Monday, May 26, 2008

The tails 

When you talk to people familiar with the state legislative process, a term you hear often is "the tails". This refers to the impact of a decision about this year's budget on the projected spending and taxation and surplus or deficit for the next biennium. (Projections are not provided beyond that.) It is what allows legislators to discuss the possibility of needing additional cuts in the next Legislature, or the possibility of new spending programs.

After the budget compromise of last week was announced, one thing that was said to me was that "they chopped the tails", meaning the reduction in spending (or the removal of the foreign operating corporation exemption -- the tax increase that dares not speak its name) had made a good deal of progress in reducing the size of the FY2010-11 deficit. I said to those people I would wait to see the evidence when someone released the fiscal impact report.

The report is now out from the House research staff, and the tails barely got nibbled.

You will hear that we cut out $268 million from spending in this biennium and $340 million from the next. True enough. But the additional LGA monies and the money to K-12 education take back $137 million in this biennium and $428 million in the next. The net changes are thus $131 million reduced for 2008-09 and $88 million INCREASED for 2010-11. The total reduction in the next biennium's defict is only $137 million, of which the FOC exemption removal is estimated to bring in $140 million. This is what happens when you pay for $935 million in the current deficit with $617 million in reserves and fund shifts.

Here's a summary of where the money goes and comes. Most of that additional $88 million is the impact of the transportation bill (HF 2800) that was enacted over Gov. Pawlenty's veto. Here's that bill's tracking sheet -- notice that $86 million of spending in the next biennium for that bill is not paid for by any of the tax increases the DFL enacted. At a minimum, one would have thought the Legislature that gave us that additional spending would have come up with a way to pay for it before it went back home for the year. But as well, that calculation should make it plain that the only progress made on the tails was the result of a tax increase. I know the governor's office doesn't want to call it that. I'll simply say been there, done that.

But a majority of the blame has to go to legislators who cannot even clean up their own mess after passing HF 2800. Our discussion Saturday on the Final Word with Sen. Geoff Michel and Rep. Steve Gottwalt indicated they were also concerned about the next biennium's budget. With the reserves depleted, can there be any doubt that another tax increase lies on the horizon if the current DFL majority gets a veto-proof margin in the House?

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