Our battered state budget: What's the cure?

  • Updated: December 6, 2009 - 11:09 AM

Should the state raise taxes? Cut spending? Throw out all budget notions and start over? Six experts offer ideas on fixing the budget once and for all: Marcia Avner, Mark Haveman, Jim Miller, Phil Krinkie, Nan Madden, William Blazar.

MARCIA AVNER

public policy director, Minnesota Council of Nonprofits

For a decade of budget debates, we Minnesotans have been caught in the trap of false choices. What do we cut? Health care or job training? Whom do we blame? Who takes the heat in the next election?

Maybe last week's news about the deficit will jolt us out of our acceptance of polarized politics, foolish choices and gridlock.

Here's the reality: The state isn't falling into neglect and disrepair because of forces beyond our control. Minnesota has made the clear and continuing political choice to cut taxes, creating ongoing deficits, which result in reduced services -- which result in a poorer economy.

We have chosen to accept the myth of tax cuts as economic engines, and in so doing we have chosen to ignore our real economic strengths: a healthy population, secure and stable individuals and communities, and the education that has been Minnesota's stock in trade.

This deficit is grim. We are long overdue for strong leaders willing to make real choices. Taxes are the fees we pay for a healthy economic state. We need gutsy leaders willing to raise adequate taxes, do it fairly, and invest in Minnesota.

MARK HAVEMAN

executive director, Minnesota Taxpayers Association

The state economic forecast reaffirms what previous budget projections have told us: Existing state government finance is unsustainable. Taxing more and spending less doesn't address the significance of what we are facing. Minnesota needs an overhaul on both sides of the ledger.

Tax reform must emphasize policies that grow the tax base rather than simply squeeze more revenue out of existing taxpayers. Our continued reliance on tax code tweaks and incentives to keep Minnesota competitive and attract business is destined to disappoint. Other states and nations are racing to match and exceed these piecemeal efforts.

As Mark Twain said about whiskey, "Too much is not enough."

Abolishing Minnesota's corporate income tax is one example of the bold reform we should be considering.

Spending reform must focus on redesigning public service delivery. There are many strategies to accomplish this, but all revolve around enabling greater flexibility and focusing on outcomes, not process, in the delivery of public goods.

Tax reform shifts the burden among taxpayers. Spending reform inevitably addresses a thicket of issues concerning public sector workforce size, organization, and compensation design. Both entail significant political risk, but both are essential to put Minnesota on a sound financial footing.

JIM MILLER

executive director, League of Minnesota Cities

The new budget forecast serves as yet another grim reminder that the state/local fiscal partnership is fractured. At risk is our ability to continue to adequately fund essential services at all levels of government in Minnesota.

As we have seen too often in recent years with dramatic cuts in aids and credits to cities, budget-balancing decisions made in St. Paul have a profound impact on the provision of city services -- police and fire protection, snowplowing, street maintenance, parks and recreation, and more.

Additionally, when service cuts are not feasible, or cannot be implemented because of mandates, property taxes increase, city reserves are depleted, and city bond ratings are jeopardized.

While it's true that full attention must first be directed to addressing budget shortfalls in the current biennium, the equally important challenge lies in what we do to remedy the state's underlying structural fiscal problems and avoid repeating future shortfalls. The current system of inadequately financing government services cannot be sustained with short-term fixes. If nothing is done to address long-term fiscal challenges, Minnesota's quality of life -- strong education, sound transportation and public safety and vibrant communities -- will be diminished for all.

Identifying the problem is simply the first step toward repairing the system. The next step is for policymakers to look beyond Band-Aid remedies and seek meaningful, structural solutions.

PHIL KRINKIE

president, Taxpayers League of Minnesota

Last week's state budget forecast signals the third time in three years that Minnesota will have a significant budget deficit. During the last two legislative sessions, state lawmakers have sidestepped their key responsibility: to balance state spending and revenue.

Minnesota's budgeting process is long overdue for a major overhaul. State spending grew at an average rate of more than 10 percent per year from 1960 through 2003. Trimming state-run programs or using one-time dollars to plug budget problems won't solve the Legislature's spending addiction.

Now is the time to tackle this out of control spending rate and truly reform the state's budgeting process with three key proposals:

One: Start the process of "zero-based budgeting." Don't assume every state program needs the same amount of funding it received in the previous year.

Two: Institute a rigorous process of cost-benefit analysis. This is no guarantee that funds will be spent more wisely, but it will provide valuable information that should help in the prioritization of state spending.

Three: Pass Gov. Pawlenty's proposed constitutional amendment that would limit spending in the next biennial budget to the amount of revenue received in the last budget cycle. Don't assume there will automatically be revenue growth.

These suggestions alone won't solve our state's budget problems, but they will go a long way to ensure state tax dollars are spent in a more cautious manner.

NAN MADDEN

director, Minnesota Budget Project

Like other states, Minnesota is in a crisis brought on by the crushing national recession. Minnesotans' needs are rising dramatically while the state's ability to meet them drops. But this deficit - the seventh in nine years - is also the product of past policy choices.

There is no one way to solve a problem this big. Relying too heavily on spending cuts will hurt people who need help today and will poorly position Minnesota for when prosperity returns by limiting investment in education, job training, health care and other building blocks of a strong economy.

We need a balanced approach that includes revenue. More than 30 states -- some led by Democrats, others by Republicans-- raised taxes this year.

An income tax increase on the wealthiest Minnesotans (married couples with taxable income above $250,000) would help the state get much-needed resources with minimal impact on the economy and would start to reverse the trends that have shifted more responsibility for funding services on low- and middle-income Minnesotans. It also has the advantage of bolstering the state's future revenues so Minnesota can avoid the gimmicks and short-term fixes that have made today's problems worse.

There are no easy answers, and ruling out reasonable options only makes meeting people's needs more difficult.

WILLIAM BLAZAR

senior vice president of Public Affairs and Business Development, Minnesota Chamber of Commerce

The latest budget forecast brings more anticipated bad news. General fund spending is badly out of sync with revenues. The Minnesota Chamber of Commerce is at work on a three-part strategy designed to bolster our state's quality of life while making our cost of doing business competitive worldwide. We will propose changing the way we budget and spend to:

• Prioritize services and reduce the likelihood that resources are overcommitted.

• Increase the productivity of services by totally redesigning the way many are delivered.

• Bring state overhead expenses in line with comparables in the private sector.

This is not just the business community's prescription for reform. Our polls and focus groups show that the general public opposes tax increases to support general spending and has deep concerns about the value received for every state dollar spent.

This message is not new and, unfortunately, neither has been the response from policymakers. The DFL calls for a "balanced approach" (i.e. tax increases and some cuts) and, oh yes, reform. The Republicans call for an end to "bloated government" and, oh yes, reform. The real challenge and the public's expectation are for policy-makers to focus on budget and spending reform and erase the old tapes.

In 2010, we must take major steps toward delivering more effective services -- and potentially more services -- with fewer resources.

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