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A call for Responsible Governing

Arne H. Carlson: The state's revenue problem

April 3, 2005

Regardless of political persuasion, we want our governor and legislature to truly succeed because their success translates not only into our success but, more important, success for our children. This has always been the virtue of Minnesota -- its commitment to tomorrow. The budget is central to this commitment and should be seen as a financial expression of our vision.

Currently, Minnesota is at the crossroads. We can either take charge of our future and create a vision of a successful tomorrow or continue to satisfy the short-term in order to survive. Bear in mind, we have gone from an approximate $2 billion surplus in January 1999 to a deficit exceeding $5 billion and the loss of our AAA bond rating.

Political leaders have blamed this turnaround on 9/11 and the recession while totally forgetting their own role in digging this hole in 2000-2001. Simply put, Gov. Jesse Ventura and the House Republicans passed a financial package reducing commercial/industrial property taxes along with a taxpayer rebate that cost well over $2 billion.

Putting the merits aside, they ignored the warnings of the recession. Ventura tried to remedy this situation the following year with a package of tax increases and spending cuts but gubernatorial politics interfered and both legislative leaders, Tim Pawlenty and Roger Moe, declined to act. The result was that the deficits continued to grow.

Now, where do we go from here?

The administration should acknowledge that the state does have a revenue problem and cease this myth that all the problems are on the spending side. That rhetoric may be good for its political base but it strays pretty far from the truth.

Bear in mind that the administration has already borrowed a billion dollars, implemented massive accounting and tax shifts, and added hundreds of millions of dollars in cost increases from fees, tuition and local property taxes. Further, the administration wants to dramatically increase gambling, contrary to all of its past opposition. These actions would seem to indicate a desire to increase revenue.

Gov. Tim Pawlenty and the legislative leadership should, on a bipartisan basis, put together a financial management team that will review all spending and revenue options and attempt to arrive at an acceptable level of spending that properly funds our vision for tomorrow. Nothing should be off the table.

This group should include the administration, Legislature and former distinguished finance commissioners like John Gunyou, Jay Kiedrowski and Pam Wheelock, as well as some private-sector leaders.

Declare a one-year moratorium on all the wedge issues that seem to dominate legislative sessions. This includes abortion, gay marriage, guns, the death penalty and other distractions along the same line. The purpose here is not to demean that agenda but rather to compel the governor and Legislature once and for all to focus on the budget and restore the state to a sense of financial stability. It may also be well for the Capitol media corps to focus less on the politics of personality and more on the substance of policy.

The governor's current proposal for public transportation envisages a $4.5 billion bonding expense over the next 10 years with repayments totaling more than $7 billion spread over 30 years. Much of the debt service required to repay this expense will come from the general fund of the state, thereby creating a significant hole. Not only is this credit-card approach a highly questionable policy change, but it places the next administration in the position of having to make the painful choice of spending cuts or tax increases. That is hardly proper financial management. Each administration should leave with its house in good financial order.

The Legislature should consider instituting an 8¢-per-gallon tax increase so that we can continue to pay for transportation more on a current basis rather than placing the responsibility on future taxpayers. This added revenue may not be all that is needed, but it does represent a good start.

A $1-per-pack tax on cigarettes would be a solid revenue enhancer: It would bring more than $500 million into the state coffers. Right now, we as taxpayers are subsidizing the health care costs of smokers to the extent of some $3 or more per pack. That is not acceptable. A tax increase would not only compel many to cease smoking but also prevent some 60,000 children from starting. This is a clear win-win situation.

Finally, it would be well for the administration to make a thoughtful presentation to the Legislature relative to our long-term financial situation. It is important to know their plans relative to:

• Restoring the AAA bond rating.

• Paying back the money borrowed and correcting the accounting shifts.

• Bringing the budget into balance over the next four years.

• Designing the budget so that it fully conforms to Sarbanes-Oxley.

Much of this discussion places a burden on the majority party, which happens to be Republican. That responsibility comes with majority status. However, it should also be understood that the Democrats have an obligation to do more than simply complain. They should push for a bipartisan committee working with the governor and House on an acceptable budget solution. If that does not occur, Senate Democrats should assume the responsibility of preparing their own budget fully defining their expectations and vision. This allows for a competition of ideas that forms the basis for an election choice.

Arne H. Carlson, Forest Lake, is a former Republican governor of Minnesota.