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Hoard cash or pay off debt?

Rep. Pat Garofalo

I am disappointed that Gov. Mark Dayton chose to veto a bill that would reduce the state’s K-12 education payment shift to its lowest point since the Legislature adopted a 30 percent shift in 2010. The bill, which was rejected by the governor on Thursday, would repay the extended shift increase passed as part of the budget agreement with Gov. Dayton last year, as well as make the first repayment toward the $2 billion education shift left over from previous Legislatures.

This measure was a matter of economic responsibility and proper prioritization. After learning that the state has a $1.2 billion total budget surplus for the current biennium, the response from many members of the Legislature was to use that money to pay back the school shift. After all, if a family pays all of their bills and finds they still have money leftover, shouldn’t they use some of that money to pay down any outstanding debts?

Prudent financial management says when you have cash on hand, the first thing you do is pay off debt. Debt reduction saves money in interest costs, and leaves more money for hiring teachers, upgrading classroom equipment and other educational services.

After the MMB’s November forecast showed an $876 million surplus, Gov. Dayton publicly responded by saying, “I am hopeful, however, that continuing improvement in that forecast will permit us to accelerate our schedule for repaying our schools the money borrowed from them last summer.” The forecast did improve, we can accelerate repaying schools, we sent him this bill to do it. He vetoed it.

After Gov. Dayton and the Legislature settled on moving to a 40 percent shift in July, he publicly spoke out against it even though he signed it into law.  Now he has vetoed a bill with a smaller education shift than he has ever proposed in his time in office. Despite his statements seeming to oppose the education shift; Gov. Dayton in the last two years has both proposed the largest school shift plan and rejected the smallest.

Despite my disappointment with the governor’s choice to veto this bill, I am hopeful that we can come to some compromise to begin to make payments on our obligations to the schools and students of this state.  I believe that our government must follow suit by responsibly managing our budget without raising taxes or ignoring our debts.

My hope is that this bill does not die here. I will continue to work to try to convince the governor that this is the right thing to do and reach a compromise, not just for our state’s budget, but for the schools and children of Minnesota.

Rep. Pat Garafolo, R-Farmington, chairs the House Education Finance Committee.

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Comments (9)

  1. Submitted by Rachel Kahler on 04/06/2012 - 09:25 am.

    Uh…

    Basic survival, dude. While it might look good for your credit to pay off debt, it won’t help you survive. I pay off my debt, but not as quickly as I could because I’m socking away cash, too–a credit score won’t buy me food or pay for emergency medical services. The problem is, open credit just gets you more debt, while cash might be able to save your rear when something unexpected happens. It might cost more, but always being on the verge of a financial disaster is worse. As a “fiscal conservative” that should be obvious.

    Of course, the problem is that the debt is there in the first place. It was irresponsible and it was the legislature’s fault for being mindless ideologues. The politics were always obvious, at least to those of us paying attention. Using the schools a pawn to make the governor look bad is poor tactics, especially since even if Dayton is wrong, he’s got time for it to wash over, while you guys are on the election hot seat. Not that getting elected should be more important than doing what’s right. The right thing would be to quit pandering to the people who can afford a little belt tightening the most–we wouldn’t have to steal from the schools if you did the right thing.

    But perhaps you see it as what’s right because it’s what gets you elected, and then you can do “good.” The end justifying the means, eh? Well, it certainly makes it look like it was all engineered from the get go. Really, really looks like it. And if you weren’t aware of that, then maybe you should stop trusting your iron-fisted “leaders.” They’re leading you into politics for the sake of politics. No good can come of that.

    • Submitted by Bob Shepard on 04/06/2012 - 12:11 pm.

      succinctly put, Rachel

      I’d only add that the only thing worse than the ‘engineering’ that’s gone on is the touting the short term surplus as being the result of the idealogues massive cutting….with no mention given to the rallying economy, etc.

    • Submitted by Tim Walker on 04/06/2012 - 12:51 pm.

      + 100 on Rachel’s excellent smackdown.

  2. Submitted by Richard Molby on 04/06/2012 - 09:37 am.

    Um, no…

    “Prudent financial management says when you have cash on hand, the first thing you do is pay off debt.”

    Not always true. If that debt is a mortgage or student loan or home equity loan, where the interest is tax deductible, then putting that cash into a rainy day fund is the prudent move since that will help to avoid future “bad” debt in cases of emergency. Plus, the “surplus” is, at present, imaginary. To use a more accurate analogy; “When a family has paid all of their bills and see next year’s Christmas bonus is sitting out there unspent, they should NOT spend it until that money is actually in the bank.”

    I’m not saying that paying back the education shift is the same thing as a paying back a mortgage, but one analogy that trumps all others is, Don’t count your chickens until they hatch. Something all politicians need to re-learn.

  3. Submitted by Neal Rovick on 04/06/2012 - 11:21 am.

    The next budget cycle has an estimated deficit of $2.2 billion ($1.1 billion if you pretend there is no such thing as inflation).

    Kind of makes that estimated “surplus” less of a surplus.

    And there is the prudent course, as mentioned above, of maintaining a reserve amount. Minnesota currently has $658 million in the reserve – about half of the $1.3 billion in budget reserves recommended by the Minnesota Management and Budget agency. These remain volatile times, locally, nationally and internationally–it’s foolish to deplete an already slim reserve.

  4. Submitted by Nathaniel Finch on 04/06/2012 - 12:09 pm.

    Knave or fool? Hmmm…

    Either this guy doesn’t understand very well how state finances work, or he’s hoping that we don’t and that he can lead us down his primrose path. In his case, maybe it’s some of both. Where do they find these guys and who elects them?

    • Submitted by Pete Barrett on 04/06/2012 - 05:44 pm.

      The World Is Run By Those Who Show Up

      They get elected when the other side lacks enthusiasm and doesn’t show up. Or can’t overcome the hurdles placed in their way, like a photo ID, which I didn’t have to show today when i bought wine for Easter dinner.

  5. Submitted by Bernice Vetsch on 04/06/2012 - 03:55 pm.

    Families (and states and countries) in debt

    are much better off with a decision to INCREASE THEIR REVENUE than to use up all their savings to pay off current debts.

  6. Submitted by Richard Schulze on 04/09/2012 - 08:16 am.

    This is just another example of rolling debt from one high interest credit card onto another high interest card.

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