State surplus: 7 pragmatic ways to invest $1.9 billion

With the holiday season of gifting and good will behind us, we can only hope that the governor and legislators carry forward with the good will but leave the gifting to Santa Claus.

The people of Minnesota received wonderful news in November with Minnesota's budget forecast. The state will have an estimated budget surplus on July 1, 2017, of almost $1.9 billion.

Take a deep breath and reread the key word in that sentence — estimated — and the date — July 1, 2017. Every economist and every policy wonk will agree that a whole lot can happen in the world in the next 18 months that could dramatically change any and all economic projections. Things like elections, oil prices, market fluctuations, armed conflicts, natural disasters and more play crucial roles in both Minnesota's revenue and expenditure streams.

Unfortunately, too many of our political leaders and interest groups have great ideas about how to spend the estimated surplus. Some suggest new spending; others want to cut taxes. What both forget is that their proposals will be providing gifts that keep on giving (and costing) year after year.

A few examples of tax and spending proposals that are surfacing in St. Paul:

• Republicans are proposing to exclude Social Security income from taxable income. To be honest, I really want to support this proposal, as I would get a tax break. In reality, the state would reduce taxes on retirees by over $1 billion during a two-year budget cycle. They propose this knowing that 65 percent of the money received from Social Security payments already is not taxed. In other words, without means testing, those gaining the most from tax-cut largesse are the wealthiest and least needy citizens in Minnesota.

• The governor and others are proposing to fund early childhood education for all children, regardless of family income. The state, as part of the current budget, expanded the early childhood education program to those families most in need. This agreement was made just seven months ago. Why should we shift gears and have the state subsidize families that currently pay their own way or further expand the program before the current program even gets off the ground? Fully funding the early childhood education initiative would increase the state's base budget by over $600 million.

• Some members of the Legislature want to exempt veterans' pension income from the income tax. Another really good idea and the price tag is relatively cheap, less than $50 million per biennium. But like other proposals, it sparks the question: When compared with every other thing that the state taxes or doesn't tax, spends or doesn't spend, is this priority higher than others? One need only think about the pensions of first responders. Is not their sacrifice just as valuable as veterans'? Aren't they and others deserving of tax relief?

• Maybe we should repeal the state property tax on seasonal/recreational property as proposed by some legislators. Seems like a good idea. But why target one tax without looking at the entire tax system? Would seasonal/rec properties be subject to school excess operating levies as part of the change? That was the trade-off when this tax was enacted.

So, if not new, ongoing program spending or tax expenditures, then what? What should our state leaders do with the $1.9 billion surplus?

How about making smart decisions instead of political decisions? Let's make decisions that are pragmatic and sensible. Let's make decisions that create jobs and encourage economic activity:

1.  Deposit at least $600 million into the state's reserve fund. Minnesota has one of the most unpredictable tax systems in the country. This state will see another recession some time in the future. A larger reserve will provide greater stability and reduce the need for crisis management when it happens.

3.  Dedicate $600 million to bring state and local roads up to standard so that they can be transferred between jurisdictions and complete the state 10-ton-road network. The Minnesota Department of Transportation, with the assistance of county highway engineers, has completed two studies that encourage two actions:

First, the state and local governments would reassign roads so that they can be managed by the appropriate level of government. Roads that are significant at the state level would be the responsibility of the state; roads that are important to local communities would be county, city or township roads. Part of the play would be to abandon obsolete roads and bridges.

Second, the state and local governments can take the next steps in completing the state's 10-ton-road network. In too many places, plans for upgrading roads to 10-ton specifications and higher capacities have been put on the shelf because of lack of state and local funding.

4.  Spend $400 million to buy down the over $3 billion Higher Education Asset Preservation and Restoration (HEAPR) backlog. Each and every year, the University of Minnesota and the Minnesota State Colleges and Universities system need additional money to maintain the building infrastructure on campuses across the state. They need to keep the heat on and the toilets working. The two systems have a maintenance backlog of over $1.6 billion. That's a lot of furnaces and toilets. Normally, the systems receive some amount of state bonding money every two years, but the needs continue to grow beyond the capacity of the bonding bill.

5.  Spend $100 million to maintain the state's buildings and infrastructure. The state is no different from every homeowner. Furnaces wear out, brick walls need tuck pointing and parking lots need to be repaved.

7.  Finally, the Legislature needs to prepare for the beginning of the 2017 legislative session by starting the process of looking at each and every state program. Is every program critical to the needs of our state? If yes, is it meeting those needs?

The state is fortunate to be in a position where it can make investments in the state's future. Whether we got here through thoughtfulness or just blind luck doesn't matter. We are here. We will be better served if our leaders choose wisdom over political expediency.