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MN2020 - MN2020 Journal: Where Do We Go from Here?
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MN2020 Journal: Where Do We Go from Here?

December 04, 2009 By John R. Van Hecke, Executive Director & Fellow
 
Wednesday morning, State Economist Tom Stinson told us what, if we're honest, we already knew. Minnesota's recession-driven economic performance is creating a growing, on-going state budget deficit.

In inflation-unadjusted dollars, Stinson, along with the Minnesota Management and Budget Office, projects that Minnesota will realize a $1.2 billion shortfall in the current biennium. Holding present budget figures constant, he further projects that deficit growing to $5.4 billion in the next biennial budget cycle.

But, that $5.4 billion isn't actually the correct figure. Calculating inflation's full anticipated impact raises the projected next biennial budget deficit to $7.4 billion. On the surface, it's a head-scratcher. How can budget professionals be off by $2 billion?

Short-term political necessity trumped responsible governance, that's how.

Minnesota policymakers, in one of the most truly self-interested, bipartisan political budget deals ever struck, agreed in 2002 to assume inflation's impact when calculating revenue forecasts but ignore it when calculating costs. The difference birthed a creative accounting spread masking a roaring $4 billion budget deficit. At least, it masked the shortfall through the November elections.

This chicanery set the budget policy tone for the entire Pawlenty administration, a tenure bookended by substantial budget deficits.

Following Stinson's Wednesday presentation, Governor Pawlenty, in a separate press conference echoed by every conservative state public policy voice, piously declared that Minnesota has a spending problem, not a revenue problem. This has been the Governor's stock observation since taking office in 2003, much like his declarations that Minnesota's tax burden is too great or now's not the time to raise taxes because the economy is either too strong or too weak.

Stinson pulled no punches, identifying dramatically diminished income tax receipts as the key reason Minnesota faces a budget deficit. Diminished revenue is the consequence of double-digit unemployment and a lagging economy. In other words, Minnesota has a revenue problem.

Governor Pawlenty, in his December 2 press release, pledged to "work with the legislature to resolve the budget shortfall." Experience suggests that Pawlenty means he'll work with the legislature only insofar as the legislature entirely yields to Pawlenty's policy priorities. This is not a progressive action prescription and will only perpetuate the present situation.

So, where do we go from here?

First, regarding the projected immediate deficit, I suspect that the Governor will yank some or all of the state's scheduled revenue sharing payment to Minnesota's communities. He comfortably exercised his unallotment authority earlier this year and I can't imagine six passing months have changed his mind. We may fairly anticipate more spending cuts. State legislators will likely propose revenue increases but, again, their circumstances have changed no more than Pawlenty's so a similar outcome is certain.

Resolving Minnesota's projected budget shortfall should require a balanced approach. We can't cut our way out of this problem anymore than we can tax our way out. We need to embrace both measures.

Over the long term, Minnesota needs an economic growth strategy. We don't have one at present and, given state public policymakers' track records, it's unlikely that an articulate, foresightful development plan will emerge anytime soon. Only business growth will generate jobs and the income tax revenue that follows. State policy should leverage Minnesota's strengths -strong schools; solid infrastructure; smart, flexible workers; and discipline innovation- rather than ignore, waste or undermine it.

Minnesota must focus on what really matters: education, healthcare, transportation and economic development. Conservative public policy is failing hardworking Minnesotans. We need a balanced approach if we want Minnesota to continue to be an above average state that offers a high quality of life to the people who live here. Let's focus on what's made our state great in the past-good schools, good jobs, affordable housing options, beautiful parks and lakes-and let's find a way to balance the budget while also funding the programs that make Minnesota a desirable place to live, to work and to raise families.



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