Minnesota legislators whose knee-jerk response to the word "recession" is to call for a stimulus package might not want to hear state economist Tom Stinson's reaction to that impulse.
"There isn't a lot that state governments can do in terms of stimulus," Stinson told an audience assembled Tuesday by the Minnesota Budget Project, an arm of the Council of Nonprofits. State government simply can't keep up with the feds when it comes to giving the economy a "timely, targeted and temporary" boost -- the test Stinson endorsed for a worthwhile stimulus strategy by government. The Minnesota share of the stimulus package approved by the U.S. House Tuesday will likely exceed $2.5 billion -- orders of magnitude larger than anything the Legislature, with its balanced budget requirement, can afford to spend this year.
A capital investment bonding bill is often touted as the 2008 Legislature's chance to pump money quickly into the economy. But building projects don't ramp up that fast, Stinson said. Typically, only 15 percent of a project's authorized spending occurs in the first year. "Years two and three are the big spending years," he said.
In other words, it's clear with the benefit of hindsight that when the Legislature and Gov. Tim Pawlenty failed to agree on a bonding bill in 2007, they missed their chance to use bonding to help Minnesota weather this season's economic storm. Pawlenty's May 1 veto of a fine bill -- $135 million in bonding, $164 million in cash expenditures -- looks to be a lost opportunity.
So what's a governor and a Legislature to do this year, in the face of a wobbly economy and a deficit that's tiny now but, Stinson warned, likely to get worse?
The economist didn't answer that question directly. But he pointed at an answer when he was asked why an entrepreneur would choose to invest in Minnesota: "It's because you can make money here, more than you can make elsewhere, and the reason is because of the productivity of this state's workforce. That's what our advantage is."
Protecting and enlarging Minnesota's workforce productivity advantage should be the central aim of state politicians. They likely will be required to rebalance the state budget this year because of shrinkage in revenues. They ought to opt for a correction that avoids shrinking its workers' capacity and hurting Minnesota's businesses.
That means steering clear of cuts in education spending, from preschool through higher education. It means avoiding health care cuts that push the working poor out of the workforce. It means shifting tax burdens away from business investment, particularly research and development. It means investing in the safety and efficiency of the state's transportation infrastructure, which helps keep Minnesotans productive.
Leaders of the Legislature's DFL majorities have said they want economic stimulus to guide the agenda for the session that will convene on Feb. 12. They should take Stinson's words to heart. They can't do much to give the state economy a quick jump. But they can do a lot to lift it over the long haul.