Federal stimulus spending helped get Minnesota into this mess

How did we get to the Great Minnesota Shutdown of 2011? Regardless of when the shutdown ends and what the eventual budget compromise looks like, it's critical that legislators and the general public alike take a hard look at how state government prioritizes and pays for public services.

Minnesota's state government is hardly alone in its struggle to find a new equilibrium in an era of modest revenue and increasing cost pressures. In fact, while we were busy debating a slew of tax hikes, the vast majority of states this year were debating whether to slash or merely trim government spending.

Not to let our elected officials off the hook, but there are systemic culprits that help set the stage for prolonged budget battles and increasingly disappointing results. Call them budget Band-Aids.

Instead of addressing head-on our state's longstanding structural deficit problem, we have kicked the can down the road by utilizing one-time money and accounting shifts. These temporary fixes have become so commonplace that Gov. Mark Dayton and Republican legislators were able to agree that we would once again delay K-12 aid payments -- it was merely a question of how much to delay.

But perhaps the biggest Band-Aid of all? The federal stimulus funds that propped up state and local governments last biennium. That's right: the same $862 billion stimulus spending program that cost taxpayers an average of $278,000 per job created or supposedly saved, according to the most recent reports.

The American Recovery and Reinvestment Act of 2009 (ARRA) was an unprecedented law passed during a time of extraordinary economic distress. Lawmakers of both parties agreed that the $2.3 billion of ARRA funding included in the 2010-11 state budget was not intended as an ongoing program or obligation. Still, some Minnesotans may recall that a number of observers nevertheless warned of the perils of dealing with the deficit the DC way.

"These one-time federal stimulus funds may have helped lawmakers avoid some very painful cuts, but essentially only delayed these difficult decisions," explained Sen. Gary Kubly, DFL-Granite Falls, at the time. "If we want to help turn this economic relief provided by the ARRA into long-term economic recovery and job growth, lawmakers need to focus on responsibly balancing the state's budget shortfall."

This year, many states scaled back their budgets to essentially remove stimulus funds from their budget baselines. In March, Pennsylvania Gov. Tom Corbett announced a $27.4 billion spending plan for FY 2012-2013 that would not raise taxes and would instead cut $866 million in current obligations to bring spending by the state back to 2008-09 (or pre-federal stimulus) spending levels.

While the final $27.2 billion budget passed by the Legislature and signed by Gov. Corbett did not include all of the funding cuts originally proposed by the governor, the budget did eliminate much of the spending that had been bolstered by federal stimulus money.

Not only is Minnesota failing to reign in spending like the vast majority of other states, but we're also laying groundwork for future budget cycles to be equally dysfunctional. The state fiscal aid from the stimulus turned out to be more than just backfilling deficits to keep the lights on. In some cases it was creating new positions that were supposed to be temporary. As the federal financial support goes away, the state is left to pick up the tab for employees who are not necessarily getting laid off.

In short, Minnesota taxpayers are being "jobbed" by the perpetuation of supposedly temporary state jobs created under ARRA included in the current 2012-13 budget.

For example, one of the smallest state agencies, the Minnesota Public Utilities Commission (PUC), received $883,000 in ARRA funding to hire three "temporary electricity specialists." They came on board to manage "increased regulatory activity" associated with the uptick in green energy projects and requirements. As expected, the federal dollars will run out on Dec. 31, 2011. But at least two of the PUC's "temporary," stimulus-funded employees would be among eight "new" positions on the agency payroll under Gov. Dayton's budget proposal for a $1.5 million increase in the PUC budget. (That's a 14 percent increase.)

Then there's the Minnesota Food Assistance Program (MFAP). After stimulus funding ended in 2010, the Legislature boosted the budget an additional $150,000 to continue providing the same level of service in 2011. Subsequently, Dayton recommended a permanent expansion of MFAP from $407,000 to $741,000.

Minnesotans will continue to pay a considerable price for the one-time federal stimulus subsidies. While it's impossible to assign an exact figure, it's probably safe to say that the funds necessary to fill the gaps created by the temporary stimulus spending would likely cover the current differential between the governor's and Legislature's budget proposals.

Unless something changes, however, the stimulus act will continue to be the gift that keeps on taking from Minnesota taxpayers for years to come.

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Tom Steward is investigative director for the Freedom Foundation of Minnesota, which describes itself as "an independent, nonprofit educational and research organization that develops and actively advocates the principles of individual freedom, personal responsibility, economic freedom, and limited government."

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