Monday, December 08, 2008

Overamped budget 

Gary Gross notes in a letter to the editor today (expanded upon in a blog post) that the state budget shortfall isn't a revenue problem but a spending problem.
In 2007, the first budget that the DFL passed was vetoed by Gov. Tim Pawlenty. Thankfully, the House GOP sustained that veto. The vetoed budget would have increased spending by 17 percent. The budget that we�re operating under represents a 9 percent increase.

...Now Wolden would have us believe that we�ve got a revenue problem. Nonsense. We�ve got a prioritization problem.
I think that's only partly right. There is a revenue problem -- it fluctuates too greatly with changes in state economic activity. I don't know yet of a study that has some measure of elasticity (the change in state revenues per 1% change in gross state product or gross state disposable income) but the last few budget cycles have to make this quite large.

In his 2008 State of the State address, Governor Pawlenty said this tax system is outdated and needs to be fixed. The commission he created at that time should be reporting to governor and a second one to the Legislature next month. There will be a temptation to cast those aside in the rush to fix the present budget shortfall. That would be a mistake; now would be an excellent time to reduce the degree to which revenue fluctuates with the business cycle.

Public choice theory teaches that surpluses seldom are held over for rainy days like our current economy. It's in no elected official's best interest to do so. When the budget generates excess revenue during an economic boom, it's going to be spent. And there's nothing in the budget process that forces legislators to look at the out-year spending ("the tails", as budget wonks say) so that $88 million of the next biennium's deficit is the result of the transportation bill. They knew this in May, dear reader. They didn't even talk about it in October.

We are now on the downward slope of that curve. It would be wise to do something before allowing us back up the hill, because government spending is set by the red line, not the blue. And no, Governor, that's not a hockey analogy.

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