Jay Kiedrowski: Let's stop the state's fiscal roller coaster

These stomach-churning rides from surplus to deficit aren't good. The task of a new commission is to find ways to end this volatility.

By JAY KIEDROWSKI

Last update: December 10, 2007 - 6:19 PM

How many are surprised that the state of Minnesota recently forecasted a significant budget variance? Probably as many as are surprised that it snows in Minnesota in the winter. Volatility has been the history of state finance for nearly 40 years.

The latest news is a forecast budget deficit of $373 million by June 30, 2009. Compare that to the announced forecast surplus of $2.2 billion last November. Minnesota's finances have been described as a roller coaster, but the latest news suggests that it is a very high and very fast roller coaster, with awful rises and dips.

Worse is that a shortfall of more than $1.2 billion is projected for the next budget, assuming a seemingly low 2 percent annual rate of inflation. For those concerned about restoring funding of K-12 education, or about health care for uninsured children, or about lower property taxes through the restoration of state local-government aid to pre-2003 levels, forget it. If this forecast is accurate, more cuts may be on the way, unless there is a new willingness to raise taxes.

What is especially disappointing about the latest forecast is that our state officials have done little to change the basic volatile structure of Minnesota's taxes.

This structure has disappointed Govs. Al Quie, Arne Carlson and Tim Pawlenty during economic slowdowns and recessions, and has overjoyed Govs. Rudy Perpich, Jesse Ventura and Pawlenty during economic recoveries and accelerations. Note that one governor -- Pawlenty -- has had it both ways.

Fortunately, Pawlenty and the Legislature increased the budget reserve last spring and spent some money of the surplus on one-time items. This will help the state respond to the latest shortfall. The governor and Legislature also asked for help in understanding what could be done for the long term.

The Legislature passed a provision last spring creating the "State Budget Trends Study Commission," and the governor approved it. The charge to the commission is to complete "a study of the implications of state demographic trends for future state budget conditions, including both expected revenue collections and spending." A preliminary report is due in February, and a final report is due by Jan. 15, 2009.

The 15 members of the commission have been appointed by the governor, the Senate and the House. The first meeting is set for Wednesday. I will be serving on the commission, along with three other former commissioners of finance, the director of research at the Federal Reserve Bank of Minneapolis, a public-finance professor and a history/population professor from the University of Minnesota, and others.

This new commission should be able to develop consensus about much-needed proposals to reduce the volatility of Minnesota's finances. Taxes do not have to be raised or expenditures expanded to dampen volatility. Reducing variability should not be a partisan issue. It is a good-government issue. Wouldn't it be better for public officials all across the state to focus on service and innovation rather than on how they will survive the latest cuts or how they can justify more money?

Once the commission develops its recommendations, the governor will need to do what other governors before him have failed to do. He needs to lead the Legislature to put in place the recommended permanent tax and spending reforms to reduce the volatility of state finances. Many of our current legislators have been in office through the ups and downs and should be willing to address this volatility.

Let's end the seemingly perpetual budget forecast revisions. Let's get off Minnesota's financial roller coaster. Let's focus on more-important public issues.

Jay Kiedrowski is a senior fellow in the Public and Nonprofit Leadership Center at the Humphrey Institute of Public Affairs at the University of Minnesota. He was the commissioner of finance under DFL Gov. Rudy Perpich.

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