Monday, June 11, 2007

Actually, Ms. Otto, you should read history 

In yet another defense of the concept of budgeting for inflation (a topic I've discussed here, here, and here in case you haven't come across this before since Gov. Pawlenty's veto), State Auditor Rebecca Otto tells a whopper.
Minnesota has performed very well over the years because we lived by a guiding principle regardless of which party was in control. That principle was that we allowed fiscal experts to create a budget forecast that gave a straightforward, honest picture of our state finances. This gave us as a baseline snapshot of where we were headed if nothing changed.
This gives the impression that Governor Pawlenty's was the first administration to remove inflation from budgeting. That is in fact wrong. The law that required inflation of expenditures was only passed in 1994 (Chapter 587, Article 7, Section 2, Subd. 1). When the law was changed in 2002 (Chapter 220, Article 13, Secs. 1 and 2), the House Fiscal Analysis unit created a document that discusses the use of "planning inflation". I highly recommend people to read it. Two sentences jump off their pages:
Even though the inflation adjustment is applied to most appropriations, the Department of Finance has always argued that inflation should not be seen as a commitment to adding funding to any particular program to offset the impact of inflation in the next biennium. (page 4)

[T]he inflation increases are all increases that have not been built into current law
formulas or base budgets. (p. 5)
If there is no commitment, and no building into current law or base budgets, how exactly can Auditor Otto claim that a budget with inflation "
gave us as a baseline snapshot of where we were headed if nothing changed"? That would be at least a mischaracterization of the history of inflation increases.
The beauty of this system was that it allowed the fiscal experts to give Minnesotans, lawmakers and the media an honest assessment of our financial picture.
As the quotes above would show, this is not true. The experts did not want to have that data included. And according to those I talk to, they still don't.
Politicians did not intrude in their work...
And yet they passed laws first requiring them to inflate expenditures, then to require them not to. Pre-1991, Finance sometimes included some estimates and sometimes did not. They applied it to some expenditures at first, and then to all of them. As the House Fiscal document explains, they even ended up giving two inflation adjustments to local government aid, since there were inflation adjustments in the LGA formula, which were applied after the general inflation adjustment was made. (No wonder the LGA crack addicts have been jonesing for a new fix.)
Today, and throughout the time of the current administration, we have allowed politics to enter into the forecasting process. We no longer get a straightforward assessment of our financial baseline.
No, politics has always been there, as House Fiscal explains.
Planning estimate inflation has also been a tool to provide more flexibility for a Governor and Legislature in assembling a new budget. The inflation creates a cushion of several hundred million dollars that is already counted as spending in the budget forecast. For example, in the November 1998 forecast for fiscal years 2000-01, almost $800 million was set aside as planning estimate inflation. That amount allowed the Governor to make budget recommendations for $800 million of spending above the base level budget that did not count as new spending relative
to the budget forecast.
In other words, Governor Ventura could hide new spending without being accountable for it.

As I noted the other day, the budget does include an inflation measurement, it just puts it below the line rather than above the line in terms of stating the current surplus or deficit. An accurate baseline is being provided. What they want is the cover for spending increases under the rules that Carlson and Ventura (and no previous governors) have had. Had you taken the opportunity to read the history, Ms. Otto, rather than hang around DFL fundraisers, maybe you'd know that.

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