Economy improves, but not enough to erase state’s red ink.
The sea of red ink that flooded the state budget two years ago is down to a good-sized puddle. Thursday’s budget forecast projects a $627 million gap between revenues and scheduled expenditures — a scant 1.7 percent — in 2014-15. It also takes the state’s debt to its school districts down to $801 million, from a high of $2.7 billion two years ago.
But count inflation, as honest budgeters should, and the puddle swells by $854 million and persists in 2016-17 and thereafter. Only by pretending that inflation has been abolished can one claim that state finances have stabilized and that Minnesota’s need for vital state services can be met without raising taxes.
Nevertheless, the forecast offers heartening evidence that the state’s economy is improving and is back in its customary position, beating the national averages. Minnesota’s comparatively lesser dependence on federal spending means that the impending sequester in Washington will deal the state’s recovery only a glancing blow, state economist Tom Stinson said.
The new projections give Gov. Mark Dayton an opportunity to rethink the tax proposals he made in January, when the forecasted 2014-15 deficit stood at $1.1 billion. It’s an opportunity he should seize. The additional $463 million projected to be available without raising taxes could help underwrite a new plan that omits the anticompetitive flaw in his first version — the extension of the sales tax to legal, accounting, advertising and a host of other business services.
Dayton indicated yesterday that he expects to send the Legislature a revised budget during the week of March 11. That’s a schedule that affords him time for a major change, one that’s more likely to rally broad support for the spending increases he recommends.
The Legislature now must get into the budgeting act, too. The February forecast traditionally marks the end of a legislative session’s preliminaries and triggers a six-week push to get budget bills into conference committees.
Along the way, Dayton and the Legislature’s DFL majorities need to help Minnesotans see why this year they should do more than mop up red ink. After a decade of retrenchment, Minnesota needs to reclaim the label Gov. Rudy Perpich gave it — the Brainpower State.
“We’ve made progress in this state because we’ve made investments in education” through many years, Dayton said yesterday. But a decade of cuts have reduced this year’s appropriation to the University of Minnesota to its 1981 level, despite the institution’s growth since then. Dayton said the state’s K-12 spending per $1,000 of personal income ranked fifth among the states in 1996, and 33rd in 2010. Adjusted for inflation, the state’s per-pupil K-12 spending has dropped 16 percent since 2003, according to the Association of Metropolitan School Districts.
Those trend lines need to bend in a more positive direction soon, or something fundamental to the prosperity Minnesota has known in the last half-century will be lost.
Dayton’s Republican critics argue that raising any tax now will prove so detrimental to the economy as to be counterproductive. But the new forecast indicates that their alternative — relying on the existing tax structure and hoping for a more robust recovery — is not likely to end the erosion in state services.
State history also provides a rebuttal. In 1982, as the nation struggled to emerge from another deep recession, Republican Gov. Al Quie acceded to a tax increase rather than deeper cuts in education. Both the state budget and the economy soon strongly rebounded, and investments in a well-educated workforce gave Minnesota an edge in an increasingly competitive global economy.
Those investments decades ago are paying off still. In 2012, Dayton noted, Minnesota had the 12th-best job growth in the nation. It is on track to return to prerecession employment levels later this year, well ahead of the rest of the nation. As today’s Minnesotans appreciate those gains, they owe it to their children and grandchildren to set a state budget that will be as good to them.
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