Tuesday’s budget announcement was just the beginning:
The budget debate is just beginning, and Governor Pawlenty said his proposal will need some adjustments in the coming weeks to reflect new financial information.
One change will come when Minnesota learns the amount of its share of the federal economic stimulus bill. Another will come next month, when finance officials update the state economic forecast, which is expected to project an even larger budget deficit.
Deferring Revenue and One-Time Solutions
The Governor proposed a number of one-time solutions which will reduce our budget for the upcoming biennium, but will not address the underlying problems that impact our state.
The impact of these decisions have been addressed more eloquently by others (here, here, here, and here). Concerns about their feasibility can be found here and here.
What strikes me is that we have a problem with our business model. Our expenses outweigh our income.
To fix that problem, we must both cut spending and increase revenue. As D.J. Leary writes in his reaction to the budget, we have a structural problem:
This governor has faced two multi-billion dollar budgetary shortfalls since first being elected in 2002 and he still doesn’t appear to have grasped the reality that Minnesota has a structural defect in its overall fiscal configuration. Minnesota simply has too narrow an income stream to provide government services at the level its people want and need. The governor’s budget is nothing more than state government’s version of Three-card Monte.
The Governor is proposing some ways to generate revenue – such as additional fees for service – but has taken off the table one way to do this. “Don’t increase burdens by raising taxes” was one of the Governor’s underlying principles when crafting this budget.
Taxes are a loaded topic. Deciding to raise taxes, especially in the midst of a recession, is not easy. What concerns me is that the Governor is not willing to consider this revenue stream.
As an example, can you imagine a nonprofit being unwilling to consider an earned income venture or an individual giving campaign when trying to bridge a 14% funding gap? Or an organization that solved this through problem a large one-time grant, using restricted funds for another purpose, and deferring payments to vendors to the next fiscal year.
Unconvinced? Mr. Leary and I are not alone.
Minnesota Budget Trends Study Commission
Minnesota Budget Trends Study Commission was established at the end of the 2007 session to analyze the factors that were contributing to our state’s ongoing budget volatility. In particular, they looked at the implications of our shifting demographics:
The State Budget Trends Study Commission is established for the purpose of completing a study of the implications of state demographic trends for future state budget conditions, including both expected revenue collections and spending for state government services and local services supported by state revenues.
On January 12, they released a report that outlined some of the challenges facing the “long-term stability of the state budget.” Their findings included, but were not limited to (emphasis mine):
- Despite continuing to rank high among many key social and economic indicators, Minnesota’s economy has underperformed recently relative to the nation.
- Demographic and economic factors will lead to lower growth of state revenues over the next 25 years.
- Minnesota has a long-term structural budget problem, with long term expenditure growth likely to outpace revenue growth.
- Minnesota’s general fund tax base has grown more volatile in the past decade.
Coverage on the report:
How do we Fix the Problem?
The first step to any solution is acknowledging that there is a problem.
