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Staying the course: Dayton's brand of budgeting is structural balance — and it works

MinnPost photo by Greta Kaul
Maintain Gov. Dayton’s sound fiscal management through fair and adequate revenue, structural balance, smart investments, and a sufficient rainy-day fund.

How do you get to eight straight positive budget forecasts?

Cynthia Bauerly

Minnesota’s budget success didn’t happen by luck or chance. Instead, the answer is six years of sound fiscal management and leadership of Gov. Mark Dayton. His brand of budgeting is structural balance. And it has worked. 

The February budget forecast revealed a surplus of $1.65 billion for the next two years, up $250 million from our projections in November. The forecast shows that Minnesota’s projected revenues continue to outpace spending, which is the definition of structural balance. In fact, our state economist’s projections show a structurally balanced budget for the next four years.

Myron Frans

Thanks to hard-working Minnesotans, our state’s economy and employment are growing. Our income and wages are rising, our budget is balanced, and we continue to be recognized as a great place to live and thrive. US News World Report recently ranked Minnesota as one of the best states in the nation for opportunity, health care, and infrastructure.

Part of sound fiscal management is taking risks seriously – and this forecast comes with its share of significant risks. The U.S. is currently in the fourth longest economic expansions on record – and we know that expansions cannot last forever. Economic policy at the federal level also faces considerable uncertainty – from the repeal of the Affordable Care Act to changes in trade policy, to large budget cuts for federal agencies that translate to cuts to Minnesota. If we want to maintain the state’s strong financial health, we must ensure that Minnesota’s structurally balanced budget is positioned to weather changes.

As we approach the halfway point of the 2017 legislative session, we urge legislators to stay the course. Maintain Gov. Dayton’s sound fiscal management through fair and adequate revenue, structural balance, smart investments, and a sufficient rainy-day fund.

Fair and adequate revenue

We must remember that we have been here before. Minnesotans have seen firsthand how quickly balances can turn into deficits.

In 1999, state leaders saw the Minnesota’s large budget surplus as a chance cut income taxes across the board. Many thought we could afford the tax cuts, but budgeting is not just about the current year; it is about projecting for the future.

The 1999 income tax cuts were made just before the dot-com bubble burst in 2000. State spending soon outpaced revenues and the state’s surplus turned into deficits for the next nine out of 11 years.

When Dayton took office in 2011, he was handed that legacy. By attuning our taxes to our growing economy, he helped create revenues that are structurally balanced. From this experience, he understands that tax cuts this year must be targeted to those who need them most while carefully maintaining the structural balance in our budget going forward.

Smart investments

Under Dayton's leadership we have invested in Minnesotans – our greatest resource – with increased school funding and a targeted expansion of tax credits and deductions. It’s paying off:

  • Our schools are closing the achievement gap, raising graduation rates, and expanding access to quality early learning programs.
  • Our unemployment rate is 4.0 percent, lower than the national rate of 4.8 percent, thanks to our diverse and growing economy.
  • We consistently place near the top of national business ranking thanks to our education system, quality of life, and productive workforce.
  • Our state’s credit outlook has improved, with major ratings agencies citing our strong financial management, replenished reserves, and structurally balanced budget.

We must continue to make investments to ensure all Minnesota families and businesses prosper and grow – whatever the future brings.

Sufficient rainy day fund

Finally, Minnesota is recognized as a leader in developing and implementing its rainy day fund. Recently the Pew Charitable Trust praised Minnesota for our strong reserve policy that automatically sets money aside for unexpected deficits or other budget challenges caused by economic conditions. At almost $2 billion, we now have one of the largest cash and budget reserves on record and are approaching the recommended reserve target.

To keep Minnesota growing and secure, we need to stay the course with structurally balanced budgets and smart investments, and prepare our state for unexpected economic downturns.

Any tax or budget changes we make this year must not shortchange our students, families, or businesses. Let’s focus on long term economic strength by supporting the success of all Minnesotans.

Cynthia Bauerly is commissioner of the Minnesota Department of Revenue. Myron Frans is commissioner of Minnesota Management and Budget.

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Comments (16)

My 2¢

Aside from reading like a campaign ad for the Governor, I'm inclined to argue that this piece provides plenty of support for what the authors refer to as a "balanced" fiscal approach. Financially, I'm personally conservative, and with the state in the financial basement when I arrived in 2009, it's been useful to watch how a "balanced" approach to both revenue and spending has worked at the state level. I'm very much on board with the argument that a tax cut isn't merited unless/until the current surplus proves itself to be a long-term phenomenon, and Mr. Dayton's emphasis on building up the state's "rainy-day" fund makes sense to an old guy who tries to practice that personally.

For example, I'd like the state to spend more — a LOT more — to support both Pre-K through 12, and also on higher education. That's what I read into the state constitution's education provision. But I'd prefer that the state not go out on a fiscal limb to do so unless there's good evidence that the initial expense of increasing state aid can be maintained over the long haul.

Mr. Frans - your answer please....

What was the Dayton budget during his first two years and what budget amount is Dayton proposing today?

Have the Democrats passed the largest tax increase ever in the State of MN?

Are you still advocating yet another huge increase in taxes on the poor and middle class?

"Largest Ever"

How are you measuring the "largest tax increase ever"? Is that in terms of absolute dollars? because that means nothing. If you are talking about inflation adjusted dollars, that may be meaningful. if you are talking about the increase in terms of a percentage of state GDP, that may be meaningful.

Otherwise, it's just a meaningless talking point. On a dollar per hour basis, I make more than my Dad ever did. But as working class wages have not kept up with inflation, i.e. the working class has not had a real increase in wages over the last few decades, I make less than my Dad did.

I recall a past president who said that there were "more Americans working than ever." That was true in terms of raw numbers, but as a percentage of the working age population, it was definitely not true.

So, is that just a talking point, or is there something behind it.

Size Of Rainy Day Fund

"At almost $2 billion, we now have one of the largest cash and budget reserves on record..."

A record amount relative to what? State GDP? The total budget? Past reserves? And is that an inflation adjusted number?

I like the idea of kitchen table economics. I have reserve funds too, and when times are good, I try to add something to them, especially if there are some clouds on the horizon.

I guess that makes me a fiscal conservative.

And:

As we clearly saw with Jesse the spender, and T-Paw the BS-er they took Arnie's $2 Bil rainy day fund and blew through that and another $2Bil plus change in a matter of what < 5-6 years. All the R's should do is go for the governorship and they can then blow the $2 Bil in reserve and another $ 2 Bil in debt and we'll look just like the old empty pocket T-Paw days! "A cold Mississippi" The conservatives sure are liberal spenders when it comes to finances!

Pelase adjust the budget forecast for inflation

Can we go back to having the forecast adjusted for inflation? The surplus always looks bigger than it actually is and if we go pack to a Pawlenty style governor, the deficits will looks smaller than they actually are.

Also - I don't care what Dayton has to cede to the Republicans - whatever big item is on their wish list but he needs to get that public option added to MNSure.

Campaign Literature?

I was unaware the Governor was running for re-election - is this the start of his support pieces?

I think there are some worthwhile points to make which the article overlooks. Firstly the Governor with DFL majorities in house and senate instituted large tax increases, primarily on companies and high income taxpayers. I believe the target was incremental $2.1B in revenue. Due to a buoyant recovering economy those tax increases actually brought in well over $3B.

When the DFL lost full control of house senate and governors office, they lost the ability to institute new spending for these budget surpluses which they have said on numerous occasions they would like to make - such as universal preschool. Likewise the Republicans without control have been unable to cut taxes to reduce or eliminate the surpluses, cause a deficit, borrow from the schools, etc...

The past few sessions have seen an embarrassment of political paralysis with both parties, the legislature and the governor trying to out-do each other in the degree to which they could prevent progress on most any issue. Budget bills have failed, bonding bills have failed, tax reform have failed, and the blame for this lack of progress can be laid at the feet of both parties, the legislators, and the governor. Anyone who chooses to put the blame on one of these parties exclusively is in denial or guilty of willful ignorance (or hopelessly partisan).

So what that means is that with this huge tax increase generating even more revenue than expected, and no consensus how to spend, or what taxes to reduce, we continue to run a surplus. This is not "structural balance", this is autopilot.

So you support the 2000's republican disaster

1. Give back a great deal of money to regaular people - about $100 per person; 2. Drain the rainy day fund. 3. Give more money back to the rich and steal money from the schools to pay for the deficit. 4. Not agree to pay for the deficit to schools. What a stink!!

No

No.

That wasn't the point.

This article claims that our states fiscal stability is the result of Gov. Dayton's shrewd fiscal management over the years leading to sustained surplus revenue.

If DFL had control they would (probably) be spending more, so we'd have less or no surplus.

if Republicans had control they would (probably) be cutting taxes so we'd have less or no surplus.

So credit for our current stability (probably) goes to the gridlock and lack of success our leaders have had with agreeing to anything, aka "autopilot". My issue with the article is the reverence it applies to the Governors office as though these years of paralysis were part of a grand plan.

If the GOP had written a similar,excessively partisan article claiming that our fiscal stability was due to their steadfast objection to new spending, I'd have the same issue with the revisionist history on their side.

No. There is no evidence that Dayton would

Have spent the entire surplus. Republicans are talking about speadiny the vast majority of rainy day fund on tax "relief" for the rich. Dumb and dumber

Read more objectively

The article by Daytons staff takes credit for a more than $1B surplus each year as evidence of his budget prowess and structural balance.

Meanwhile late this week, when the latest budget surplus was revised from $1.4B to $1.65B, Dayton revised his budget up $175M - keeping the same relatively small margin constant as before, but spending every dollar of the new forecast.

This would be evidence that Dayton woudl like to spend a lot more than we are spending now, and as I predicted we've have "less or no" surplus in full DFL hands.

http://www.startribune.com/dayton-budget-proposal-swells-to-north-of-46-...

Republicans in the house want to cut taxes like $900M - so again, we'd have "less or no" surplus left to their plans. If you subtract $900M, what's left is less.

See how this works? Each party has a plan that would get the budget surplus to "less or none". As I said anyone who can only see fault in one party is looking through just partisan lens at the issue.

Infinitely better to be on autopilot and

Continue to increase the rainy day fund. Don't want to give back all the money, and then watch the economy tank because of the nuts in Washington, and then start stealing funds here from schools to balance the budget. 2000-2012 was a disaster

Keep Minnesota Strong

Whatever either party agrees to do with the 'projected' surplus, the rainy day fund should definitely be left alone. With the level of volatile uncertainty and proposed assaults of many programs that elderly and sick Minnesotans depend on, it would be wise to pass a budget that approaches the $1B mark of the surplus, but no more; let the extra flow into the rainy day fund. The surplus is by no means guaranteed — it's just an estimate (likely a good one, but not something to totally bet the farm on).

Optionally, I think it would also be wise to meet with state Republicans and work out a modest compromise regarding tax-cuts. With the uncertainty of what may happen when DC finally gets its act together and how their sinister cuts may impact the state, maybe a very small tax-cut bump could be a nice gesture to show that the state is, indeed, not just about revenues. But large cuts would, as they have in the past, likely wipe out gains and the financial flexibility Minnesota may need to weather the financial storms to come.

Government is about community, it's about us pooling some of our hard-earned dollars together for the benefit of our community — whether it is our local town, our county and our state. Apparently Congress will not only continue to fail to fulfill its obligations, it is systematically and savagely planning to undermine the American way of life in many areas. Minnesota must stand strong. We must show a rogue, out of control Congress that they're not just attacking policy... they're attacking US.

Budget

Why does the Governor not include anything for seniors? Many states do not tax Social Security for seniors. The Legislature's proposed budget gives this break to seniors but the Governor's has no mention of it. I guess he does not have the same concern for us seniors as he does for schools. In this administration there is no support for seniors.

Maybe, Just Maybe

The governor is thinking about those of us still raising families, or as I call them, the next generation of Social Security payers. For those of us currently in that boat, our wage income has been stagnant for our entire careers, despite the increasing productivity of the economy. Whereas the current generation of Social Security recipients were fortunate to participate in an economy where prosperity was shared, we have never known that.

Lowering taxes on my parents is also an increase in the burden on on me as I try to raise my parents' grand children.

Surpluses come and go, and as we've found in the recent past, surpluses prove to be a foundation of sand for permanent tax reductions. Hey, we've got a blue bird day at high noon, let's throw our light bulbs in the trash!

Surplus?

My recommendation would be to sit on the surplus until everyone knows the impact of what they are doing in DC regarding "repeal & replace" (Moody's came out and said the states would be taking a big hit), and the next Federal Budget. Based on what I saw this week, Mn, who only get's back .54 of every dollar it sends to the Feds, will be seeing even less in the future. The GOP plan is to push responsibility down to the states, without adequate funding, then use the savings to pump up the "hollowed out military" (the one that can still afford to own and operate 200 golf courses around the world, sit on $900b in real estate, and the one that commissioned a study to look at administrative waste....and when the answer came back that waste was worth $125b...quickly buried the evidence).