Budget more for future needs than immediate desires. That’s the advice the Star Tribune Editorial Board has been giving Gov. Mark Dayton and the 2015 Legislature all year as they craft state government’s 2016-17 general-fund budget.
Minnesota may have black ink on the bottom line of its balance sheet for now. But economic ups are inevitably followed by downs, and it only takes a modest downturn for state revenues to plummet. The state’s working-age population soon will dip, the state demographer says. An already-evident shortage of skilled labor is expected to worsen. The state’s infrastructure needs are growing. So is the elderly population and its need for care. And the next generation includes more people on the worrisome side of Minnesota’s chronic achievement gap.
Those are the circumstances on the horizon that ought to factor into budget decisions at the Capitol in the five weeks that remain in this year’s regular session. They were factors we considered as we sketched our version of a budget geared to the future. Here’s how we would balance the 2016-17 budget:
• Start with the forecast surplus: $1.869 billion. That number is based on the $41.128 billion that state programs would cost in the next two years under current law, given what is known about population growth. It does not add an inflation adjustment to most state programs but does include anticipated enrollment growth in both K-12 public schools and Medicaid, which are funded on a head-count basis.
We don’t mean to suggest that existing spending should not be reviewed, reprioritized and reduced in some cases. Legislative spending committees make those adjustments with every new budget, and this year should be no exception.
• Prioritize saving: $400 million. Sooner or later, another recession will come — and when it does, Minnesota should be better prepared to keep state services stable than it was the last several times the economy dipped. Experts say the general-fund reserve ought to exceed $2 billion; today, it’s $1.35 billion.
Our plan would add $175 million to the reserve and create a hidden $225 million cushion by repealing a gimmick employed to balance the budget several decades ago — the “June accelerated sales tax payment.” It requires retailers to anticipate their sales tax collections for the month of June and remit them to the state in advance, rather than at month’s end as they do during the remainder of the year. This inconvenience and cash-flow disruption for retailers ought to end both for their sakes and for future budget stability. Once undone, this shift will be available again the next time a red ink tsunami hits.
• Dedicate more taxes to transportation: $150 million. Deteriorating roads and inadequate transit are pinching economic growth today and will squeeze it harder if action is postponed. Multiple remedies are in order. One on our list was advanced by House Republicans and DFL Rep. Ron Erhardt: Use lease and rental car sales taxes for transportation purposes.
The $150 million those taxes are projected to generate in 2016-17 can be sent to highway and transit funds by statute for now. But voters in 2016 should be allowed to make that transfer a constitutional requirement, as voters in 2006 did with the sales tax on purchased vehicles (MVST). Like MVST, the lease and rental taxes should be divided between highways and transit in a 60-40 split.
That’s not all that should be done to improve transportation this year. We’ll say more in a subsequent editorial.
• Cut taxes: $280 million. That number will disappoint Minnesotans who think any state budget surplus is an occasion for tax relief. A “give it back” budget would provide legislators with short-term political gratification. But the challenges that lie ahead will be more difficult to meet if Minnesotans don’t invest more now in the shared work state government does.
That said, targeted tax cuts can help. Our budget directs $120 million to low- and middle-income families raising young children via a larger working family credit and more expansive child care credit, both of which are “refundable” — that is, paid whether a family owes income taxes or not.
A larger tax credit for business investments in research and development is in order, to encourage that job-creating activity in Minnesota. It should be refundable for new and small businesses to spur their growth.
Relief from the regressive property tax is also on our list. We would begin the phaseout of the statewide business property tax, a burden for Minnesota-based businesses and a relic of a 2001 tax reform scheme that since has been largely undone. We would make modest increases in aid to cities and counties, both of which serve to moderate local property tax increases. And we would slightly enlarge the property tax refund program that helps lower-income homeowners and farmers who experience double-digit property tax increases in a given year.
• Spending increases: $1.020 billion. A billion dollars sounds like a lot of money, until it’s compared with the two-year cost of educating an information-age workforce, keeping basic governmental services functional and providing security for vulnerable children, dignity for the disabled and care for the frail elderly. Our bid is for a lean, 2.5 percent increase over forecast spending over two years.
Even with that restraint, it’s time for Minnesota to end years of hand-wringing about the achievement gap and do what works to close it. Preschool scholarships for low-income children work, and cost less than universal public preschool. Consider the latest results from St. Paul’s Promise Neighborhood: 74 percent of children who received those scholarships last year were assessed as ready for kindergarten, compared with 29 percent in the same neighborhood who did not receive scholarships.
Extending the Promise Neighborhood approach to low-income children statewide gets slightly more than half of the E-12 increase we recommend. The other share should go to K-12 districts. It’s not a generous boost. Many districts would be left seeking more in the form of higher property taxes. We favor ending the requirement that districts seek voter approval to renew existing levies enacted years ago.
Minnesota should also continue the restoration of higher-education support it began two years ago, after many years of piling higher tuition and debt on students. Our $200 million increase would allot $25 million more for the State Grant Program, $150 million more to divide between the University of Minnesota and the Minnesota State Colleges and Universities system, and $25 million to improve medical education and research at the University of Minnesota — a key component of Minnesota’s “healthy state” brand.
Our struggle to limit spending on health and human services to a $320 million increase leaves us skeptical about the House GOP intention to cut that budget by $1.15 billion. Our proposal is tight, but we think it’s sufficient to give welfare families a long-overdue increase in cash grants and long-term-care workers a modest wage boost. It should also cover improvements in child-protection services, mental illness early intervention, and the Minnesota Sex Offender Program, which appears headed for court-ordered changes.
A number of smaller items remain on our spending list, including much-needed boosts in juror per diems and other court expenses; more matching grants for broadband service improvements in Greater Minnesota, and debt service sufficient to a sizable bonding bill this year, while interest rates remain low.
• On the bottom line: Our budget leaves $19 million uncommitted. We think of that sum as “tornado money,” even though the 2013 Legislature wisely established a permanent disaster relief fund.
Minnesota seems to have entered an era of supersized storms, of both the natural and the economic kind. A budget like ours wouldn’t keep them away. But it would help Minnesota weather them — and that’s what taxpayers rightly look to their state government to do.