Minnesotans are blessed by the state of the state’s budget. Legislators can focus on what to do with extra money, instead of struggling with what services to cut. Though there are differences between them, Gov. Mark Dayton and House Speaker Kurt Daudt both are right on an important aspect of the most important fiscal challenge facing Minnesota. And the split in party control holds out hope for a compromise that could benefit all Minnesotans for decades to come.
The challenge is how to fund transportation for the long term. Minnesota’s transportation funding mechanism, the gas tax dedicated to road funding, no longer suffices to meet the state’s transportation needs. Minnesota needs more investment in transportation now, and a long-term solution.
Dayton is right that just spending some of the surplus on transportation would not solve the long-term problem. Daudt is right that the increased gas tax should get no further consideration, and that general fund revenues should help fund transportation.
Here is my hope for a compromise. First, split the surplus into an amount for additional spending (some of it on transportation) and an amount for the long term, parking the latter in the budget reserve until the completion of step two, details of which are below. This would mean no tax cut this year, but maybe one next year, which is when it would matter for election purposes anyway. I suggest that the budget reserve get all of the dollars that would otherwise be spent on tax cuts.
Increasing the reserve would be a good idea for several reasons. First, it has never been adequately funded, given Minnesota’s boom-or-bust revenue system, presently in boom phase. Roughly 5 percent of biennial spending has long been considered reasonable, suggesting a reserve of about $2 billion, a considerable increase. Second, the Republicans do not want to spend all of the money on government services. Third, the DFLers do want to spend all of the money on government services. Fourth, it will take a little time to complete step two. Fifth, Minnesota would be better protected for the near future in the event of an economic downturn.
The second step is to create a forum — through joint legislative hearings, an executive branch effort or a commission — for individuals, organizations, and government officials and agencies to come forward with ideas for how to solve the transportation funding problem for the long term, which could include as much redesign of Minnesota’s state-local fiscal system as anyone wants to suggest. I would bring a comprehensive plan forward, and am confident that others would, too. Minnesota has a serious structural problem because its nearly 100-year-old method for funding transportation no longer works, and legislators and the governor might benefit from a burst of creative thinking applied to solving that problem.
There are two fundamental reasons for undertaking such an effort instead of “solving” the problem in the usual end-of-session fashion that parcels out money without changing anything else. First, the quantification of funding needs by the Minnesota Department of Transportation (MnDOT) seemingly lacks credibility, judging solely from the range of transportation spending proposals. A public discussion of what those needs are might bring legislators and the governor closer together. My plan would temper MnDOT’s inevitable dreams by engaging local governments through the property tax to a greater extent in determining what transportation infrastructure should be built. This could be done without pushing property taxes too high, because they would be used less for other purposes. My plan would also vastly broaden the consumer sales tax base, cut the rate and allow for gas tax repeal by extending the sales tax to gas.
The second reason for such an effort is that the new wholesale gas tax selected by transportation advocates a year or more ago as their solution to the problem is a bad idea. It’s understandable that those wanting more money for transportation would look to the traditional source, the gas tax, and try a new twist on it in the hope that it would be more acceptable than increasing the retail-level tax. Daudt has now cast reasonable doubt on that proposition, and for good reason, because the gas tax is a real loser — no longer a good user fee, regressive, ineffective in fighting climate change, and seemingly discriminatory against Greater Minnesota residents. Minnesota can and should do better. Under the compromise I recommend, the chances are Minnesota soon would do better because a lot of smart people would focus, laserlike, on how to do better and provide legislators and the governor with a menu of possibilities for their consideration.
John P. James is a senior fellow with the Center for Policy Studies and an attorney who was Minnesota’s commissioner of revenue from 1987 to 1991 under Gov. Rudy Perpich.