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When is a surplus not a surplus?

Minnesota’s budget forecast documents are clear: “Expenditure estimates must not include an allowance for inflation.” Imagine, a directive to deceive the public.

Former Gov. Arne Carlson

MinnPost file photo by James Nord
Former Gov. Arne Carlson

President John F. Kennedy once observed, “Victory has a thousand fathers, but defeat is an orphan.” That certainly was true when it was announced that the state would enjoy a $1.544 billion surplus for next biennium. Immediately, the governor and legislators from both parties proclaimed their brilliance in financial management.

Now, that is entirely part of human nature. We love to win. In many ways, it is America’s most treasured value.

Less than 1% of the budget

However, there is a kicker. There will not be a massive surplus. Rather than it being over $1.5 billion, it will be a much smaller $382 million or less than 1 percent of the budget.

Understandably, the public will want to know why they are being sold the sizzle and not the steak. The answer is that it came about during the Pawlenty administration when some Republicans and Democrats had political ambitions for higher political office and were fearful of the possibility of projected budget deficits hindering their upward climb. The solution was simple: maintain inflation for revenues and remove it from expenditures. This way, a rosier picture could be presented.

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However, the budget documents are clear: “Expenditure estimates must not include an allowance for inflation.” Imagine, a directive to deceive the public.

What is not explained is why Gov. Mark Dayton and his finance team did not get the law changed. Obviously, they benefited from it. As recently as Dec. 12, Myron Frans, the commissioner of Management and Budget, was still hailing “the $1.5 billion surplus.” That is wholly unacceptable.

Sober warnings in forecast

The actuality is that the forecast issues some sobering warnings: “Slower economic growth is projected to continue into FY 2022-23 resulting in a slowdown in revenue growth.”

This means that the second budget of Gov. Tim Walz could be based on the expectation of a surplus of some $456 million, meaning that any inflationary growth in spending is not reflected in that number. Considering inflation in a $46 plus billion budget and the added social costs if the downturn is serious, the reality could be a sizable deficit. The new speaker of the House, Melissa Hortman, and newly elected Rep. Zack Stephenson (D-Coon Rapids) are on top of this and are working to make their colleagues more aware of the sobering challenges ahead. This tells me we are going to see more competent legislative oversight than we have witnessed in the past.

However, the main player in righting the financial ship must be the governor. Walz will have a current budget that is manageable, but there are some serious headwinds coming that will require bold changes. I would submit the following for consideration when his new management team assumes office:

1. Announce that a stated principle for all governance will be transparency. The public who pays the bill must also have the right to know how, when, how much, and where their money is being spent.

2. Reinstitute long-term financial planning to avoid the “surprises” that all too often beset us.

3. Immediately remove the restrictive language that takes inflation out of the spending forecast. In brief, politics is out and truthful and competent professional management is in.

4. Restore the public’s confidence in management by recreating the Loaned Executive Program (LEAP) originally designed by Gov. Wendell Anderson in the early 1970s. This effort brought together private sector executives with government managers in an effort to increase efficiency, productivity, and understandability. In talking with Gov.-elect Walz, I know he is fully on board. This is a superb management tool and has the potential to become a national model. And it should receive widespread bipartisan support.

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If there is one word that must prevail over the next four years, it is prudence. This means careful and cautious spending, excellent oversight and long-term professional planning.

The public is always best served when there is full transparency and truthfulness about our challenges.

Arne Carlson is a former governor of Minnesota (1991-1999). 


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