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Minnesota’s budget choices: Pull the elephant’s tail or tame the beast

Like the blind man grabbing the tail of the elephant and thinking he’s got a rope, too many are blindly focusing on the so-called state budget surplus of $1.5 billion (a number that is likely to shrink when the next state forecast comes out). It’s not the size of the tail we should be worried about – it’s the size and nature of the beast itself that should grab our attention.

Peter Hutchinson
Peter Hutchinson
$1.5 billion is the difference between what the state can expect to take in revenue under current law between July of 2019 and June of 2021 plus resources from previous years ($49.0 billion) and its expected expenditures under current law ($47.5 billion). But that is just half of the story. All of those numbers relate to only one of the “funds” used to run our state government – the General Fund. When you add up all of the other funds, total revenue and other resources are twice as big — more like $96 billion.

Focusing on the $1.5 billion tail diverts our attention from the other 97 percent of the General Fund, not to mention the other 98.5 percent of all the state’s funds. We should not be so worried about how the governor and Legislature spend the $1.5 billion and infinitely more worried about what they choose to buy with the other $95 billion. There are three major choices.

Buy yesterday’s costs plus tomorrow’s inflation: One choice is to buy all the costs of continuing to do exactly what the state has been doing in exactly the way it’s been doing it. To do that they’d just ask state agencies to take all of their costs from last year, add inflation, plus enough for increased caseloads or new legislative requirements. That is pretty much what the forecast does. It tells us that continuing business as usual will cost all of the $47.5 billion of current law spending plus another $1.2 billion for inflation for a total of $48.7 billion of the $49 billion available. So, from this option we get all the stuff we’re already getting from government but at a higher price, and if we want new stuff it will cost even more (meaning a tax increase).

Don’t pay more for old stuff; use new revenue for new stuff: The state will take in about $2 billion in new revenue that is committed under current law to spending for old stuff. The governor and Legislature could say that they won’t give state agencies any new money for stuff they are already doing – no money for inflation, new cases or anything else. Rather, the state would challenge agencies to get more productive – deliver more of the old stuff for the money they have rather than getting more money for the stuff they are already producing. That would free up the $2 billion plus all of the $1.5 billion surplus. With that $3.5 billion the governor and Legislature could pay for some of the competing demands they are facing – new cases or enrollees, tax relief, expanding early education, tax conformity, K-12, health care, local government aid, etc. Doing so would be a great step to getting more for our money – but it would still focus on only 4-7 percent of total spending – a slightly bigger tail on the elephant.

Use all of the money to buy results, not pay for costs: Here’s a radical idea – use all of the money the state will have to buy results that Minnesotans want. This would take three steps. 1) The governor and Legislature would specify the results that Minnesotans want in learning, health, protection of the vulnerable, the environment, movement and access, safety, etc., and the Price of Government they are willing to pay for them. By doing this the governor and Legislature would be explicit about the difference they intend to make in the lives of Minnesotans with the money they have available. 2) The governor and Legislature would invite state agencies plus local governments and maybe even nonprofits and companies to propose ways they would contribute to delivering those results. Each “proposal” would specify the results to be delivered and the price. While these might look like traditional budget requests, the commitment to specific results and a price would be a radical departure. 3) The governor and Legislature would rank the proposals for each result from best to worst. Starting from the top of the list, they would buy the best and leave the rest. By the time they were done, the governor and the Legislature would have used every dollar available to get the most results possible at the set Price of Government. In doing so, some old things would be continued while others would be dropped in favor of new and better ideas. Furthermore, every idea that got funded would in essence be a contract to deliver a certain result at a certain price, ensuring greater accountability.

We cannot tame the budget beast by pulling on its tail. Only by budgeting for results are we likely to get the results we want at the price we can afford.

Peter Hutchinson served as Minnesota’s commissioner of finance and is the co-author of “The Price of Government: Getting the Results We Need in an Age of Permanent Fiscal Crisis.”

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Comments (6)

  1. Submitted by Bob Barnes on 02/07/2019 - 08:52 am.

    I would suggest a 4th option, start cutting spending so they can pay off the State debt and maybe save up enough to cover pension shortfalls that are coming. The State budget has doubled in a little over a decade. That kind of growth is not sustainable. Like all governments, there is a lot of waste and fraud that could be cut and there are a lot of programs that we either don’t need or are redundant.

    • Submitted by Jackson Cage on 02/07/2019 - 09:58 am.

      I always laugh at suggestions like Mr. Barnes’ “lots of waste and fraud” or Mr. Hutchinson’s #2 “challenge agencies to be more productive”. As if these are new and innovative proposals that absolutely no one has ever thought of until now!

      I challenge both of these gentlemen to tell me how this isn’t already being done or what specifically should be reviewed. I’m not suggesting there aren’t improvements, but this is the kind of tired old cliche that is really meaningless. At some point even McDonald’s figured out it couldn’t keep selling hamburgers for a dollar. They could raise the price or make the sandwich smaller, but even they knew that simply making an uninformed demand wasn’t particularly productive.

      • Submitted by Bob Barnes on 02/07/2019 - 10:15 am.

        Eliminate the Met Council. Eliminate baseline budgeting. Eliminate no bid contracts. There is a lot of waste within every level of govt even local. Do you honestly believe our needs have grown so much in 10 years that it required a doubling of the budget? Not a chance. In fact, we could go back to the budgeting levels we had just 10 years ago and not actually miss the money currently being spent. Some would lose their cushy govt jobs but there are plenty of private sector jobs now.

      • Submitted by Ken Wedding on 02/07/2019 - 11:09 am.

        “there is a lot of waste and fraud that could be cut and there are a lot of “programs that we either don’t need or are redundant.”

        Like most canards, this one is unworthy of serious consideration without specifics. “waste and fraud” means that the Attorney General needs more money for investigation and prosecution.

        “programs that we either don’t need or are redundant…” Who’s we kemosabee?

        • Submitted by Bob Barnes on 02/07/2019 - 01:51 pm.

          How many millions wasted on MNSure website? MnLars? Those are but 2 glaring examples of waste. How many millions wasted on blueprint designs for remodels that never happen? I know of a Mn county that has wasted a couple hundred thousand just on remodel plans that were never used. How many millions has been spent in DHS efforts to modernize databases with little to no results? How many billions has the State spent building and subsidizing the current light rail line so a tiny fraction of the population can ride it? Let’s jack up the rates so that every passenger that rides it actually pays what it costs to transport him or her to their destination. How long would people ride it then?

          Anyone that doesn’t think there is wasted money in govt is either ignorant or being dishonest.

  2. Submitted by Pat Terry on 02/07/2019 - 11:39 am.

    This is utterly vapid.

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