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.
$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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