Minnesotans for Better Education, Standards and Testing

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The Manufactured Crisis Continues to be Exposed.

Straight Talk about Government Finance by John Gunyou

Truth is always the first casualty of any war, especially the political ones. As the legislative rhetoric heats up, here's some straight talk about state and local finances.

1. Taxes are not out of control. The state's official Price of Government measure (total revenue as a percentage of personal income) has actually declined over the past decade. Even before the recent cuts, state taxes took about the same share of your income, while cities, counties and school districts took less.

2. The state crisis wasn't inherited, it was self-inflicted. Although the recession worsened the problem, school funding takeover and property tax reform created over one-half of the deficit, because state taxes weren't restructured. The state doubled their 2004-05 problem by temporarily patching the 2003 budget with one-time fixes.

3. The state crisis was "solved" by draining the reserves, freezing funding and ignoring future commitments. The budget doesn't really increase by $1 billion - that's an accounting quirk of the two-year cycle. Spending is virtually flat for the next four years. The state also counts inflation for future revenues, but ignores it for costs.

4. Locals provide the actual services, not the state. About 85% of the state budget is sent to cites, counties, schools and non-profits to provide public safety, education, streets, parks and social services. It's a lot easier for the state to cut faceless grants, than it is for local agencies to reduce real services to real people.

5. Basic local services depend on state aid and property taxes. About two-thirds of city and county funding, and 85% of school funding, is strictly regulated by the state. Nearly 60% of city aid and tax dollars go for police and fire services, with most of the rest for streets and parks. They can't use fees to support these basic services.

6. Few local reserves are "surplus." Cities receive two-thirds of their funding twice a year. Since expenses occur regularly, they need a 30% cash flow reserve just to meet their monthly bills. School districts often have to borrow throughout the year.

7. Only state tax revenues go up automatically. State income and sales tax revenue automatically increases as the economy grows, so they can claim they "held the line" on taxes. That's not true for city, county and school property tax revenue, which is strictly limited by the state. There's no local "property tax grab."

8. More service cuts are likely, even if the forecast is on target. Cities, counties and colleges only represent 20% of the state budget, but were required to absorb nearly one-half of the cuts, and were prohibited from replacing much of their lost revenue. Schools were only "protected" for one year - state funding for K-12 education actually declines for the next three years in a row.

John Gunyou is Minnetonka's city manager. He was previously Minnesota's finance commissioner for Governor Arne Carlson.