I am just spending a quiet Saturday night at home . . . reading Governor Dayton's proposed budget for the State of Minnesota. The Governor's January proposal looked pretty good from a distance. I started to believe that he may have actually taken notes on Tom Horner's budget strategies. Tonight I took a closer look. The Governor's "Budget for a Better Minnesota" claims to be:
"Honest - A balanced budget with no one-time fixes, borrowing or gimmicks
Invest - In early learning, education and job creation
Fair - Everyone pays their fair share
Reform - A fair, modern tax system and public services that give Minnesotans the best value for their dollar
Sustainable - Settles our debt with schools and positions Minnesota for long-term economic prosperity"
Yup, sure sounds good to me. Now let me share what I discovered as I read more.
Honest (A balanced budget) - Not even close. I'll address this a bit later.
Honest (no one-time fixes) - The Governor does not have any big one-time fixes in his budget. The House on the other hand does. The House is proposing a one-time 4% surcharge on taxable income over $500,000. Lets see what the negotiations produce here.
Honest (no borrowing) - The Governor's January budget proposed to "repay the state's obligation to schools by restoring funding to the 90:10 ratio established in law by 2017." This one sentence raises two obscenely scary propositions. 1) The state will NOT pay the schools back in the 2014-15 budget. Instead the Governor is proposing to kick the can down the road to a different legislature and potentially a different Governor. In fact, the Governor's January budget proposal doesn't allocate ANY funds to repay the state's debt to schools in his 2014-15 budget.
While this is inexcusable, the Governor's March budget proposal shows NO repayment of the school shift in the 2014-15 or the 2016-17 bienniums. Hey Governor, why kick the can to the next budget when you can just ignore it all together. Come on!
Honest (no gimmicks) - The Governor's budget is much better than last session's budget when it comes to gimmicks. Unfortunately, it is not gimmick-free. One such gimmick is the shifting of several health and human services budget items (roughly $400 million) from the General Fund to the Health Care Access Fund. The problem here is that the Health Care Access Fund is funded by a provider tax which is slated to expire in 2019. Good luck legislators and Governor in 2019.
Invest (In early learning, education and job creation) - The Governor has budgeted significant increases in all three of these areas.
Reform (A fair, modern tax system and public services that give Minnesotans the best value for their dollar) - Boy, this sounds good, but it really isn't all that it is cracked up to be. The Governor's January budget proposal contained some "innovative" reforms to the Minnesota tax system. The Governor's proposals for broadening the tax base by taxing on-line sales, clothing and consumer services felt like a flashback to the Tom Horner campaign for Governor. Of course, Tom Horner did not propose taxing business services like the Governor did. Still, the Governor's brave move increased my respect for him. Then I dug deeper. While the Governor's budget broadened the tax base and lowered the tax rate, it still would have increased sales tax revenue by over $2 billion. Tom Horner, and the IP, believe that a broader tax base certainly stabilizes tax revenues, but neither has ever promoted the plan as a way to increase sales tax revenue (read: raise your sales taxes) by more than 28%. The Governor's proposed sales tax changes would have raised Minnesota's sales tax revenues by 28.5%.
Don't worry though, by March the Governor had revised his budget proposal and had dropped all of the sales tax reform he had proposed in January. The Governor's idea of tax reform in his March budget proposal returned to his tired old argument of tax the rich. Now, he has even suggested that he would veto any legislation that included the proposals he advocated for just 60 days earlier.
Fair (Everyone pays their fair share) - So, the Governor thinks that increasing the income tax rate on Minnesota's top earners is fairer. There is little disagreement that the top earners in Minnesota pay a smaller percentage of their tax assessment than most Minnesotans, but it isn't because of their tax rate, its because of tax deductions and loopholes. Without closing tax loopholes and eliminating frivolous tax deductions, Minnesota's highest earners will still have the tools, that some of them abuse, to reduce their actual taxes paid to a ridiculously low sum. Let me use an analogy here. Instead of picturing the taxpayer paying in dollars, picture that person paying in sand and gravel. When the state comes to collect the tax, they have the same large bucket with the same (loop)holes in it that it had last year. The state asks the taxpayer to put even more of their sand and gravel in the bucket this year than last (the higher tax assessment). The sand still sifts through the holes. Now there is a possibility that the state captured a bit more "revenue" from this taxpayer, but patching the holes would be a much more efficient way of fixing the system. In the end, the increased tax rate looks more fair, but in reality it does very little to make the tax collections more fair.
Sustainable (Settles our debt with schools and positions Minnesota for long-term economic prosperity) - I have already addressed the Governor's intent to kick the school debt can down the road past his current term, and then past his second term, should he get re-elected. There are other unsustainable changes in the Governor's budget that I want to address here.
First, the Governor proposes reducing state and local property taxes by 9.7%. Good luck with that. The Governor has no say in a local jurisdiction's choice to raise or lower property taxes. For more than a decade, local governments have been consistently denied promised state aid. Now the Governor believes that $80 million dollars in new state aid will motivate cities to reduce their property taxes in response. I can speak confidently from hundreds of hours in city council meetings in several cities that the backlog of projects that have built up over the past decade will not be delayed any longer if cities get an influx of state aid. I believe many cities may continue to hold city tax rates at current levels, but I doubt many, if any, cities will actually reduce their tax rates.
Second, You can't spend your way out of debt. As cliche as that sounds, the Governor is proposing a 7.6% increase in spending over the last biennium. Of course an 8.5% increase in revenue can help you dig out of debt. The question is this, is it sustainable. That type of revenue and spending growth is absolutely NOT sustainable. And remember, all of this increased taxing and spending does not include the state's debt to our schools.
I need to address one more budget injustice. Justice. The Governor's budget proposal includes "$36 million for the Court systems to maintain current service levels." Current service levels are appalling. If there was one area that I would celebrate increasing revenues to support, it would be funding a person's right to "a speedy and public trial" as dictated by the United States Constitution. Minnesota's legal system is so overburdened that it is impossible to refer to almost any trial as "speedy" today. This is an issue that needs more than just maintenance. It needs reform.
Conservatives love to use the phrase "tax and spend." They often misuse it. If the Governor's budget proposal makes for the bulk of our 2014-15 budget, all Minnesotans will have the right to use that phrase in regards to Minnesota's Governor and Legislature. And yet, they probably won't tax, or spend, our way out of our indebtedness to our schools. What a shame.
