Thursday, May 31, 2007

Inflation worth the fight 

True to his word, Governor Tim Pawlenty did execute the veto on the tax bill last night. He put the blame right onto the DFL leadership in his veto message:
I am very supportive of many of the tax provisions in the bill such as increases in direct property tax relief to homeowners, sales tax exemptions for agriculture products, acceleration of the single sales factor for corporate income tax and the increase in the military combat credit.

Unfortuanately, the bill contains a policy provision that would put government growth on autopilot. I was very clear in communicating my opposition to this measure. DFL leadership and staff were aware prior to the end of the session that its inclusion would result in the entire bill being vetoed. This provision could have been removed from the bill prior to final passage, but DFL leadership made a different choice.

When legislators and the Governor assemble the state budget, we shouldn't assume that every program should automatically grow. We need to examine every taxpayer dollar that will be spent and ensure that we are streamlining and keeping government efficient and effective. ... Each program should be evaluated on its merits and the overall growth in the budget should reflect that type of approach rather than assuming autopilot increases.
I've stated a couple of times here and here why I opposed the inflation provision, but let me add one more reason, and perhaps explain why the DFL was willing to risk a lot on getting it in the bill.

It is the Dept. of Finance and the state economist, currently Tom Stinson, who create the forecast. In it they have to forecast various macroeconomic phenomena for the state economy that drive the tax base. Once you know the various tax bases, you can generate a revenue forecast. The rule is, if we do nothing and the economy does what the forecast says, here's the revenue we will receive. This is a mechanical exercise, requiring nobody to make a judgment. Judgment eventually comes into play when the state's Council of Economic Advisors sit down with the state economist and the forecasters, and they argue over whether the forecast (which is bought from a national private forecasting firm) meets their expectations of the economy. The forecasting firm has different scenarios, and the council can advise which of those they think are most likely. The forecasted surplus or deficit is then that number subtracted from current spending.

It is rare that someone in the Legislature questions the forecast, which I think is remarkable. A friend tells me that there were questions during the early 1980s, and that may be some of the reason why the current set-up is what it is.

What the inflation factor does is put a group of economists -- state employees trying to provide good economic information -- in the position of deciding how much money will be spent next year to provide each department the capacity to provide the same level of services they do now. Are they really in a position to make that decision? No. And that decision is at its base a political one, and it's why we elect representatives.

So why would the DFL really want this? The answer is rather apparent -- having someone else say there's a deficit to fund current level of expenditures allows them to avoid responsibility for raising spending themselves. This is the most disingenuous line offered in the debate, from the most likely source:
Senate Majority Leader Larry Pogemiller, DFL-Minneapolis, said estimating inflation doesn�t require lawmakers to actually give those increases to every program. But he said government shouldn�t be able to hide rising costs.
Set aside that inflation isn't estimated -- it's a forecasted number that you put on ad hoc. More important, it is the responsibility of government to accept that it has been unable to control costs. To put this onto the budget not only makes government bureaucrats complicit in increasing the cost of government, it removes any incentive for state departments to become more efficient.

Gary awards the Governor the Vezina Trophy (God help me, I've had to learn more about hockey this year than I ever wanted to know). TvM's First Ringer has also pointed out that this veto cuts off for a time an increase in the dosage of LGA to the tax dollar addicts in local government:
The measure makes about as much sense as feeding the crocodile your foot in hopes he won�t take your leg and historically hasn�t worked to reduce local government demand for funding and lower property taxes. Instead, cities which have received higher amounts of LGA per capita also spent significantly more per capita than those cities that have been budgeted less. This has remained steady even with a 2003 revision that made LGA need-based and not simply �grandfathered in� spending. Even with this change, LGA still has unfortunately provided some cities (half the citizens of Minnesota don�t recieve LGA) the ability to spend past the median and average on all services, essential or not. Meaning for the heavy DFL core cities, Pawlenty�s veto was an immediate call for tax increases...
Ringer hopes that Pawlenty will not succumb to calls for a special session now -- even from some Republicans who should know better -- as he holds the high ground. I agree, even if it costs me lunch.

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