Unrelentingly bleak budget situation will dominate entire legislative session

CORBIS/James Endicott

Tom Bakk heads the taxes committee in the Minnesota Senate. It’s one of the most powerful positions in state government.

Yet Bakk, a DFLer from Cook, is not feeling very powerful with the start of the legislative session looming Tuesday.

“I’ve told interest groups that come to me three things,” Bakk said. “One, don’t ask for money. Two, don’t say you can’t cut my stuff. Three, come to me with ideas.”

Ideas. Oh, everybody in government wants ideas on how to mesh together two diametrically opposed realties. The budget deficit is huge, $5.6 billion for the upcoming biennium when inflation is included. The needs of a state in which unemployment is already running slightly ahead of the national average never have been greater.

State Rep. Tom Baak
State Rep. Tom Baak

What to do?

Raise taxes over the objections of an anti-tax governor with national ambitions? Make deep cuts, which most likely would affect the neediest the most?  Blame the DFLers? Blame the Republicans?  Blame the feds? Wall Street? 

Point your fingers at anyone you want. But the problem still exists.

“Nobody knows the answer,” said Bakk. “Nobody.”

How bad are things?
Here’s how bad things are: Bakk, a labor guy from hard-pressed Cook, is talking to business groups, seeking solutions.

“Whatever we do, we have to create jobs,” said Bakk, who is among the long list of DFLers running for governor.

Here’s how bad things are: Individual legislators having been calling Public Strategies Group, a national consulting group of the “reinvent government” school of thought, asking, “What can we do?”

“Prioritize,” is the pro-bono PSG response.

Taxing the rich typically has been the populist answer to solving budget problems. In fact, Bakk already has taken a look at whether Minnesota could somehow tax its way out of the budget mess it’s in.

“I asked my staff to find out the highest rate in the country,” he said. “It’s California — 10.3 percent on people who earn more than $1 million a year. (Minnesota’s top rate is 7.85 per cent.)  If we applied the California rate in Minnesota, it would raise $640 million for the biennium.”

Not enough.

Bakk also asked his staff to investigate what would happen if Minnesota would repeal the two tax cuts that came during the years when Jesse Ventura was governor.

“If we undid the Ventura tax cuts, that’s $500 million,” said Bakk.

Not enough.

“This is not going to be a typical session,” Bakk said. “Education, public employees — everybody has got to get involved. This is too big a problem for the tax committee to resolve.”

Budget problems come down to differing perspectives
Look at the problem legislators and the governor face from other perspectives.

Eric Magnuson is chief justice of the Minnesota Supreme Court. Despite the state’s problems, he says the courts must have an additional $54 million in order to have a reasonably functioning system.

Or, talk with thoughtful Minneapolis City Council Member Gary Schiff.

“I know what shouldn’t happen,” said Schiff of the state’s budget problems. “The problem shouldn’t be passed on to the cities again, because all the cities can do is pass the problem on to the homeowners.”

Schiff noted that Minneapolis has been losing huge amounts of local government aid from the state for the past five years. In 2003, the city received $118 million from the state. That’s now down to $88 million.

“People have been building their political careers on the backs of the cities,” said Schiff, adding that the cuts keep falling disproportionately on the people who can least afford them.

State Sen. Linda Berglin
State Sen. Linda Berglin

But just about everybody can make a compelling case for why their program should be preserved. Sen. Linda Berglin, DFL-Minneapolis, the creator of the MinnesotaCare health plan for those in need, says too many holes already have been slashed in this safety net. Now, with growing unemployment, there’s going to be growing need for the state’s health program that is funded by a dedicated fee system.

Despite growing needs, Berglin already has been making cuts wherever possible. But her battle will be to keep the program viable and keep those who are trying desperately to balance the budget from coming after MinnesotaCare funds.

“Recessions are temporary, but the needs (of the program’s clients) will not go away,” she said.  

Gov. Tim Pawlenty has indicated everything is on the chopping block EXCEPT benefits for veterans, public safety and K-12 education. He also implied that he wasn’t interested in raising taxes, but there may be searches for “non-tax revenue.” That almost certainly means fees attached to any number of services.

Pawlenty’s position underscores the point that everybody wants to hold something sacred in the budget.

Krinkie sees ‘opportunity’ in budget mess
Phil Krinkie of the Minnesota Taxpayers League is one of the few people who looks at the budget mess and sees “opportunity.”

Krinkie, a former state representative, has some radical ideas that he knows will never fly, no matter how difficult the circumstances.

“Instead of increasing the income taxes, why not a surcharge on every family with a child in public schools?” he asked. “You’re paying for a service you receive. It would have to be means-tested. Even I’m not so coldhearted as to believe you can stick a surcharge on families below the poverty line who have three or four kids in school. But what’s the problem with a surcharge of $1,000 for that family with a $2 million house in Minnetonka and two kids in public school.”

Or another idea that won’t be politically easy to swallow.

“A surcharge on Granny in the ‘old folks’ home,” said Krinkie.

Phil Krinkie
Phil Krinkie

Krinkie has other radical thoughts. He says that every year the state spends $1.5 billion on programs to “buy down people’s property taxes.” Money for such things as the homestead credit that most of us enjoy, should be at least cut in half, Krinkie says. Of course, that doesn’t eliminate taxes. It merely shifts them from the state to local governments.

“But you end up with more transparency,” he said. “People should know what they’re paying for.”

As much as Krinkie believes that legislators should use this “opportunity to examine the whole budgeting process,” he doesn’t envy the spot legislators are in.

“Everybody wants to please their constituents,” Krinkie says. “And it’s human nature for those constituents to want to keep those things which are an advantage to them.”

Budget-cutting legislators are going to make few friends, he predicts.

But by law, they’re required to balance the budget. So, how will DFLers in the House and Senate manage to accomplish this with Pawlenty holding the veto pen?  Doesn’t this have to break down into a partisan showdown?

At this point, at least, most are saying that won’t happen — because this time it’s really different.

Some legislators have been contacting Public Strategies Group to learn how they really can get down to the politically unpopular business of making huge cuts while raising taxes. PSG has been involved with other states — Washington, Iowa and, currently, Louisiana — in how to attack the problem, how to “reinvent” the way government does business.

For starters, said Tom Moss, PSG’s chief operating officer, across-the-board cuts are not the answer.  Too often, that means that cost-effective, well-run programs are cut in the same sweep with inefficient programs.

“You have to prioritize from top to bottom,” Moss said, “and then you must follow those priorities.”

Ideally, Moss said, “the gold standard” would be for the state to improve services while using fewer resources. But this time around, he believes that Minnesota will be doing less with less. All the accounting tricks have been used up. Now, substantive cuts must be made. DFLers and Republicans are in the soup together.  People of all political persuasions will be hurt. And, across the political spectrum, there’s going to be anger. 

“The politicians will have to take the brunt of it,” he said.

State Rep. Karen Clark
State Rep. Karen Clark

Pols such as Bakk and longtime state Rep. Karen Clark, DFL-Minneapolis, hold out some hope that federal money will help control some of the pain.

Bakk, for instance, would like to see the feds persuade the nation’s bond-rating houses to allow states at least temporarily to bond at 4 percent of revenues, rather than  the current 3 percent cap, without jeopardizing their financial ratings.

Clark would like to see state leaders approach the feds with creative ideas on rehabbing and greening Minnesota’s housing stock. The feds would reward those creative ideas with funds designed for stimulating local economies.

But even that won’t be enough.

Here’s how tough things are. Recently, Clark, one of Minnesota’s most liberal politicians, crossed paths with Pawlenty.

“If you have some ideas,” he told her, “I want to hear them.”

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 (3)

  1. Submitted by Craig Westover on 01/05/2009 - 12:24 pm.

    The problem people are having with the budget stems from the lack of a core governing principle.

    Legislators, Republicans and Democrats, have tried to be all things to all people, renting the authority of government to provide benefits to voting blocs, instead of adhering to legitimate functions of government – like fully funding a functioning judicial system. Consequently, the budget-cutting choices we now face are metaphorically tossing widows and orphans to the wolves or allowing bridges to tumble into rivers. There is no ethical way to make that decision. Prioritizing based on “values” is subjective and arbitrary — not to mention politically charged.

    The only, and I do mean “only,” ethical way to resolve the budget crisis is not through subjective and arbitrary prioritization, but by limiting government to its constitutional obligations. A functioning judicial system is a mandatory government function. Creating jobs, redistributing wealth, subsidizing transit and the like are not.

    The “hard choice” that must be made is between limiting government based on constitutional principles and the economic concept of “public good” and the consequence of making people individually responsible for their own well-being and that of their families and communities, or openly committing to the principle that government should increasingly expand its influence irrespective of individual rights and accept the consequence that we will pay more of our incomes to government in exchange for more generic services but less freedom, fewer choices and fewer opportunities. Thinking we can “balance” those ideas is naïve and dangerous.

  2. Submitted by Bernice Vetsch on 01/06/2009 - 01:25 pm.

    Is Ayn Rand Mr. Westover’s grandma?

    I would suggest: (1) Make it a criminal offense for the governor to use MinnesotaCare money (which comes from a 2% tax on health care providers’ gross income for the express purpose of providing affordable health insurance for low-income workers).

    (2) Have the feds make bailout payments directly to cities, towns and counties instead of to the state for distribution to ease the Pawlenty financial-starvation of the last 6-8 years.

    (3) Many of Minnesota’s wealthiest residents have asked the governor to raise their taxes. How about right now and make it a generous percentage of the total tax CUTS they have enjoyed under the no-tax regime?

    (4) Withdraw from No Child Left Behind, the program that is mandated but only partially funded and which is often more punitive than helpful.

  3. Submitted by Craig Westover on 01/09/2009 - 03:32 pm.

    No, but Thomas Jefferson is my forefather.

    1) Fist, understand that the 2 percent tax is not on the health care provider’s gross income — it is a tax on the provider’s services that one way or another is paid for by the patient. That said, I could support using that money only for providing low cost health insurance to low-income workers if it didn’t demean those workers by shoving them into a government-run program like MnCare. Low-income wager earners would be better off with a state-funded Health Savings account that fed seamlessly into catastrophic insurance and the freedom to make their own health care decisions.

    2)Federal money is taxpayer money, too. Where do you think the money for cities and towns comes from? It has to come from someplace and that place suffers for the loss. We ought to end transfer payments altogether (including the homestead credit) and force cities and towns to be transparent in how they make spending decisions.

    3)Many of the wealthiest Minnesotans are free to do whatever they want with their money, including giving it to the state. Many of the wealthiest Minnesotans have no authority or moral right to the earnings of other Minnesotans, wealthy or otherwise. Like I said, we can be a state where wealth is reinvested in the private sector and fosters individual opportunity, or it can be sent to the government to pay for generic services at the expense of individual opportunity. You can’t have both, so let’s choose, but let’s be honest that the latter is not a free society.

    4) Understand that No Child Left Behind is not fully funded because Congress does not appropriate what it previously authorized. Underfunding No Child Left Behind is not something that can be blamed on Bush. That said, I agree with Bernice — Minnesota ought to withdraw from the program. There is no federal constitutional authority for it.

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