Minnesota Numbered Among the “Gimmicky”
August 4th, 2009 at 9:15 am By Jeff Van Wychen
A recent Associated Press article describes “a roster of shell games” that states are using to balance their budgets. Sadly, but not surprisingly, Minnesota is one of ten states mentioned in the article for employing accounting gimmicks to balance the state budget.
Specifically, Minnesota is cited for having “stalled $1.8 billion in aid payments to schools” into the next biennium in order to balance the budget within the current biennium. Two-thirds of the governor’s “unallotments and administrative actions” consist of school funding shifts.
Equally “shifty,” although not cited in the AP article, was Pawlenty’s shift of $63 million in capital equipment sales tax refunds into the next biennium, thereby creating a one-time cost reduction within the current biennium.
The AP article notes that these sorts of accounting gimmicks are “risky.” “Policy-makers are betting that an economic downturn will end relatively soon, restoring enough tax revenue to make up for the stopgap money. If the economy doesn’t improve, the costs can multiply — and the underlying budget problem still hasn’t been solved.”
The article further noted that some states have relied on tax increases to address their budget deficit. However, this was not the case in Minnesota. As noted in a recent Hindsight post, Minnesota was among a minority of states in which the governor did not recommend a tax increase to address at least a portion of the state’s budget deficit. In fact, Pawlenty proposed tax cuts that would have further enlarged the deficit.
In defense of accounting shifts, the AP article notes that in the absence of these shifts “service cuts or tax hikes could be even steeper, possibly making things even rougher for citizens.” To be sure, the Pawlenty administration did not invent accounting shifts; for example, previous administrations delayed school aid payments in order to balance the state budget.
However, the Pawlenty school funding shift of 2009 differs from previous shifts not only in magnitude, but in character. In testimony before the Senate Finance Committee in 2004, former State Finance Commissioners Jay Kiedrowski and John Gunyou noted that in the past these shifts were used to address deficits in the short term until revenue from tax increases materialized. The former commissioners argued that—prior to the current administration—shifts were used to buy time, rather than just defer financial problems for future officeholders to deal with.
The Pawlenty funding shifts of 2009 are not part of a long term strategy to solve the state’s budget problem. If they were, Minnesota would not be facing a staggering $6.4 billion structural budget deficit in the upcoming FY 2012-13 biennium, based on projections that reflect Pawlenty’s recent “executive actions.” The Pawlenty shifts are simply a stalling tactic that will enable the governor to avoid tough budget decisions; these decisions will now fall to Pawlenty’s successor.
While funding shifts can buy time, they cannot ultimately solve the state’s ongoing budget crisis. A true resolution will require tough tax and spending decisions. In short, a true resolution will require leadership, not gimmicks.
Tags: Budget
Isn’t doing this like buying groceries with your credit card so you can afford to buy something else now? Later we will still have to buy more groceries and pay the credit card bill also.