Viewpoint: Budget basics to consider in 2009
In the months ahead, our state will have to resolve one of the largest budget deficits of the last 30 years. Our current economic climate is poor and, according to forecasters, will grow worse before improving.
Moreover, considerable uncertainty surrounds our ability to predict when the economy will turn around and rebound.
As we await the imminent release of the Governor's budget proposal, I offer a few budget basics to consider as we collectively forge a path through these dark times and to a more prosperous future.
While our state forecasters try to project downturns in the economy and include them in our forecasts, the magnitude of the recent economic crisis has exceeded all forecasted scenarios. Moreover, since Minnesota's revenue mix is more sensitive to economic downturns than many other states, we have been particularly hard hit by the changes.
We have one of the largest deficits in the country, and for the first time in many years Minnesota's economy is performing more poorly than the national average.
Minnesota's General Fund deficit exceeds $5 billion for the two years beginning July 1, 2009, and may grow larger still. This represents approximately 13.6 percent of the forecasted budget for the 2010-2011biennium.
Balancing Minnesota's budget will require making cuts where in many cases there's simply not that much left to cut, after cuts in 2003-2005, and again in 2008. And while some monies were restored in 2007, in few areas were they restored to pre-2003 levels and in all cases, they certainly did not account for inflation over that time period.
The budget pie chart illustrates how general fund dollars were allocated for 2008-2009.
As one can see the big ticket items are K12 education (40 percent) and higher education (nine percent), health and human services (28 percent), property tax credits to cities and counties (nine percent) and public safety (5.4 percent).
Of the health and human services portion, the fastest growing share of the budget, the preponderance goes to low income seniors in long-term care, and children and adults with disabilities.
Less than one-third of one percent of the budget goes to what would traditionally be called "welfare," and is at a ten-year low.
The challenge we face and short-term options that lie before us are illuminated by looking at how previous significant deficits were resolved, all three under Republican governors.
In the early 1980s, after multiple special sessions, and faced with a deficit that was 2.5 percent of the 1980-81 biennium budget and 3.6 percent of the 1982-83 biennium budget, Gov. Al Quie and the Legislature addressed the projected revenue shortfall with a package of spending cuts, tax increases, and spending shifts (putting off payments to the next biennium, but incurring additional interest charges).
The individual income tax surtax was increased; the sales tax and corporate tax were also increased. Appropriation cuts were made to pension contributions from public employees, welfare programs, and local aids, school aids and homestead credits. A school district revenue recognition shift was implemented.
During the Carlson years of the early 90s, deficits occurring over two different bienniums, but much smaller than what we currently face, were addressed with use of reserves, spending cuts and transfers -- the raiding of special fund accounts dedicated for specific purposes.
During the 2004-2005 period, facing the largest budget deficit in state history up to that time, over $4.5 billion, or about 15 percent of the biennium budget, Gov. Tim Pawlenty's response relied on a mix of heavy service cuts, shifts and transfers (including $1.7 billion from the Tobacco Endowment), and fee and co-payment increases, including the infamous "health impact fee" or cigarette tax.
While the deficit was addressed without raising "state taxes", the solution relied heavily on fees, shifts and transfers from dedicated sources and fund balances.
In the end, cuts represented about one-third of the solution.
In the medium and longer term, significant program delivery and revenue stabilizing reforms are needed to bring financial stability to state government.
In the shorter term, however, we will be faced with the usual toolbox in addressing this challenge: cuts, shifts, transfer and/or temporary or permanent increases in revenue sources.
Moving forward, my primary focus legislatively will be on reforms to more efficiently deliver services and to stabilize government revenue for the future, but given the lessons of history and the magnitude of the deficit we now face, it is too early to take anything off the table as we work together to find solutions to balance the current shortfall.
Bunn (DFL-Lake Elmo) represents District 56A in the Minnesota House of Representatives. She can be reached at (651) 296-4244, by mail at 521 State Office Building, 100 Martin Luther King Blvd., St. Paul, MN 55155 or via e-mail at rep.Julie.firstname.lastname@example.org.