Standing alone, Minnesota’s budget problems clearly are serious. Stack the state next to others nationwide, though, and it becomes even clearer that Minnesota’s fiscal house needs major repair as the state Legislature begins its session this week.
To examine just one measure: Minnesota is second only to Alaska among states that relied on one-time fixes to close their budget gaps for this fiscal year, according to an update from the National Conference of State Legislatures.
It was a high-stakes bet on recovery from the recession, a strategy for buying time until revenues rebounded.
Now it looks like a losing bet. The revenue nightmare persists in state after state along with stubbornly high unemployment. Indeed, rather than turning around as the recession ends, the revenue plunge continues in Minnesota and most other states.
A well-entrenched downturn
“The longest economic downturn in decades appears to be well entrenched and is manifesting itself in multi-year budget shortfalls,” said the report from the National Conference of State Legislatures. “Many states already foresee budget gaps in FY 2011 and FY 2012. It is hard to see when they will end.”
Many states cobbled together a range of strategies for closing budget gaps this year — from substantial tax increases to deep spending cuts. And many states took what they could of one-time fixes, even while acknowledging that’s not a real solution to long-term budget problems.
Kentucky’s Gov. Steve Beshear echoed many other leaders when he said in the Lexington Herald-Leader on Sunday, “Kentucky must begin breaking its reliance on one-time solutions to balance our budget. I admit that my proposed budget includes some of those one-time solutions, such as debt restructuring, alternative borrowing and fund transfers. Is this the best practice? No, but it’s necessary at this, the worst economic time in our recent history, to keep from making damaging cuts to our core priorities.”
Minnesota cut spending substantially too. But in Gov. Tim Pawlenty’s solo post-session effort to balance the budget last year, he relied on one-time solutions to close 41 percent of the state’s gap, mainly by delaying payments to school districts.
Only Alaska deployed that strategy for a larger share of its problem, counting on one-time solutions to get 44 percent of the way to a balanced budget. Unlike Minnesota, oil-rich Alaska had large reserve funds it could tap to get most of the way.
Greater crisis this year
In Minnesota’s case the upshot is a snowball of a problem that slams the state into a greater crisis this year. By now, everyone tracking the budget knows that the November forecast projects the state collecting $1.2 billion less than previously expected for 2010 and 2011.
Further, Minnesota faces a structural budget imbalance of $5.4 billion, not counting general inflation. In other words, the state has a chronic shortage of funds to meet obligations that have remained in place through several rounds of one-time fixes in which the decision makers have neither raised taxes nor formally cut the programs tied to those obligations.
Minnesota is not, by any means, the only state facing shortfalls well into next year and maybe even beyond.
Nearly half the governors already have submitted their budget proposals for the upcoming fiscal year, which begins on July 1, 2010, in most states, the Washington-based Center on Budget and Policy Priorities said in an analysis reported last week.
“The worst recession since the 1930s has caused the steepest decline in state tax receipts on record,” the center said. “As a result, even after making very deep cuts, states continue to face large budget gaps.”
More shortfalls
New shortfalls have opened up in the budgets of at least 41 states for the current fiscal year, it said. Of those, 24 states already have acted to reseal the budget gaps and 11 have developed proposals to do so, mostly by raising taxes or cutting spending.
In Minnesota, the Legislature could go to work on the problem after it convenes on Thursday. Pawlenty is expected to propose his fixes next week.
Meanwhile, initial indications suggest that almost every state (except North Dakota and Montana) will face shortfalls as big next year — or, even bigger than those they faced this year.
When you look at the projected shortfalls as a percentage of each state’s budget, Minnesota ranks eighth among states facing the worst prospects. Nevada, Illinois and Maine are in the worst shape by that measure.
The one safe bet at this point is that debate over this issue will reverberate throughout this legislative session and beyond, at least until Election Day.
Sharon Schmickle covers science, economics, Greater Minnesota and other topics.
What the governor has done is roll deficits over into the next year for his entire two terms. For years we’ve been practicing avoidance. How can we avoid the hard decisions. Call it a shift, a deferral, or call it borrowing. All those deferrals are delayed tax increases. Endless postponement and then he’s hoping that those tax increases will happen on someone else’s watch. Then he can point and blame them.
If you take a look and start to relate his political statements to reality, you’ll find out there is a large gap. A large piece of Minnesota’s budget problems go back to when Tim Pawlenty was majority leader in the House. With the expectation that we will economically grow our way out of the problem. The reality is quite the opposite. We have grown our way into the problem and the problem has become larger because we’ve been rolling over deficits for the past eight years. Cash management may be a strategy for the near term. But absent huge meaningful budget cuts and or revenue it doesn’t offer a solution to the long term financial concerns that our state faces.
What we’ve got is a governor who focuses on how can he run for president and face up to the real financial challenges of Minnesota. So he’ll defer those decisions until he’s out of office. Governor Pawlenty illustrates how political ambition becomes a substitute for good governance. I hope that we reward accomplishment and not avoidance.
There is little hope for a country where a man could be considered viable for the Presidency on the basis of the fact that he sacrificed his constituents. Pawlenty is not alone in sharing the blame for kicking the budgetary can down the road, but there is nobody active in Minnesota politics who bears a larger portion of the blame than he does. Minnesota government has in general been sensible and sound, I’m sad to say that has not been the case for the past decade.
Pawlenty’s presidential dream is to carry the anti-tax policy to all 50 states. He, Grover Norquist, and all the other anti-tax/anti-government/anti-worker zealots can watch in glee as the whole country spirals down the bathtub drain.
Oh look, they’ll crow. Our policy does work. We succeeded in destroying an entire country by standing up for what we knew was right.
My suggestion for the new governor is to initiate an immediate retroactive tax on Minnesota’s wealthiest citizens (perhaps a surtax of 10-20 percent on the taxes they did pay from 2001-2010) as a way to fix a lot of problems all at once.
Many and perhaps all of our top 5 percent of earners would be happy to have the opportunity to help save the state.
“chronic shortage”
That says it all. Governor ‘One Time Fix’ has sent this state too far down the wrong path. It is comically amusing that he touts himself as some kind of fiscally responsible leader. I want a governor who will level with the voters of MN; one who will lead a discussion about both what services we should reasonably expect from the state and what we’re willing to pay to receive them.
The finger pointing aside, I am quite surprised by the absence of California in the above listings given the Gov/Assembly stalemate of last term. Anyone know why?
For the first time in many a two year cycle I will not be going to my local caucus. I am starting to think that neither party is fully capable of governing both at the state and federal level. Obama helped bail out out state and local districts and yet some to many wage increases on two year contracts are going forward to the detriment of services and class sizes. Governing should be a 2 way street, you are accountable to your supporters but in turn they should also be acountable to you the governing body/party.
On the federal level not that anyone seems to care we have one of the largest military budgets since WWII. And the ability of 39-41 senators to keep the rest of the legislative body hostage makes us impotent domestically.
I’ve asked it before but I have to ask it again, is Pawlenty really as stupid and ignorant about economics as he appears to be or does he just not care? Is it possible he actually believes that crap? Does he really think for instance a balanced budget amendment on the federal level, or a line item veto that’s already been ruled unconstitutional makes sense? I know he’s not a dumb guy but maybe he’s just a true believer who’s so blinded by ideology that he can’t comprehend basic economics.
I don’t think Pawlenty is blinded by ideology— blinded by ambition is more like it.
The Governor has some culpability in this whole financial mess for not holding down spending but he is only one person, can’t make any laws, and his party controls nothing in the legislature. Everyone here has forgotten that the DFL controls both houses and spend like drunken sailors to make sure “those less fortunate” have everything their little hearts desire. I for one would not be happy to pay an additional 10 -20% retroactively so Minnesota can be a “better place” and those who wish not to work can live comfortably. Why should I pay more just because I work 50 – 60 hours a week trying to better my life? Do I use more services than a person making $30k a year? No, and I probably use less. Take a look at New Jersey, New York, California where they have increased the taxes on the so called rich. People are leaving in droves. We don’t have a revenue problem in MN, we have a spending problem and until politicians get it thru their thick heads that they need to live within their means, it’s not going to get any better. Liberals think there is an endless supply of everyone else’s money.
The state has plenty of red ink and the governor has not made a lot of headway leading Minnesota back into the black.
We want to talk about the politics of politics and avoid any substantive discussions. We do not have any easy and exceptable answers on the policy side. For years we’ve been practicing avoidance. How can we avoid hard decisions.
We as a state have not recognized that we have a long term problem and until you recognize that, you can’t even discuss what the solutions are. Nobody can agree on the facts. Because the numbers are so bad (five billion) there seems to be a political understanding. The DFL doesn’t want to talk about it when they’re trying to spend more money of social services and education. The GOP doesn’t want to talk about it because that would put tax increases on the table. So you have a bipartisan agreement not to talk about the most important problem facing the state.
I think it’s very important to separate the short term from the structural. We will ultimately turn the economy around, but what we have to do is deal with the large known and growing structural deficits that are growing with the passage of time, and they’re not long term anymore. They are within the horizon. It’s the structural deficit that will exist whether or not the economy’s growing and no matter what the circumstances are.
Will the governor use his position of leadership and have some political courage to make the difficult and unpopular cuts? Conservatives are still waiting for Governor Pawlenty to cut the “billions and billions in wasted state spending” that his rhetoric has claimed since he was house majority leader. Or by him not actually cutting all that rhetorical “wasted state spending”. Is it an admission that it is not as easy to find as his rhetoric has claimed all these years?