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Editorial: State should aim to spur economy

Budget fix is only part of the state's responsibility now.

Last update: November 30, 2007 - 6:01 PM

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A ONE-TIME PATCH

The $373 million state deficit could be erased by tapping the state's reserve and cash-flow accounts, which total $1.036 billion. But do that in the current budget, and the same shortfall (plus inflation) will pop back in 2010-11 and every budget thereafter, until a permanent correction is made.

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"The real story of the forecast ... is the slowing economy," state Finance Commissioner Tom Hanson said Friday, as he announced that official projections now show the state budget slipping $373 million into the red by June 30, 2009.

Hanson's emphasis was where it belongs. Friday's forecast says that Gov. Tim Pawlenty and the Legislature have important work to do in 2008 -- so much that the GOP governor would be well advised to heed DFL advice, and call legislators into session before the scheduled Feb. 12 start.

At a minimum, they should close the relatively modest gap that's been identified in the state budget. But the focus should be on keeping the skidding state economy from sliding into a ditch.

By itself, the budget shortfall is no calamity -- not yet, anyway. A general fund deficit of about 1 percent of total spending, with 19 months remaining to get the fund back into the black, ought to be manageable. Pawlenty voiced interest in tapping one of the state's special-purpose funds to erase the deficit. It's an idea that's bound to meet with legislative resistance. But even if the Legislature and governor wind up deadlocked -- sadly, a not-implausible outcome -- reserve funds are adequate to patch a $373 million hole.

Still, a one-time budget correction won't set things right in future years. Neither would it live up to Minnesotans' expectation for help from state government during precarious times. The state isn't big enough to generate a major economic stimulus, but what it can do, it should.

That would include early enactment of a capital improvements bill, to spur the lagging construction sector of the economy. DFLers are right to call for early action on a bonding bill to get projects started quickly in 2008.

The Legislature should also quickly revive the tax bill that Pawlenty vetoed last May. One part of that bill would have cracked down on the use of foreign operating corporations as a tax dodge -- something Pawlenty reaffirmed Friday that he would sign. He should do so during the current tax year.

Pawlenty was cooler to the tax bill's use of that money. It would send about half of its new receipts to cities that qualify for state aid, under a need-based formula that favors regional centers and older communities over more affluent, growing ones. Many of those needier cities will see public safety cuts and double-digit property tax increases without more state aid next year. To avert those increases, they need assurance this month that more state help is coming.

The governor said he would prefer to send property tax relief to all homeowners, rather than aid to cities. But a blanket approach to tax relief that leaves regional centers hurting doesn't square with the governor's own call to spend strategically, where state assistance is needed most and can do the most good for the economy.

Pawlenty rejected any state tax increase yesterday, saying he considers the best economic stimulus "more money in Minnesotans' pockets." While money in private pockets can produce economic good, if it stays there, it won't buy the roads, transit, schools and other public assets that a robust economy requires. Strategic use of resources for economic betterment must be state government's guiding principle now.

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