Jay Kiedrowski: Accounting gimmicks won't fix the budget

LONG-TERM BUDGET IMBALANCE

Minnesota spends more than it takes in. We have had this problem since 1999 when, believing that the prosperity of the late 1990s would last forever, state officials cut income taxes and increased spending, both too much.

While the national recession is partly to blame for the current deficit, Minnesota entered this latest downturn with only a $157 million budget reserve and a projected imbalance of $1 billion from the failure of the governor and Legislature to make critical decisions last year.

Pawlenty's proposal does little to address the permanent imbalance. First, he proposes new spending and cuts corporate taxes, increasing the deficit to $6 billion. Then, he proposes permanent spending cuts of only $2.5 billion. (Some of these cuts will result in higher property taxes and higher health-insurance costs.)

The governor's proposal uses questionable one-time solutions to address the remaining $3.5 billion. As a result, his own budget analysts show that the next budget is out of balance by $2.5 billion (even ignoring another $1 billion of inflation costs).

TECHNICAL FLAWS

The worst proposal in the governor's budget recommends that the state sell $1 billion of long-term bonds to fill the hole in the operating budget. It would pledge future tobacco-settlement dollars to repay the bonds. This is like stealing from your child's piggy bank with no intent of repayment.

The governor's proposal also includes an accounting gimmick of $1.3 billion by shifting school aid payments from one fiscal year to another, making it appear that the school payments aren't current obligations. School districts will have to finance the cost of the missing dollars at the expense of educating our children.

A third flaw is the general use of the Health Care Access Fund, financed by a dedicated tax on hospitals and health-care providers to support health care for those employed but underinsured. In essence, the governor will finance some of his spending increases or corporate tax cuts with dollars that are to be used for health care.

THE FIX

The Legislature should revise the governor's budget proposal along the following lines:

•Fix the permanent imbalance in revenues and expenditures.

•Drop any consideration of long-term borrowing to offset the current budget deficit.

•Reject many of the governor's cuts in human services to keep a strong safety net for those most in need in our state.

•Restore cuts to local governments to avoid higher property taxes.

•Create a solution that does not cut the corporate tax for existing companies but increases revenue by eliminating the 1999 income-tax cut permanently and assesses a surcharge on the sales tax until the recession ends.

•Preserve the budget reserve and cash-flow reserve in the governor's proposal.

• • •

Minnesotans are willing to sacrifice some of our current spending, and we are willing to pay more in taxes for the common good of our state. Legislators, please approve a budget of which we can be proud.

Jay Kiedrowski is senior fellow at the Humphrey Institute at the University of Minnesota. He served as commissioner of finance under Gov. Rudy Perpich.