The Incredible Vanishing Deficit

Jonathan Stavole

Education has been ravaged to the tune of hundreds of teacher layoffs. Traffic jams grow longer and uglier with each passing week. Tens of thousands of people have been tossed from the state's health care insurance rolls, even as "surpluses" paid into the government's system by doctors and hospitals are diverted to the general fund. Thousands more citizens have been priced out of state-supported childcare. Double-digit tuition increases for higher education have become the norm. Fees are up nearly everywhere you turn. Nearly a billion dollars from the tobacco fund has been tapped. The state has cut local government aid payments even as it pushes more responsibility for services down to counties and cities, resulting in enormous hikes in local property taxes. Numerous cost shifts, delayed payments, and other accounting gimmickry have been deployed. We are now many months into the economic recovery so ballyhooed by President Bush and his fellow Republicans in the last election. And still the state of Minnesota finds itself staring at $1.4 billion of debt as Governor Pawlenty prepares his budget for the coming biennium.

If Pawlenty were a rational, responsible political leader, he would survey this economic carnage and conclude that it is time to abandon his refusal to countenance a statewide tax increase. Instead, our governor is choosing to blackmail Native Americans while pretending that half of the deficit, a whopping $700 million, simply doesn't exist.

Back in 2002, when both Pawlenty and Roger Moe were senators running for governor and the entire state Legislature was up for reelection, the two gubernatorial candidates helped cook up a bill mandating that the cost of inflation not be included in the state's future biennial budget projections. This deceitful law conveniently kicked in this month, when the Minnesota Department of Finance released a projection showing that the state faced a $700 million deficit over the next two years. That figure, dutifully noted in the headlines of most major media, is in reality utter hogwash, designed to obfuscate the fiscal mismanagement of our state's politicians, chief among them Tim Pawlenty. It is a number that counts the dollars inflation adds to revenues coming into the state's coffers while ignoring those same adjustments when calibrating the cost of government services.

Because the state's economists have some sense of shame and professionalism, they have also calibrated an "unofficial" budget projection that factors in inflation at 1.5 and 1.6 percent, respectively, on expenditures over the next two years. That produces a more realistic picture of the looming disaster in the state's economy--a $1.4 billion cascade of red ink. But even that sobering figure probably underestimates the problem. According to the Federal Reserve Bank of Minneapolis, inflation rose by 2.2 percent in 2003, and is currently estimated to be 3.0 for 2004.

"When I go out and talk to various school districts and units of government, they say they are using 3 percent" in future budgetary calibrations on the rate of inflation, says John Gunyou, the former commissioner of finance under Republican Governor Arne Carlson, and the current city manager of the city of Minnetonka. "When you look at the price of gas, heating, and health care benefits, an estimate of 1.5 percent is unrealistically low. The number we are using in Minnetonka is 3 percent." Gunyou points out that if the state likewise factored in inflation at 3 percent, "you would add close to another $700 million to the $1.4 billion in debt they have already figured."

But because $700 million is the total "official" deficit under state law, it is the figure Pawlenty will use in calculating the biennial budget proposals he will release in January. In other words, the governor can enact $700 million in cuts--there aren't any substantive cost shifts left, and he's ruled out raising taxes--and claim that's all it took to balance the budget. But even Charlie Bieleck, the director of budget planning in Pawlenty's finance department, concedes that $700 million in cuts from the "official" budget is really $1.4 billion in cuts if no additional revenue is raised to compensate for inflation. And the deceitfully disguised hit on the quality of state services reaches $2 billion if the inflation rate hits 3 percent.

The DFL has realized how destructive the 2002 legislation was to the integrity of the state's budgetary process, and promises to propose a bill repealing it during the upcoming session. Not surprisingly, Pawlenty wants to retain the status quo, telling the Pioneer Press last week, "I don't necessarily like the assumption that all of state government on autopilot is going to increase by inflation every year." Counters Gunyou, "We didn't automatically pay for inflation in the Carlson years. We honestly reported what the true cost was and funded it at a lower level, so that it was very visible what we were cutting. These guys are pretending there is no pain."

What Pawlenty is trying to hide is the systematic dismantling of public education on his watch. Since 2002, changes in law have made the state the primary funding source for K-12 public education in Minnesota, to the point where it is 42 percent of the entire state budget. Ignoring inflation, even at the finance department's low 1.5 and 1.6 percent estimates, amounts to a de facto cut of nearly $300 million for education--and that's before Pawlenty tackles the $700 million in red ink he does deign to acknowledge. And yet, after three years of budgetary stagnation, the governor has the gall to tell school districts that they need to be more accountable before he approves any funding increases.

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