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Pie charts and numbers of Minnesota’s proposed budget fix don’t tell the whole story

Gov. Tim Pawlenty
Gov. Tim Pawlenty

When Gov. Tim Pawlenty was presenting his budget today, with use of pie charts and columns of numbers, it really didn't look so bad.

Take a billion here, a billion there -- presto. The $4.8 billion deficit is gone. The governor's budget for the 2010-11 biennium would be $33.61 billion, a 2.2 per cent reduction from the 2008-2009 expenditures of $34.36 billion. A pittance, right? 

So, what's it mean if you "decrease the increase'' of  spending on something like the General Assistance Medical Care program that was supposed to get a 22 percent increase in the next biennium but would  get about a 9 percent increase in the Pawlenty budget proposal?

Cal Ludeman, the commissioner of the Department of Human Services, answered that one. About 55,000 adults would be out of luck on health insurance the first year. About 29,000 more the second year. These people, by the way, are the poorest of the poor.

"We have to slow down the growth of Health and Human Services,'' the governor said.  “… It's unsustainable.''

Even by slowing the growth, Ludeman says, the state will be providing health care for 700,000 "lives" by the end of the biennium. Ludeman uses the word "lives'' instead of "people.''

Of course, the number of people out of work and out of money is growing every day. Isn't the health care problem going to get worse?  That question was asked of Rep. Marty Seifert, R-Marshall, the House minority leader and a supporter of the governor's budget.

"We're going to be like Wisconsin and most other states,'' Seifert said.

But what of the growing numbers of people who have lost their jobs and their health insurance benefits?

"We have job training programs,'' Seifert said.

A bewildering cycle
But, of course, there are fewer and fewer jobs. Ah, it's a bewildering cycle.

All of this is not to say that the governor and the Republicans are awful. The budget problems the state faces are huge. The point is that real Minnesotans are behind the numbers, and the governor's budget seems to come down heaviest on the poor, in part because Health and Human Services takes up 33.7 percent of the state budget.

The budget also knocks out lots of small things, such as the state's art board and the state's humanities board. It would end the state program of refunding small political donations (that's a savings of about $4 million) and it would change the Perpich School of the Arts from being state-sponsored to being a charter school. That would require the school to find its own funding.

And then there's a biggie. Pawlenty again wants to take another whack at his favorite target, Local Government Aid, this time by 25 percent over the biennium. Such a cut, a group of mayors said following Pawlenty's presentation, would have real impact on real people. Such a cut would mean lost municipal and county jobs. It would mean fewer cops and firefighters. It would mean more potholes unfilled, less snow plowed.

"We'll be plowing streets every other blizzard'' is how Wadena mayor Wayne Wolden put it.

It wasn't clear if he was kidding.

Wolden did point out that when his city was hit by a snowstorm on a recent weekend, no streets were plowed until Monday.

"We are not paying overtime,'' he explained.

Pawlenty seems to have little empathy for local governments. He pointed out, anger in his voice, that county commissioners in some metro area counties have given themselves raises in recent weeks.

He wants pay freezes for all public employees. He suggested that cities that have contracts with union employees re-open those contracts and knock out increases.

Will he try to re-open the contracts of state workers?

"No,'' he said.

He also said that he wasn't interested in eliminating state jobs.

"That would just exacerbate the problem'' of the declining number of jobs in the state. He did add, however, that when the state starts negotiating with its unions this spring, he expects unions to take wage freezes as a trade-off for keeping jobs.

Interestingly, Pawlenty, who has preached that the state must be looking more to the future than the past, presented a budget that relies heavily on head-spinning accounting gimmicks that may offer short-term solutions but do nothing to address future budget problems.

Up in smoke?
Take tobacco money, for example. A couple of years ago, Minnesota used a big pot of one-time tobacco settlement money to fix the budget. That money's gone. But still, there's been a steady stream of revenue coming into the state from the tobacco settlement. It's been like an annuity – and it was supposed to keep streaming in for the next decade.

The governor is proposing that the state sell half of that stream of money for $983 million in the form of bonds.

"Securitization'' is the word Seifert uses to describe the transaction.

But by any term, that seems to be selling future revenues for a one-time hit.

The governor also is counting heavily on the federal bailout legislation currently being discussed in Congress. He's assuming that the state will receive $3 billion from the feds, and that about a third of that will be able to be used in the general fund. Again, that would be a one-time jackpot, which does nothing to get the state's fiscal house in order in the future.

And, of course, there are the usual accounting shifts pols always turn to in tight economic times. For example, rather than the state paying a school district the money it owes in 2010, it will pay that money in 2011. The district, then, will be forced to scramble and write out a large number of IOUs to various vendors.

Rep. Tony Sertich, DFL-Chisholm, the House majority leader, was raising his eyebrows over all these gimmicks. "We don't want any Ponzi schemes in the governor's budget,'' he said.

There is an obvious reason that the governor's budget is filled with so many of these accounting devices: He pledged he would not raise taxes, and he's sticking to it. In fact, the only mention of taxes in his budget are tax CUTS for business, cuts that call for reducing the corporate income tax from 9.8 percent to 4.8 percent over the next six years, and a variety of smaller tax cuts for smaller businesses.

House Speaker Margaret Anderson Kelliher, DFL-Minneapolis, said she agrees with the governor that the state's business climate must be improved, but she doesn't see that cutting the corporate tax is particularly helpful.

She said that 46 percent of the corporate income tax collected comes from "companies not located in Minnesota [but doing business here]. There's no oversight [in the governor's proposal] as to where they would invest that money in Minnesota.''

But Republican legislators were quick to criticize their DFL brethren. DFLers, they note, are coming up with no proposals of their own.

Kelliher and Senate Majority Leader Larry Pogemiller, DFL-Minneapolis, said they will come up with proposals only after they've had more time to study the details of the governor's proposal and only after they've held a series of hearing around the state.

DFLers mum so far on dreaded phrase ‘tax increase’
Interestingly, DFL leaders have yet to use the phrase "tax increase" when discussing their views of the budget problems. Republicans find that omission almost amusing.

"I'm expecting a barrage of revenue increases [taxes] to come forward from the DFL late on a Friday night sometime in April, when all of you [he pointed to reporters] have gone home,'' Seifert said.

On Tuesday, about the only pol at the state Capitol willing to imply that tax increases are necessary was St. Paul Mayor Chris Coleman. If the newest round of LGA cuts actually happen, he said, St. Paul would have to take another $24.8 million out of a city budget of $200 million. The city, he said, already has frozen salaries, put in place a hiring freeze, canceled a police academy class and closed eight recreation centers.

What would he do if he were governor?

"You have to have an honest conversation with people about what services they’re receiving,'' said Coleman. "We haven't been honest about what it costs to run government. … We have to get past this mentality that you can get something for nothing.''

Of course, Pawlenty's presentation was just the beginning.

Or, as Sen. Dave Senjem, R-Rochester, the Senate minority leader, put it: "Let the games begin.'' 

Doug Grow writes about public affairs, state politics and other topics. He can be reached at dgrow [at] minnpost [dot] com.

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Comments (11)

Fine, I'll say it. We need tax increases. Recently on MPR, Senate Tax Committee Chair Tom Bakk said that if our top income tax rate was raised to equal California's, which apparently is the highest or close to it, that would bring in $600 million. He put this in terms of a tax increase not coming close to closing the shortfall, but nonetheless, $600 million would cover about an eighth of our shortfall.

The type of supply side economics the Governor suggest do nothing but redistribute the wealth to corporate bonuses and the wealthy. If you go to economy.com (Moody's), they lay out exactly what the return on the dollar is for various stimulus. Permanent tax cuts return about 50 cents on the dollar. Would you invest in anything that returned half of what you put in? I think not. The supply siders like to say that if you give tax cuts, corporations will invest in more factories, but that does not even make sense. They will not increase supply if there is no demand, and there will be no demand as long as wages are frozen and jobs are cut. Supply Side economics does not work. All it does is redistribute wealth to the top 1%, and we have been doing it for 30 years.Cutting the corporate tax rate will cost our economy 70 cents for every dollar cut. That money won't be returned through magical trickle down job creation. Check out how ineffective tax cuts are:

Tax Cuts
Non-refundable lump-sum tax rebate 1.02
Refundable lump-sum tax rebate 1.26

Temporary tax cuts
payroll tax holiday 1.29
Across the board tax cut 1.03
Accelerated depreciation 0.27

Permanent tax cuts
Extend alternative minimum tax patch 0.48
Make Bush income tax cuts permanent 0.29
Make dividend and capital gains tax cuts permanent 0.37
Cut in corporate tax rate 0.30

Spending Increases
Extending UI benefits 1.64
Temporary increase in food stamps 1.73
General aid to state governments 1.36
Increased infrastructure spending 1.59
Source: Moody's Economy.com

go to Google, search "history of federal income tax rates" and you will see that the problem is national in scope.

Tax our rich and they move to Texas or So.Dakota. We need a progressive federal income tax similar to the rates that made this country great.The rich did quite well under exorbitant taxation and they'll survive again.

Get highly progressive and save Minnesota's quality of life. Some others will follow if we succeed. Take a chance or let things slide towards a Mexican model of 98% poor and desperate and 2% rich or....

I hesitate to add anything to these comments and analyses, because I have no expertise to offer. You've all convincingly made the point that we must design a new tax system that pays the bills and protects the poor.

But that will take time, and right now I think we have to add revenue quickly. Other states impose taxes on food and clothing above a certain dollar amount. It wouldn't be hard to tax more luxury food and clothing items; store computers already differentiate taxable and non-taxable purchases. If you can buy $26/lb steak, you can afford to pay a tax on it. Alcohol, soda and snacks could all be taxed higher. Extra Virgin Greek olive oil? $16.99 at Lund's. (I don't know if it's already taxed, never having bought any, but most condiments are considered food.)

Look at the clothing featured in Strib Variety features - a $360 bag is not a $25 diaper tote. Or check out Neiman's - $1000 Stella McCartney top to go with her $350 jeans? Any amount over $150 should be taxable. That would cover basics, including winter coats.

If my number seems too low, use another. But food and clothing should not continue to be untouchable, and a new rate could be implemented within months.

I trust Sen Senjum's use of "games" was a good-hearted attempt to lighten up a serious subject. Kudos to Sen. Senjum and Rep. Kelliher for trying to mediate solutions. We cannot solve this without a bipartisan approach.
For starters, House Republicans and Senate Democrats could select more diplomatic leaders. Rep. Seiffert and Sen. Pogemiller often use "sound bites" which serve to alienate and polarize. For example, I attended a Tax Committee hearing last week at which Sen. Pogemiller accused county officials who were testifying in favor of mandate relief of "making an end run around Democracy." I've heard Gov. Pawlenty and Rep. Seiffert make similar cute, but derogatory statements to or about people with whom they disagree. Such comments do not promote the civil discourse which leads to good policy and effective partnerships.

Allow me to offer two solutions.
Given that the responsibility for creating a state budget falls to the office of the governor and given that the governor was elected with a strong plurality and given that public opinion polls so high approval ratings for that governor, I suggest the legislature give the Gov what he asks for. Approve his budget as submitted and let the people of Minnesota decide if Pawlenty's vision is theirs'
If the legislature can't stomach that then they should agree to a binding arbitration effort and recruit Arne Carlson, Al Quie and John Gunyou to craft a budget that no self-respecting Republican would object to and any Democrat should trust.
Pawlenty and his loyal bunch of Kool-Aid drinkers are counting on the legislature to do what they lack the spine to do - administer the state so as to meet its obligations and levy the cost of doing so fairly.

Pass-the-buck-Pawlenty did it again. Amazing. Of job cuts he says, "That would just exacerbate the problem," and yet he hands down huge cuts to cities and counties. How does he think cities and counties will close those gaps when their budgets are 80% personnel?! Of course they'll have to lay people off.

Not to mention that his proposed budget still leaves in place a huge structural problem that someone will need to solve. As usual the governor will have someone else do the heavy lifting.

The business community has begged more than once for the state to increase revenue to improve infrastructure, just as many wealthy Minnesotans have begged Pawlenty to increase income taxes for those in the upper tiers.

Mr. Pawlenty's devotion to an utterly failed philosophy of government that callously requires the withholding of access to health care for tens of thousands of people, requires cutting funds for the arts and humanities (as necessary as food), believes spending money to punish teachers instead of decreasing class sizes to improve student outcomes is forward-looking, and actually reducing revenue during this dire time is extremely hard to understand.

the problem in minnesota is not that we are not taxed enough - it is we spend too much. in the past 8 years the state budget has increased 40%.
has your pay increased that much in the past 8 years. minnesota is third highest state in taxation. when companys are looking to build factories and create new jobs they look for high tax states like michigan don't they. why do you think northwest airlines and other companies are fleeing the state. when they leave the jobs are gone. the only way to create jobs and prosperity is to create a climate for business to trive. the sure way to lose jobs and prosperity it to continue to raise spending and taxes.

Some excellent comments, but so many of them framed around the false choice that we either have to increase taxes or cut spending. Some things seem clear (at least to me):
We have a tax system that was designed for a manufacturing and natural resources based economy in which Minnesota had lots of young families just beginning their high earning/high consuming years. That's not Minnesota today. It is this reality that causes Art Rolnick of the Federal Reserve to say that one of the most urgent things Minnesota can do is cut the corporate income tax rate to attract more investment capital and labor.
Second, everyone, including Governor Pawlenty, agrees that we have to invest in education. And,yes, class sizes are too big and teachers underpaid. But a recent article in the Pioneer Press, citing a possible $25 million shortfall, pointed out the distict has 38,000 students and 6,300 employees. Even recognizing the challenges of teaching kids in poverty, ESL, etc., how does anyone justify one employee for every six students?
And, finally, it is unconscionable to throw so many people out of health coverage in these times. But where is the debate over long-term reform? Pawlenty (with some DFL legislators) drove reform in 2007 and 2008 and included funding (although reduced) for those reforms in this budget. That's a starting point.
My point is that Minnesota doesn't just have a two year budget crisis, it has a structural imbalance between revenues and spending. We can't tax our way out of the problem and we can't spend our way out. Pawlenty has put up his proposal. There are some good things and some points where many will disagree. And it's not just a two-sided debate between taxes and spending.

We've heard this tax cut malarky from Republicans for years and years. To hear them tell it you'd think a tax cut would cure the common cold. All along with the tax cut mania we've watched our standard of living deteriorate, our infrastructure literally cumbles around us, our parks close, businesses don't leave this state because of taxes, taxes are a very small part of doing business, they leave because the environment is not good. Good employees want good schools for thier children, good roads to drive on, convenience, parks, amenities, but we've watched all those things fall away.

Take a look around, the last eight years George Bush and his enablers gotten every thing they've asked for. We've had Republican nervana. Look hard, this is what you get when you let tax cuts, deregulation and incompetence rule your world. In a fair world no Republican politician would be able to show their face in public without first apologixing for what they have wrought. But we don't live in a fair world.