Jeanne Poppe: Budgeting for the future

Published 4:12 pm Monday, May 20, 2019

By Jeanne Poppe

State Representative, District 27B

As we approach our final days of the legislative session, I often get asked why it is such a hurdle to get to the finish line. During the first year of the biennium, the task of the Legislature is to prepare the budget for the next two years. Unlike the federal government who can deficit spend, the Minnesota Constitution requires us to maintain a balanced budget. Every odd-numbered year we consider what adjustments to make in capturing revenue (increasing or decreasing tax collections) and how we will focus on priorities to invest in Minnesota.

When we were sworn into office in January, the question on everyone’s mind was what can be accomplished with our projected budget “surplus”? A surplus means there was more revenue projected to be received than would be spent. The November 2018 projection from the state budget office forecasted a $1.5 billion surplus, an amount that would later shrink to $1 billion in February’s forecast. The decrease was blamed on slowed economic growth and tax collections that were lower than anticipated. Doing our budgeting based on forecasted (not actual) dollars means there sometimes needs to be adjustments made after tax collections come in.

Although these short-term projections are used as guidelines in developing the upcoming two-year budget, we also are given longer-term projections on which to base future spending outcomes (known as “tails” in the budget). Some of our budget is made up of “one-time” spending, while other budget items are on-going. This is where the concept of a “surplus” can take different shapes. In reality the State never had a $1.5 billion or even a $1 billion surplus to spend long-term. With no changes to the revenue stream or obligations, it is expected we will be in a structural deficit by 2022.

This year’s budget will shape the financial future of Minnesota, and without additional revenue there is a likelihood we will be heading toward future deficits in just a couple of years. In fact it was just eight years ago that we were working with a $5 billion deficit.

The Governor, Senate Majority Leader, and Speaker of the House continue to be in negotiations. Much is at stake, and getting to a fiscally sound budget agreeable to those with different philosophies on revenue, spending, and taxing should be a deliberate process.

The sticking points are certainly centered around revenue. One of the most reliable revenue generators for more than 25 years has been the 2% provider tax. If this is allowed to sunset, we would lose a $700 million a year revenue stream, impacting the health care coverage of 1.5 million Minnesotans. Replacing this revenue stream would mean spending from the general fund, and other important areas (i.e. education, public safety, agriculture, transportation, or higher education) would need to be drastically cut back to cover the shortfall. This is how a hole in the budget is created. Thus the reason for such deliberate and deep negotiations happening with the three political leaders, and the likelihood of extra innings to complete the state’s budget this year.