With just three days to go before a a possible state shutdown, Minnesota lawmakers are scrambling to break an impasse over how to close a $5 billion budget shortfall. Business Insider Politix talked with former Gov. Arne Carlson (1990-1998) to get political perspective on the state’s budget gridlock. Carlson, a Republican, has come out as a vocal critic of the state’s fiscal policies, particularly those of former Minnesota Gov. and 2012 Republican presidential hopeful Tim Pawlenty. Here are some of the highlights from our conversation:1. Do you think it is possible that Democrats and Republicans will reach an agreement on Minnesota’s budget before a state government shutdown Friday?
Carlson: To be honest, I have no more clue than you do. Everyone is running around pooling mutual ignorance but I think it is a very hard gap to bridge considering the hardness of their positions. The Governor is very adamant about the current proposal, particularly as it relates to healthcare. The Republicans, on the other hand, want to voucherize MinnesotaCare [the state’s low-income healthcare program], which would put between 85,000 and 140,000 people outside of our healthcare system. Further, they are committed to no taxes.
But I don’t think Gov. Dayton is going to make concessions about this. I also don’t think he is going to compromise much more on social services because it would cause a revolt inside his own party.
It’s very, very tough for a new governor to come into a new position with a $6 billion budget deficit and be expected to submit a budget by the end of January. You don’t have the luxury of going through and reinventing and redesigning the government.
2. In a blog post last week, you wrote that the budget debate could use “a lot more honesty and far less propaganda.” What, in your opinion, are the real issues underlying Minnesota’s budget problems? What are the political factors that have led to the impasse?
Carlson: The truth is we have a structural imbalance, not just in Minnesota, but I suspect in every other state and in the United States government. As far as you can see, there is a growing gap between expenditures and revenues. Surrounding that reality is an endless amount of b.s. and it is coming from both sides.
So one side [the Democrats] says that everything we have done on the budgetary side is absolutely correct and we should build our budget on the current structure. The other side [Republicans] says ‘Why don’t we freeze everything the way it was in 1980 or 1990 and everything will be fixed?’ But no, it won’t. Budgets are dynamic documents that have to be seen as living in dynamic times.
Republicans are boxed in, both nationally and here, on the issue of raising taxes. In Minnesota, they have gained some flexibility by using some liberal definitions of the English language; both budget proposals have tax increases, but instead of a tax increase, the Republicans will call it a “fee” or an “adjustment.” I think the most offensive part is that this is designed to fool the very people we are supposed to serve. If their business is to fool us, then my opinion is that we should throw them out.
The way to correct a structural deficit is that you has to apply an enormous amount of intelligence, which I would say this debate have been lacking.
The first thing you have to do with a budget is get it scrubbed — get an impartial group to scrub that sucker. Get a reasonable group of people to go through the budget and pick out everything that isn’t working anymore. You really have to start redesigning government and relate that redesign to the services that we provide. We place ourselves in the absurd position of having a variety of agencies solving the same problem.
For example, in Minnesota, there are roughly 450 independent school districts and all of the administrative costs. Do we really need all of those school districts? Most people would say no, but when it comes down to it, no one wants to give up local control. And why in the world does a small state like Minnesota with just 5.3 million people need over 400 police departments? Do we really need four separate police jurisdictions protecting the people of Minneapolis?
But I think it’s fair to say that Minnesota’s structural deficit is being ignored because all of the attention is focused on the state budget “crisis.”
I don’t think that Minnesota is the only state that is dealing with these budget problems, but I think it’s a classic example of how not to handle your budget. I think we are seeing the same form of budget escapism in Washington right now.
3. You recently wrote that, as Governor of Minnesota, Tim Pawlenty presided over one of largest tax increases in the state’s history. You also note that during his two terms [2003-2011] as governor he balanced the state’s budget by using “short-term” fixes. How have Pawlenty’s budget policies contributed to Minnesota’s current budget problems?
Carlson: Minnesota’s structural budget problems really started to come to light in 2002. But when Pawlenty became governor, they allowed the structural deficit to grow. Instead of dealing with the fundamental issues of spending and revenue he brought a box of Band-Aids and started applying them to the state’s budget problems.
He borrowed money that left Minnesota with a $5 billion deficit, starting with borrowing over $1.9 billion from a tobacco settlement that was supposed to go towards healthcare. Now that money is gone. He borrowed more than $2 billion in federal stimulus funds and that’s gone. He borrowed more than $1 billion from K-12 education, and now that’s gone. Then there were hundreds of millions of dollars in fees, tuition increases, $400 million from the Healthcare Access Fund [for low-income families]. And then you have the accounting shifts.
But the more insidious part is that those were eight years when he should have been dealing with the structural budget problems. But instead he basically said: ‘I don’t have the courage so I am going to use a bunch of short-term fixes.’ Now Minnesota is left with no place else to go.
Here is something nobody has picked up on: In February of 2009, the state legislature passed a law that required the governor [Pawlenty] to submit an operational balanced budget for 2012 and 2013. Oddly enough, Pawlenty signed the bill and he took the political credit for signing it. But when things got tough, he backed out and ignored the law. When the time came to submit a budget, he summarily refused.
Now he wants to take on the federal mess. He says he wants to clean that up, but he refused to clean up the mess he left in Minnesota.
4. You have also said that without budget reform, state spending cuts will reappear as cost increases elsewhere. Can you explain how Pawlenty’s cuts translate into increased local costs in Minnesota?
The state of Minnesota has always prided itself on being a more progressive state in terms of revenue sharing with local governments — that has meant that cities, counties, and local school districts became very dependent on state aid. So when there was a cut in state aid, the only options for local governments were either to make cuts or raise property taxes.
In fairness to Governor Dayton, I think he has done the best job possible to protect the Minnesota policy of sharing revenue with local governments, although he has agreed to some cuts. Republicans want to end revenue sharing over time, particularly in Minneapolis, St. Paul and Duluth. That’s for political reasons — there are no Republican representatives in those cities. I think that is a terrible misuse of political power that contributes to growth in property taxes.
What Gov. Pawlenty did, aside from all the budget machinations, is make cuts that forced local governments to pick up the slack. They made some service cuts, but they were forced to raise property taxes.
In the eight years prior to Tim Pawlenty’s election [to governor], property taxes rose $716 million. For the seven years of Pawlenty (I don’t add the eighth year because we won’t know those numbers until 2011), property taxes rose $2.5 billion. That’s a pretty sizable step up.
The result is that he has left the legislature, the governor, and both political parties in a tremendously bad position. I think Republicans are going to have to raise revenue, Democrats are going to have to cut spending, and we Minnesotans are going to take a huge hit. That will be the Tim Pawlenty legacy.
5. The last time Minnesota’s state government shut down was in 2005, when Pawlenty was governor. What were the factors that led to that shutdown – and its resolution – and how are they different or similar to the current budget standoff?
I truthfully don’t really know what led to that shutdown [in 2005]. But it was a partial shutdown. Minnesota has no experience with a total government shutdown and that’s what we are looking at now.
Dayton has decided — and I agree with him — not to sign any bill until there was an agreement on the totality of the spending bill, rather than pass parts of the budget and hold off on other parts. He predicted, accurately, it turns out, that there would be trouble reaching agreement over the budget and said ‘I am not going to hold any segment of the economy hostage.’
In 2005, Pawlenty signed parts of the spending plan and held off on signing other parts, and that’s why there was only a partial shutdown. All you have to do to get out of that pickle is make some minor concessions here, some minor concessions there. I think what they did in that case was pass a tobacco tax that they called a “health impact fee” to avoid calling it a tax.
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