Pawlenty's "Surplus": Now You See It...

Here we go again. At least once or twice a year, the folks in the Pawlenty administration call a press conference, use the economic forecast to paint an artificially rosy picture of the state budget, and spin themselves a windfall of positive publicity. The irony is, if the governor and his crew structured their budgets in a fiscally responsible manner, minimizing cost shifts and counting for inflation on both sides of the ledger, they wouldn't be able to get away with these dog and pony shows.

How many times since the governor's Wednesday press conference have you heard that the state is projecting its finances to be "in the black," and "running a surplus"? Well, that's certainly the impression Pawlenty wanted to impart, and what the media ran with, for the most part. But the press release from the Minnesota Department of Finance indicates that it isn't true.

Yeah, the state's bean counters are projecting that we will have $701 million more than we anticipated for the coming 2006-'07 biennium. The newspapers quoted Pawlenty and a number of politicians rubbing their hands together as they jawed about what they might do with the money. But state law requires that the money be spent on the $795 million the state owes the school districts due to the delayed payments and cost shifts required to "balance" the 2002-03 budget. Pawlenty boasted that he had presided over the "biggest financial turnaround in state history," but it would have been a more honest summary of the circumstances to say, "Now we only owe the schools $94 million more."

Pawlenty also was celebrating the higher-than-expected revenues the state received during the 2004-'05 budget cycle, enabling it to put $337 million into a "tax relief account." But this total represents just 1.2 percent of the $28.2 billion general fund budget for that 2004-'05 biennium--well below the inflation rate. Since 2002, the state has deceitfully counted the dollars inflation has added to its pool of revenue while ignoring those same adjustments when calibrating the cost of government services. In reality, the $337 million bump wasn't due to a robust economy so much as to Pawlenty's desire to shrink the real-dollar spending power of state government. And he achieved that 2004-05 budget shrinkage by throwing literally tens of thousands of citizens off state-supported health care and slashing aid to local governments around the state by nearly $200 million.

During the last session, the DFL majority in the Minnesota Senate passed a bill that would have factored inflation into both the revenue and expenditure line items of state government. But Pawlenty opposed it, and the Republican-led House never even gave the bill a hearing.

Flash forward to Thursday, when Minnesota Finance Commissioner Peggy Ingison told legislators that, due to Katrina and other factors, state economists now believe the inflation rate will soar to 3.5 percent in 2006. But of course state law prohibits Ingison from officially factoring that into her budget calculations. We now know that inflation will certainly knock a huge hole in that four percent increase in education funding Pawlenty was crowing about at the end of last session, however. On the other hand, it will artificially boost the revenues coming into the state coffers, possibly setting the stage for another feel-good press conference next year.

In the real world, where government can stimulate and enable productivity and inflation can't be selectively ignored, the Pawlenty way of governing is beginning to make an impact. This is what the folks in the Department of Finance had to say in the Minnesota Financial Report, which, ironically, was issued on the same day as Pawlenty's effusive press conference:

"This forecast projects that Minnesota's job and income growth will continue at a slower pace than the national average over the remainder of this biennium. Minnesota employment is projected to increase by 1.6 percent between now and the close of fiscal year 2007; Global Insight projects U.S. employment growth of 2.5 percent."

The state economists go on to say that "beginning with the start of the recession in 2001, payroll employment growth in Minnesota has been weaker than the national average," but pointedly adds, "This is not just a recession phenomenon. Since January 2003 [Pawlenty's first month in office], well after the economy started to grow again, employment in Minnesota has grown by 2.4 percent. Over that same time, U.S. payroll employment grew 2.9." They note that the same pattern is continuing in 2005.

Why is this happening? It is not manufacturing, which has fallen off in Minnesota but not as much as in the rest of the nation. The economists come up with three primary areas where the state seems to be lagging behind: