Tax increases in Dayton, Horner budget plans; Emmer downplaying deficit

One of the key issues facing the next governor is how to erase a $5.8 billion projected budget deficit.

Both Democratic gubernatorial candidate Mark Dayton and Independence Party candidate Tom Horner have suggested that tax increases are needed to balance the budget. But Republican Tom Emmer is downplaying the problem and is even suggesting the deficit doesn't really exist.

In the past week, Emmer has shifted his talking points on the issue, at one point asking, "Where is the deficit?"

"I'll say it again, government in the state of Minnesota is scheduled to get a 7 percent increase in the next biennium," Emmer said at the University of St. Thomas. "Government will have more money to spend in the next two years than it is spending right now."

Emmer is correct that revenues are expected to increase 7 percent over the next two years, according to official state projections. But the problem is state spending is scheduled to increase 17 percent over the same time period.

Emmer has told reporters his budget would focus on funding his priorities but he hasn't released a specific budget plan.

It's not the first time a GOP politician has downplayed the budget problem. Gov. Tim Pawlenty has used the same line during his eight years as governor. He raised it again last week.

"It's preposterous," Pawlenty said. "The economy is flat. Wages are flat so the notion that some mindless, bureaucratic system just says we're going to have a $5 billion uptick in spending is preposterous and that system needs to be changed."

But Pawlenty's own finance department makes the budget projections, and state budget officials say the problem is real. They predict the state's cash flow account will drop to just $9 million in November -- well short of the $400 million needed to meet the state's cash flow needs.

Dayton disputes any arguments that the state's fiscal situation is manageable.

"I think they're trying to evade it every way they can," Dayton said. "Governor Pawlenty doesn't want responsibility for leaving the state in a fiscal mess as he runs for president and Representative Emmer doesn't want to be honest with people that if he doesn't raise state revenues he's going to raise their property taxes."

Emmer hasn't proposed raising property taxes but Dayton contends Emmer's plan to erase the budget deficit without raising taxes will force dramatic cuts in state aid to cities. Dayton wants to raise income taxes on Minnesota's top earners to erase part of the deficit. He's also proposing a state-run casino to bring in more revenue.

Horner proposes expanding the sales tax to clothing and services. He also wants to lower the sales tax rate. He has also called for higher tobacco and alcohol taxes, and for slot machines at horse racing tracks. He said Emmer can't fix the state's budget deficit while also promising to cut taxes

"Now you really can't do both. You can't have a budget based on higher revenue but then turn around and say 'I'm going to take that revenue away' and still promise an honest balanced budget," Horner said. "It doesn't work."

At least one former finance commissioner says all the candidates need to get serious about tackling the budget deficit.

"I wish there was a magic lantern that we could find and uncork the genie that would solve the budget problem," said Jay Kiedrowski, state finance commissioner under Gov. Rudy Perpich. "Some of the rhetoric sounds like that's what we're looking for but it doesn't exist."

Kiedrowski also co-chaired a Budget Trends Study Commission for the state in 2008. He said the problem with the budget is that taxes were cut in 2000 but the state's spending commitments stayed the same.

"If there were a normal national economy, Minnesota would have a budget deficit of approximately $2 billion because of the amount of tax reductions in 2000 that occurred and the amount of increased spending that occurred," he said. "We can't afford the budget we currently have."

Kiedrowski said the state should increase taxes and cut spending to fix the budget deficit. He said the budget could be balanced with spending cuts alone but it's likely those cuts would hit core services like education, aid to local government and health and human services. Those are the biggest spending items in the state budget.

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