A deal has been struck between Governor Mark Dayton (D) and Republican legislative leaders in Minnesota to end the government shutdown . Instead of “raising taxes on the rich” (the preferred strategy of the Governor) Republicans prefer deferrals. The GOP proposal includes $700 million borrowed against the state’s portion of the Tobacco Settlement and $700 million in deferred school payments. Both must be repaid in the next two years. Fitch downgraded Minnesota from its AAA rating due to the state’s ongoing structural deficits, and the Tobacco Settlement bonds proposal. While Republicans say the compromise enables them to stop tax increases and a $500 million bond proposal, structural reforms are still lacking.
Spending has grown in Minnesota over the past several decades in particular in education and Medicaid as with most states. Pensions are undervalued and will require higher contributions. Depending on your view Minnesota either has a revenue problem (in that it can’t support the growing costs associated with these programs), or it has a spending problem (in that these costs continue to grow and demand more revenues.) It is not unlike the fundamental philosophical divide at the center of the debt-ceiling debate: do we support growing costs with more debt or do we cut costs by rethinking and restructuring what government is providing?
Effectively, Minnesota’s budget has been balanced by not engaging this debate but by attempting to reconcile two different views on the size of government. Spending growth can be supported by evasive techniques at least for awhile and people may be lulled into thinking you can have it all – lots of services and low taxes. But one-shots and short-term revenue sources eventually dry up leaving politicians with the uneviable choice of cutting programs or finding more revenues. Minnesota’s government has only purchased a little more time.