Minnesota Eats Itself

Another Pawlenty budget, another round of bloodletting

I. Stay the Course and Starve the Beast

In some ways the checkered two-year reign of Tim Pawlenty has looked less like an exercise in governance than a deliberate and increasingly harrowing game of chicken. Since famously signing on to the Taxpayers League of Minnesota's "no new taxes" pledge during his 2002 gubernatorial run--a classic instance of a politician being led in shackles to exactly the spot where he meant to stand all along--Pawlenty has remained steadfast in his commitment to austerity now and forever. His first budget cycle, in 2003, found the state facing a $4.2 billion hole in its finances that Pawlenty himself, as a tax-hawking member of the state legislature, had been instrumental in creating.

Pawlenty balanced that first biennial budget with a flurry of fiscal derring-do that left many legislators and onlookers alike to sort out later what had actually happened:

* $2 billion in cuts to state services

* more than a $1 billion taking of onetime monies, most of it from the tobacco settlement fund

* the imposition of approximately $400 million in additional user fees

* the shifting of more than $150 million worth of obligations onto local property taxpayers

* and the juggling of hundreds of millions more dollars through various accounting shifts and delayed payment arrangements.

Less than three weeks after the passage of this budget, Moody's Investors Service--"the most thorough of the bond houses, and the one we always paid the most attention to," says former Republican Governor Arne Carlson--downgraded Minnesota's bond rating from AAA to AA1.

Now another budgeting period is upon us, and though the long recession has passed and this year's deficit figure is smaller, the state is by many measures in worse shape than before. Last year's job creation figures placed Minnesota below the national average, and the Federal Reserve Bank jobs forecast for 2005 is 0.9 percent growth, or less than half the typical rate in the higher-tax days of yore. The public school system, which used to be deemed a cornerstone of the state's prosperity and quality of life, is widely seen to be slipping. A survey released last month in conjunction with a University of Minnesota-sponsored report called The Changing Shape of Minnesota indicated that the plight of the schools is one of the two problems most on Minnesotans' minds, along with getting and keeping health care. Last biennium, Pawlenty took away $185 million from education en route to his $2 billion in budget savings, becoming the first Minnesota governor in modern memory to cut school spending; this year he's putting the state's health care assistance programs on the block. Viewed from this angle, Pawlenty is either a) trumping both those worries with anti-tax, antigovernment rhetoric, or b) flirting with political suicide.

On a fiscal level, although its pool of tax dollars is increasing at a rate slightly greater than its rate of expenditures, the state budget is once again in a deep hole. That's because Pawlenty relied so heavily on onetime monies instead of creating a permanent fix by structurally balancing the sources of taxes and spending in his last biennial budget. Pawlenty and his allies have tried to obscure the looming deficit by touting a figure of $700 million, a fiction concocted by including inflation on tax revenue coming into state coffers and excluding it when figuring what the state owes to maintain services. If one assumes a very modest inflation rate of roughly 1.5 percent for the next two years (it was 2.7 percent in 2004), that deficit balloons, doubling to about $1.4 billion. And if inflation exceeds that conservative estimate, well....

Given the political and fiscal hurdles Pawlenty's approach has created, it's no wonder that many pols and bean-counters are crying uncle, and not strictly along the usual partisan lines. In a remarkable gesture, three former state finance commissioners--from DFL, Republican, and Independence Party administrations, respectively--have written jointly signed editorials and taken to the hustings to implore the governor to "stop the fiscal charades" and explore raising taxes. They favor revenue from gas and cigarettes.

Meanwhile, such wild-eyed socialists as the Chamber of Commerce, the Association of Minnesota Counties, and the Republican chairman of the House Transportation Policy Committee joined recently in calling for an increase in the gas tax, which hasn't been raised since 1988, to address present and future troubles with state roads and highways. (Pawlenty has since cooked up a bond-and-borrow scheme for the state's roads that may placate them.) Thus far, however, Pawlenty's lone idea for significantly increasing the state's general fund revenue has been to threaten that the state will get into the casino business if Native American tribes don't fork over $350 million in gaming money every year to preempt their would-be competitors.

Otherwise Pawlenty seems poised to keep to the same three-point strategy he followed in '03: piling on user fees, pushing tax bills the state used to collect down to the local level (mainly in the form of precipitous property tax hikes), and, of course, slashing relentlessly at the size and scope of state government.

Pawlenty, in other words, is merely staying in lock-step with the unifying aim of the Bush-era national Republican Party: starve central government and end its nagging claims on the prerogatives of wealth by bleeding it dry of revenues--do away with it by degrees, that is, through a war of attrition spurred by tax cuts. As Republican anti-tax guru Grover Norquist said years ago, "My goal is to cut government in half in 25 years, to get it down to the size where we can drown it in the bathtub."

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