As state leaders sweat out budget negotiations, we thought this might be a good time to remind one and all that there are rules to this sort of thing.
The first rule: Don’t use one-time money for ongoing spending.
There are excellent reasons for this most fundamental of budget rules. If you buy a lottery ticket and win $500, you don’t run right out and buy a $30,000 car just because now you can afford the first month’s payment. You need to be able to cover those payments for the duration. As leaders negotiate on tax and spending levels, there are one-time pots of money that prove biennial temptations.
The state’s “rainy day” fund is one. It is a safeguard against a sudden or prolonged drop in state revenue, designed to ensure that vital services can continue. More important, though, it serves as a signifier to bond houses of Minnesota’s self-imposed fiscal restraint. Money in the bank, untouched, as a cushion against leaner times, is a sign of creditworthiness and is rewarded with lower interest rates on borrowing that serve all Minnesotans.
Minnesota lost its Triple-A credit rating in 2011 to budget shifts. Triple-A states “take care of business no matter what,” state Management and Budget Commissioner Myron Frans told an editorial writer. “Good times, bad times, divided government or not. They get budgets done on time, keep their fiscal houses in order and maintain healthy reserves.” In eight years, the state has clawed its way back to that prized rating from two of the major bond houses. The third? It’s still watching.
A second rule: Inflation is real.
While it has remained low for years, inflation has not died. Every year it costs a little more to provide the same services, because the price of goods goes up, along with salaries. And because of a population that, thank goodness, is growing. One of the big divisions between Republicans and Democrats is how they look at delivery of services. Is it by a fixed amount — what it costs right now? Or is it by how much it will cost to deliver the same level of services in coming years? Both are legitimate ways to look at spending. But neither can wish away inflation.
That’s why the “billion-dollar surplus” is illusory. A previous accounting gimmick set in law prohibits state finance officials from making inflation forecasts a part of spending projections. That doesn’t alter the fact that delivering the same level of services will cost more in the next budget. Failure to deal with that forces providers to cut back services to fit the previous year’s dollar amount. That can be a legitimate outcome of negotiations, but it means that any “new” spending proposed might very well wind up helping to backfill existing contractual obligations. Which makes it, well, not so new.
And, finally, a third rule: Good budgeting requires flexibility.
Lawmakers have to accommodate new challenges, such as the opioid crisis. They must include once-novel policies that have become staples, such as all-day kindergarten. They must try to game out the future. When will the next recession start? Will Minnesota’s economy suffer from an ongoing labor shortage? Will it stay competitive? And what will Washington do?
Budgets are not just policy writ in numbers. They’re not even just moral documents, as some leaders like to say. They are also political documents, the result of balancing money, need, circumstance and political reality.
That is the biggest challenge the leaders now face. Minnesota is not in a “winner-take-all” situation. We have strong, principled leaders with different ideologies who must find a way to accommodate one another for the good of the state. The result won’t be perfect, but it should be balanced and sustainable and make some headway on the problems Minnesotans face.