Long-term budget pain assured by shutdown solution

After a long, drawn out legislative fight over the best way to fix Minnesota's budget deficit, a disagreement over taxes and spending forced a 21-day state government shutdown. Gov. Mark Dayton and GOP legislative leaders say they never want to happen again.

But the state's failure to fix the underlying problems of the state budget means Democrats and Republicans could be at odds for years to come.

The compromise that ended the state shutdown relied on spending cuts, a delay in payments to school districts and borrowing against future tobacco payments. It gave Dayton the level of spending he wanted and met Republicans' demands for no tax hikes. What it didn't do was fix the state's long-term budget problems.

State finance officials say Minnesota is facing a $1.89 billion projected budget deficit in the next budget cycle -- and that number doesn't include $2.1 billion in delayed payments to schools.

"This is problematic over the long-term," said Jay Kiedrowski a senior fellow at the University of Minnesota's Humphrey School of Public Affairs. "This is a structural problem."

Kiedrowski, a former Finance Commissioner under Gov. Rudy Perpich, has been urging state leaders to fix the budget over the long term by raising taxes, making permanent spending cuts or a mix of both.

"Minnesota's getting into trouble," he said. "It's not a matter of screaming 'Chicken Little' but in fact we have some parts of our roof that are now starting to show wear and it's leaking. We have to fix our fiscal structure."

"You can only use the one-time approaches to doing this once or twice."

State leaders have failed to address those long-term budget problems for a decade. Since 2002, leaders have removed inflation from state budget forecasts, raided accounts like the tobacco endowment, raised fees, increased a fee on cigarettes and repeatedly delayed payments to schools. The actions were taken under both Democratic and Republican leadership.

The failure to adequately address Minnesota's fiscal situation has prompted one ratings agency to downgrade the state's credit rating.

Minnesota hasn't been alone in relying on accounting gimmicks and one-time money to fix the budget. Many other states have traditionally relied on short-term fixes with the hopes that the economy improves, said Susan Urahn, managing director of the Pew Center on the States.

"The difference this time around has been the long lasting and severity of the great recession," she said. "In most states they are in year four of dealing with really significant budget gaps. You can only use the one-time approaches to doing this once or twice and then you have to step back and figure out how to get your budget back in structural balance."

Urahn said many states increased taxes in 2009 to deal with the deficit. Many also opted to cut spending in 2011. But many of those states saw Republicans take control of governor's offices and Legislatures in the 2010 elections. Meanwhile, Minnesota's government has been divided for more than a decade.

The party leaders in control of Minnesota's government are downplaying the state's future budget problems. Dayton told reporters earlier this week that the state's fortunes depend on how well the U.S. economy does.

"If the economy improves then I expect our financial situation to improve and if it stays as it is presently forecasted, then we're looking at a $1.9 billion deficit," Dayton said. "We had a $5 billion deficit at the start of this year to correct and we cut $2 billion in spending so I'm confident under reasonable economic scenario that we can handle whatever comes in the future."

Republicans are also optimistic the economy will improve the state's fiscal situation. But Republican House Speaker Kurt Zellers said he's also confident that some of their plans to rein in spending will deliver better than promised.

"It seems little and inconsequential but if you had $5 million here or $10 million there, pretty soon you're at $100 or $250 million but then you also changed the function of government," Zellers said.

One step that could put the state on better fiscal footing is repaying schools for their delayed payments. Zellers said he's inclined to start paying back part of the K12 shift if future budget forecasts show a surplus.

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