Continued: Lori Sturdevant: If economy goes south, is Minnesota prepared?

Here comes trouble. Again. As expected.

The state's $739 million revenue downturn through June 2009, forecast Friday, came as no surprise to the budget reporters in the Capitol basement -- schooled as we've been by the long, strong run of finance commissioners who have served Minnesota through the years. They've taught us well that this state's revenue stream is wickedly variable. It floods in good times -- or it used to, before the 1999-2000 income tax cuts -- and it dries up quickly during recessions.

I went back to school last week, tracking down five of the "formers" for a refresher course. Dear faculty:

Jay Kiedrowski, who served DFL Gov. Rudy Perpich, 1985-87: "We're in a bout as good a shape as we've ever been in before a recession."

With a reserve fund, cash flow account and money on the bottom line in excess of $1.2 billion, and the usual run of accounting shifts "unshifted" and ready to be repeated, "we're in great shape" to handle the immediate problem, Kiedrowski said.

So that's good?

"No, that's dangerous." Balance a budget with reserves, Kiedrowski said, "and you have not solved the problem in the next biennium and beyond, and you can't use the reserves again. The problem compounds."

Pam Wheelock, who served Independence Party Gov. Jesse Ventura, 1999-2002: "If the trouble this time is short-term and temporary, there's enough money in the reserve to get us through.

"But I think this is a very different situation than the last budget problem we had. We entered the last recession on the heels of a robust economic expansion and strong job growth. We haven't seen that in Minnesota in this decade. Local governments and schools have been feeling pinched for quite a while already. They don't have a lot of capacity to absorb cuts this time."

John Gunyou, who served Republican Gov. Arne Carlson, 1991-94, now Minnetonka's city manager: "The problem for local governments is that the property tax burden is back to where it was in 2001," when it was considered so unacceptably high that the state eliminated the general education levy. "It's becoming a problem again."

That's partly because the state has been unwilling to keep up with inflation in transportation costs, much less pay for the roads, bridges and transit needed to serve a growing population, Gunyou said. Local governments have stepped in. "We use the property tax for that, and the cost of the projects is going out of sight. We can't get our hands on enough gas tax money to keep up."

Peggy Ingison, who served Republican Gov. Tim Palwenty, 2003-06: "The demographics are working against us, because of the way our tax system is structured."

State tax receipts come primarily from two big sources, a progressive income tax that no longer keeps pace with soaring incomes at the top and a sales tax that's collected primarily on the purchase of durable goods, not services, food or clothing.

"The boomers aren't buying those things anymore. A smaller number of people are setting up households now than before. A lot of young people are having trouble financing new households. They're living with mom and dad longer. Our reliance on the purchase of durable goods for our sales tax revenue is going to affect us."

Wayne Simoneau, the former DFL legislator who served Republican Gov. Arne Carlson, 1996-98: "Jesse had a good proposal that should have been enacted," he said, referring to Ventura's 2001-02 proposal to expand the sales tax to most services. Ventura also briefly floated the idea of taxing clothing sales.

Without that tax increase, the state's takeover of the general education levy in 2001 was not properly funded. Public schools have been in financial straits ever since.

"Putting the sales tax on services is the way to go. We should do that, and make sure income tax is progressive enough. We've had so much increase in inequality in this decade. We have to make sure the income tax is adjusted so that it climbs up the (income) ladder.

"If we don't do that, we're not going to be able to fund education properly." And if we don't do that, today's economic problems will become chronic.

Lori Sturdevant is a Star Tribune editorial writer and columnist. She is at lsturdevant@startribune.com.