Minnesota's budget: The 3 percent solution

  • Article by: JIM MULDER
  • Updated: June 22, 2011 - 9:41 PM

Photo: Michael Hogue, Krt

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Like every state lacking oil reserves, Minnesota faces the challenge of balancing citizens’ needs to resources — and also the challenge of leadership. These challenges arise from four main causes.

First, demographic change — Minnesota’s population is aging while at the same time becoming more diverse.

Second, new technologies are flattening the world economically while speeding up our daily lives.

Third, a new economic normal is in place, turning Minnesota’s classic manufacturing/agricultural economy into one much more involved in the delivery of services.

Finally, decisions made by federal, state and local governments set our state on a path that focused on the short term while ignoring long-term consequences.

There is general agreement that the status quo is not sustainable, that bold change is needed. Minnesota’s elected leaders must make two sets of important decisions, the first of which is to meet the immediate state budget crisis.

Limiting the growth of state government to 3 percent moves the state to sustainability — and positions it to be competitive down the road.

Minnesotans share some basic principles — that the state has a constitutional duty to provide quality education; that our communities must be safe and dangerous individuals incarcerated; that we have a responsibility to provide for those who can’t care for themselves, and that our state’s tax system should be progressive and balanced.

While upholding those principles, we must scrutinize current systems, revenues and expenditures, determining whether each service is critical to the fundamental missions of the state. Expected outcomes and performance measures must be clear. If standards aren’t met, the service should be redesigned — or eliminated.

State leaders should adopt a 3 percent, three-step budget plan to resolve both short-term and long-term challenges:

1. First, the school funding shift of $1.8 billion must be made permanent. (Ultimately the shift should be reversed, but that can be dealt with as part of the long-term plan.) Second, the governor and legislative leaders need to accept a less than 3 percent increase in government spending. This would set the state budget at approximately $35 billion, or about $4 billion less than projected spending under current law.

2. The state must adopt increases in revenues, but these increases should not increase tax rates.
Rather, they should focus on repealing loopholes and special tax breaks. Here are revenue increases totaling less than $1 billion that meet those criteria:

New Revenue: $932.6 million

• $300 millon: Cap mortgage interest, employer paid health care and charitable contribution deductions to achieve new revenue. (For example, approximately $74 million would accrue by not allowing the mortgage interest deductions for second homes.)

• $30 million: Repeal the corporate tax exemption for insurance companies (a Dayton proposal).

• $276.1 millon: Repeal the Foreign Source Royalties and Operating Credit. (This tax break no longer meets its intended purpose.)

• $53.2 million: Repeal certain other income tax expenditures.

• $273.3 million: Repeal certain sales tax exemptions (would not apply the tax to food, clothing, personal services or business services).

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