclical economic volatility.”
The projected surplus for the current biennium is not large enough to bring the budget reserve up to the level recommended by the Commission, particularly after the federal conformity and B2B tax reductions likely to be approved on a bi-partisan basis during the current session. However, dedicating the remainder of the surplus in excess of the agreed upon tax increases would leave the state better equipped to deal with future economic instability and could help restore the state’s AAA credit rating, which was lost as a result of the shoddy budget practices employed in response to past budget crises.
The “Give It Back” Act is another public relations stunt bought to us by the same anti-tax clique responsible for a decade of state general fund deficits, accounting gimmicks, and ill-conceived budget cuts. Such a “give back” would undermine future state budget stability and jeopardize the important public investments in education, infrastructure, affordable housing and healthcare, and workforce development made during the 2013 session. The sensible and bi-partisan use of surplus dollars would be to enhance state budget stability in the face of future economic uncertainty by beefing up the state budget reserve.