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Minnesota 2020 Journal: First, Admit the Problem

March 30, 2012 By John R. Van Hecke, Executive Director & Fellow

This week, State Senate conservatives passed legislation restoring some of the funding directed away from Minnesota’s public schools through the funding shifts dodge. Their action doesn’t represent a change in policy direction. Instead, it affirms a poor path, repeatedly taken, that leaves Minnesota increasingly unstable.

Pulling a five dollar bill from one pocket and shoving into the other doesn’t create a new five dollar bill. But, that’s what conservative policymakers would have us believe. Their argument goes something like this: Minnesota is running a budget surplus. We don’t need to raise taxes. Let’s spend the surplus on the schools, making up for that funding shift gimmick that we forced on them.

It’s a terrific story except that it’s misleading.

Let me set the record straight. Here’s what happened last year: Minnesota, like pretty much every state, faced another staggering state budget deficit. The legislature divided over cutting spending and raising taxes versus cutting spending and not raising taxes. After weeks of prolonged negotiation, the legislature wrapped up without passing a budget. On July 1, Minnesota government shut down.

After 20 days, state legislative leaders struck a deal with Governor Dayton, cutting spending without raising taxes. Both sides agreed to create $1.5 billion in new revenue by borrowing against projected tobacco bond revenue and pushing school funding payments into future fiscal periods. Schools suddenly received less money than they were previously told that they could expect, dispersed later than they’d been told they could expect it.

That’s a raw deal, but if it were just a one-time thing most school districts could probably swing it. Last year’s shift wasn’t a one-time fix. It was another in a succession of payment shifts. Minnesota has promised Minnesota’s schools $2.4 billion more than it has delivered, keeping the $2.4 billion to balance its own books without raising state taxes.

In the past year, Minnesota’s modest economic growth created a slightly larger than expected state revenue increase. The question of spending any surplus was established in the 2011 budget deal. Since Minnesota spent every dime in its budgetary reserve account to balance last year’s deficit, replenishing the required reserve was job one. Job two was improving the state’s cash-flow account from drained to something. Job three uses any additional surplus funds to begin repaying the school transfer fund shift.

Remember, the shift isn’t really a shift; it’s an I-O-U forcing schools to suddenly do the same teaching job with less money.

The problem? Jobs one and two are still mostly absorbing the revenue surplus. Minnesota has paid $323 million to the schools, leaving the state with another $2.4 billion outstanding. The conservative proposal allocating another $430 million to the schools would draw funds from the state budget reserve. That will leave Minnesota underfunded again, raising borrowing costs due to the structural reserve shortfall.

This proposal is the equivalent of transferring a balance from one high-interest credit card to another high interest credit card. It creates the illusion of responsible governance when the opposite is true.

The past decade taught Minnesotans that living paycheck to paycheck while running up progressively larger credit card bills only leads to heartbreak and financial calamity. The only thing worse is trying to game the system by moving one large credit balance to a new or different credit card. The debt remains, stubbornly persistent yet this is exactly what Minnesota’s conservative policymakers want to do.

Two profoundly different philosophies operate in Minnesota’s state capitol, reflected in two profoundly different public policy orientations. One views government suspiciously and skeptically, a barely necessary evil that requires regular slaying. The other sees government as an instrument of people’s collective will for security, stability and prosperity.

The conservative vision puts Minnesota’s highest income earners’ interest ahead of middle and lower-income earners’ interests. It favors the one percent over the 99 percent. We see this preference in conservative policymakers refusal to raise taxes on the wealthy, bringing their tax burden to the same level as lower income earners pay. Instead, Minnesota’s legislative leaders resort to funding shifts, budget gimmicks and high cost, short term borrowing pretending to be something other than what it is.

This has to stop. Balancing needs and desires with revenue forecasts requires brutal honesty. State policymakers have fallen into the trap of pretending. They’re kidding themselves that Minnesota’s fiscal position is stronger than what it is.

Twelve-step addiction treatment programs teach a simple, powerful approach. First, admit that you have a problem. Minnesota has a problem. We can fix it, creating a path forward by focusing on what really matters. Spending money that we don’t have available only perpetuates the problem.

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