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It’s what you do, Governor, not what you say

In assessing elected officials, a wise political observer once said, “Watch what they do, not what they say.” What Gov. Tim Pawlenty has proposed for Minnesota is far different from what he has been promoting for the nation.

Gov. Pawlenty, in a recent Weekly Republican Address responding to President Obama, stated, “And let’s get control of our national debt, so future generations aren’t burdened with unbearable taxes.” In Minnesota, unfortunately, the governor has proposed just the opposite.

Part of Gov. Pawlenty’s proposed budget for the next two years calls for selling more than $1 billion of “tobacco bonds” to offset the budget deficit. The bond proceeds would be used to pay for current operating expenses of the state but would be paid for from future tobacco settlement payments.

In essence, the governor wants to increase current debt that will have to be paid by future generations. It is like taking out a second mortgage to pay for groceries. If the bonding proposal becomes law, the state likely will lose its highest AAA credit rating when it tries to sell the bonds. Both the Minnesota House and Senate have rejected the tobacco bonds in their budget proposals as bad public policy.

The governor also is proposing other generational cost-shifting ideas. One is his proposal to transfer currently excess dollars in the Health Care Access Fund to pay for general operating expenses, instead of reserving the fund balances to offset future health care costs, as was legislatively intended.

A careful review of the governor’s budget reveals that he is really only proposing actual expenditure cuts for less than half of the problem. The remainder of his solution includes the tobacco bonds, the health fund transfer and a gimmicky shift of more than $1 billion in school aid payments. This leads to a deficit in the next budget of upward of $6 billion if public employees get wage increases in 2012 and 2013.

In January, the Minnesota Budget Trends Study Commission recommended to the governor and Legislature that current expenditures should always equal current revenues to reduce budget volatility. The governor has ignored the commission’s recommendation, while the Senate has followed it, and the House has partially followed it.

The Minnesota Senate and House provide more in current revenue (i.e., tax increases) so they don’t have to use the tobacco bonds, while reducing the deficit for the future. Therein lies the dilemma for this legislative session: raise taxes or burden future citizens with some of today’s expenses.

Gov. Pawlenty rejects increasing taxes but also speaks out against shifting the burden. The rejection of tobacco bonds is central to resolving this dichotomy. Will the governor ultimately accept tax increases sufficient to drop his bond proposal so that current revenues are more equal to current expenditures? 

Doing so is the only way the governor’s local actions can be consistent with his national words.

Jay Kiedrowski is a senior fellow at the Humphrey Institute of Public Affairs, where he teaches public finance. He served as co-chair of the Minnesota Budget Trends Study Commission and as Minnesota Gov. Rudy Perpich’s commissioner of finance.

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Comments (4)

  1. Submitted by Thomas Swift on 04/22/2009 - 11:07 am.

    Jay, you effectively destroyed your own position before it got off the ground.

    You wrote: “In essence, the governor wants to increase current debt that will have to be paid by future generations.”, *after* you had written; “…calls for selling more than $1 billion of “tobacco bonds…”, *selling* being the operative word.

    You also offered; “The bond…would be paid for from future tobacco settlement payments.”

    The absence of “taxpayers” being noted, it would be correct to say that future generations of smokers are paying the debt the tobacco companies are incurring, with interest.

    As long as the Governor does a better job of negotiating with the tobacco companies than Skip Humphry did with Miller, Ciresi and Caplan, the taxpayers are not on the hook for a dime.

    And unless you are suggesting the market believes that smoking will be eradicated, world wide, within the next decade, your dire prognostication regarding the states’ credit rating doesn’t wash.

    Given the choice of using the lawsuit residuals go to help dig ourselves out of a financial hole or being treated to more television commercials featuring teenage actors performing street theater, I’d have to go with the former.

  2. Submitted by Bernice Vetsch on 04/22/2009 - 06:10 pm.

    Thomas: I believe future taxpayers would pay millions of dollars in interest on those bonds.

    Question for the Gov: If the Health Access Fund — made up of taxes charged to providers and premiums paid by low-wage workers — has a surplus, WHY IN THE WORLD ARE YOU CUTTING DENTAL COVERAGE AND CUTTING OFF 113,000 MORE PEOPLE FROM CARE?

    This money was collected for the purpose of seeing that people received care, not for you to use for other purposes.

    “A budget is a moral document.” Jim Wallis

  3. Submitted by Richard Schulze on 04/23/2009 - 09:05 pm.

    I believe that it is accurate to say that the budget that Governor Pawlenty proposes will do two things.

    1)It is a fact that the Governor will balance the budget.

    2)He will do so by creating larger deficits in the future.

    The larger deficits will be caused in a number of ways:

    His proposal to shift some state education payments to just outside the window of this biennium would deepen the projected deficit in the subsequent biennium.

    His proposed budget this year would take tobacco-settlement revenues that would otherwise be collected over many years in the future, spend them now, and leave a large hole for the future.

    His proposal to cut corporate taxes without paying for it creates a big budget hole in future years.

    It would appear that the Governor can talk a “good game” but then again talk is cheap.

  4. Submitted by John Olson on 04/28/2009 - 07:47 am.

    Whether one agrees or not with the proposal to sell bonds that are backed by future tobacco settlement payments, two things jump out at me:

    1) Minnesota *could* see its AAA bond rating reduced, increasing interest payments that DO put the taxpayers on the hook.

    2) At some point, the ability of today’s politicians to plug budget holes with short-lived fixes such as this mean that the problem will be shifted (eventually) to a future governor and legislature. In other words, us.

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