Monday, June 04, 2007

Clarifying what inflation means: Try reading the report 

While we interviewed Brian McClung, spokesman for Governor Tim Pawlenty on Saturday's edition of NARN's The Final Word, he said something that perked me up. He reminded me on the inflation issue that the Finance Department in fact does print the data in its report. That was news to me and so I looked up the latest report from February. Sure enough, there it was on page 7.
FY 2008-11 Planning Estimates
($ in millions)

Projected revenues$16,551 $17,127 $17,818 $18,889
Projected Spending$16,143 $16,494 $16,785 $17,123
Balance$408 $633 $1,033 $1,766
Forecast Change$64 ($45)($187)($231)
Estimated Inflation (CPI)$320 $700 $1,060 $1,430
Forecast Change($20)$50 $90 $130
The impact of inflation is not reflected in expenditure projections. Inflation for FY 2008 and FY 2009, based on the consumer price index, is expected to be 2.0 and 2.2 percent.

For FY 2010 and FY 2011 CPI growth rates of 2.0 and 1.9 percent are projected. The inflation forecast is down slightly for FY 2008, but about 0.2 percent for FY 2009-11.

Using current law projections, if spending increases at the rate of inflation, revenues and spending will remain in balance through FY 2011. Historically increases in spending have been greater than those attributable to inflation alone.
Inflation then was going to be about 4.25% for the first biennium. The argument isn't that they are hiding the information. The issue is that the DFL leadership wants the inflation number cooked in above the line, so that the budget would look like this:

Projected revenues$16,551 $17,127 $17,818 $18,889
Projected Spending$16,463 $17,194 $17,845 $18,553
Balance$88 ($67)($27)$336
Forecast Change$44 $5 ($97)($101)
Comparing this to the current budget, the latest highlights report from Finance shows spending of $34.5 billion versus the $33.7 billion that would have been reported from the revised budget and $32.5 that Finance actually reported.

So what's the big deal? Pretty clear: Changing the way in which it was reported would have change the tenor of the debate. Rather than having almost no "new money" to finance its new priorities, the revised reporting would have allowed more campaigning, more editorials from compliant (and under-educated) columnists that taxes needed to be raised. Had the same inflation factor been applied to education, they would have screamed that K-12 had been cut (I know, they will anyway.)

Here for example is a paragraph from the faculty union's lobbyist's email to us about the higher ed bill; I've highlighted the inflation parts.

The Governor started off the session proposing $123 million in new funding for the MnSCU system�and $55 million of that was one-time funding that did not continue into the next biennium. He proposed no money for inflation, and $25 million of his proposal was for a one-time �performance bonus.� The legislature listened to the systems, students and faculty, and focused their funding on maintaining and improving the core infrastructure of MnSCU. The House passed a bill providing $168 million in new funding for MnSCU. The Senate passed two bills that together would have provided $187 million for MnSCU. They compromised in conference committee at $150.7 million.

The Governor vetoed the first higher education bill in its entirety, forcing the DFL higher education chairs to make some tough compromises on both policy matters (the Dream Act, ACHIEVE, and performance funding) and funding to get the Governor to support a second bill (there weren�t enough DFLer�s in either the House or Senate to vote to over-ride the veto). However, through patience and persistence, the higher education chairs were able to put together a bill that the Governor ultimately signed. The appropriation for the MnSCU system in the final bill was not only $28 million above what the Governor originally proposed�almost none of the money is �one time� funding.
Budgeting into a base appropriation is an attempt to set the bar higher each period. The budget proposals from the governor's office used a $1 billion budget surplus from the current biennium, thus those were one-time monies which Pawlenty offered to use in the appropriate way: as one-time expenditures. By budgeting then as not one-time money, the "tail" of the bill is higher, meaning the anticipated surplus in FY 2010-11 is less than it would have otherwise been, making the probability of a tax increase in that period higher than it otherwise would be.

Putting up each number by an inflation factor, contrary to Larry Pogemiller's assertion, is in fact hiding additional costs of government. And what that's about, as much as anything, is a lack of growth in government employment. An inflation factor in the budget puts a base under wages for those employees.

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