Minnesota Considers Easing Budget Gimmick

By: - March 23, 2012 12:00 am

A year after a prolonged, disruptive state government shutdown, Democrats and Republicans in Minnesota are still arguing about the budget. The difference is that the latest argument is not over budget cuts, but instead over spending more money sooner — a sign that the state’s fiscal fortunes have changed, at least temporarily.

Last year, to plug a budget shortfall that ran into the billions of dollars, Governor Mark Dayton, a Democrat, wanted to raise taxes, while Republicans in the legislature wanted to make deeper spending cuts. A key way they broke the deadlock was to delay state payments to school districts — a move that helped balance the budget on paper, without actually reducing the amount of money the state owed over the long term. Education funding delays have been a common budget-balancing tactic in Minnesota for years and last year’s shift came on top of earlier ones. As a result, the budget pushed 40 percent of school funding into the next fiscal year, which forced some school districts to borrow money to pay their bills.

This year, with the state running a surplus in the two-year budget that began July 1, 2011, the debate is over how far the state can go to undo the shift. With Republican support, the Minnesota House approved a bill to reduce the education shift to 30 percent. The Senate is considering a similar plan. Dayton, though, has expressed concern that the move would cut too far into the state’s reserves. Democrats in the legislature tried to pay for reducing the shift by ending a corporate tax preference, but Republicans rejected that move.

Meanwhile, both sides have other proposals that would cost the state revenue. Republicans are pushing a tax cut package, while Dayton wants to create a new tax credit to encourage hiring. The debate in Minnesota mirrors those in many states around the country where the budget outlook finally has brightened and lawmakers are now considering whether to restore budget cuts, replenish reserves or cut taxes.

In Minnesota, though, the good times could be short-lived. In part because of the one-time measures it used to balance the budget, the state is expected to have a new shortfall of perhaps billion in the biennium that begins July 1, 2013. Plus,

Gary Amoroso,

executive director of the Minnesota Association of School Administrators, points out that the current debate in the legislature is focused on money to schools that they were already promised, not new funds. 

“We believe that the education shift is part of a larger challenge,” Amoroso says, “and that larger challenge is the funding of public schools in our state.”

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Josh Goodman

Josh Goodman helps lead research on fiscal management and place-based economic development programs as part of Pew’s state fiscal health project. Goodman has served as a primary author for Pew studies that examine how states should evaluate tax incentives and maintain budget discipline when implementing those incentives.