Former state finance official: Big changes needed in budgeting

Gov. Tim Pawlenty and lawmakers have agreed on how to balance the state's budget, but many say the deal doesn't solve the state's long-term issues. The projected budget deficit for the next two-year budget cycle starting in July 2011 is close to $6 billion.

John Gunyou, who served as finance commissioner under Republican Gov. Arne Carlson in the '90s, spoke with MPR's Cathy Wurzer about the state's budget problems. Below is an edited transcript of their conversation.

Wurzer: Everyone is talking about the even larger budget shortfall the state could face in the 2012-2013 budget cycle. How bad is it?

Gunyou: It doesn't seem to be getting much better. It's always a little difficult to tell what next year's going to be until all the dust settles and finance comes out with their numbers, but I think it's safe to say that it will be at least in the $5 billion range.

Wurzer: Explain what it means to have a structurally balanced budget.

Gunyou: I think the best way to look at it is you're structurally balanced if the ongoing revenue matches your ongoing spending. In other words, you're not just using one-time things just to fill in the gaps.

Wurzer: Why don't lawmakers fix the structural deficit, is it just because it's easy to dip into the rainy day fund and implement accounting shifts?

Gunyou: The difficulty is when you have a big problem, you certainly use one-time things. But you do that to buy time, and then you need to start implementing the long-term fixes of both revenue and spending side, and the governor (Pawlenty) really hasn't done that.

Wurzer:What's wrong with accounting shifts?

Gunyou: You do that to buy time. It's sort of like when your income gets cut or your salary gets cut. You don't immediately sell your house, you don't immediately take your kids out of college. What you do is you dip into your savings to buy time. But eventually, you have to either get a second job or make some permanent cuts, and that's what just hasn't happened.

Wurzer: Can we cut our way out of this?

Gunyou: I really don't think so. I listen to the people -- the moderates calling for a balanced solution. We can't tax our way out of this any more than we can cut our way out of this. And I think if you look at the track record of governors in the past that have led that way. They have always taken a balanced approach. ... I'm hopeful that we'll finally get a governor that is willing to make the tough choices on both the spending and the revenue side.

Wurzer: Would it be better to just take on debt like the federal government? Obviously many state's require a balanced budget.

Gunyou: I think most states have that balanced budget amendment. It's a certain discipline in that you need to make those choices and need to make those changes rather than put it off.

Wurzer: Is there a way to require the state to have not only a balanced budget, but also a structurally balanced budget?

Gunyou: Yes. The state passed a law that says that the budget has to be balanced over four years, the next four years forward. The governor signed it, and he promptly said, 'Well that applies to the next governor, not me.' So what we have is we're back in the same situation that we have been in.

Wurzer: When the next legislative session starts, there will be a new governor and many new legislators. What questions would you want asked of potential candidates for governor?

Gunyou: I think we need to take a good look at who's willing to make those tough choices as well as the balanced approach. When you have people saying we can cut our way out of this, we're not going to cut certain areas. Like public safety, we're just not going to cut that. Schools are always a high priority. If you leave those two things off the table, that's half of the budget. Even if you laid off every state worker, which isn't going to happen obviously, that's maybe $1 billion. So you can see how difficult it is to make those choices and to start to reform. I think that's one of the more difficult challenges. Cutting budgets is easy, if all you do is cut the budget. But if you want to do it in a way that leaves the state in a better position, it's a lot more difficult.