Archive Hosted by the AFL-CIO

Without Saying It, Governor Concedes Revenue Problem

February 04, 2009 By Jeff Van Wychen, Fellow and Director of Tax Policy & Analysis

The Governor's mantra is, "Minnesota does not have a revenue problem, we have a spending problem." However, the Governor's own information contradicts this longstanding assertion.

As demonstrated previously, per capita state general fund spending is projected to decline by over nine percent from fiscal year (FY) 2003 to FY 2009 after adjusting for inflation in government purchases.  Clearly, Minnesota does not have spending problem, unless you define a nine plus percent drop in real per capita spending over a six year period as a problem.

The Governor's own budget material demonstrates the real problem.  The following slide was part of the Governor's January 27 budget presentation.

The crucial statement in this slide is the acknowledgment that total revenues for FY 2008-09 (the biennium that was budgeted for back in May 2007) were $34.6 billion.  A check of the state's November forecast general fund spreadsheet confirms this figure: total state general fund resources for the FY 2008-09 biennium are projected to be $34.69 billion.

The next slide that the Governor presented showed anticipated revenue for the FY 2010-11 biennium.

As the slide notes, for the FY 2010-11 biennium ("the next budget") total state general fund resources will be $31.94 billion-a decline of 7.9 percent over a two year period.  To make matters worse, these amounts do not take into account the erosion of the purchasing power of these dollars over time due to inflation in state government purchases.  In real dollars, the decline in total state general fund resources from FY 2008-09 to FY 2010-11 is 10.9 percent.

If we examine state general fund current resources (which is the same as the total resources presented above except that it excludes balances carried forward from the previous biennium), total state resources are down 1.8 percent in nominal dollars and 5.0 percent after adjusting for inflation.

As noted in the Governor's slides, the principal cause of the collapse in state revenues from FY 2008-09 to FY 2010-11 was the collapse of the state and national economies, as illustrated by a decline in gross domestic employment, rising unemployment, and a spiraling federal budget deficit.  However, a recent analysis from Minnesota 2020 demonstrated that even before the current economic collapse real per capita state revenues had been declining.

Regardless of the cause, all are now in agreement that state revenues are declining, even if we fail to adjust for inflation.  The material that the Governor presented on January 27 proves that Minnesota has a revenue problem.

Having a revenue problem does not mean that the only solution is to increase state taxes.  Given the massive $5.5 billion deficit that the state will be confronting in the upcoming biennium, all options-including both tax increases and further cuts in state spending-must be on the table.  However, a pragmatic approach to the state's budget crisis must begin by acknowledging that the fundamental cause of the crisis is a collapse on the revenue side of the state ledger.

Thanks for participating! Commenting on this conversation is now closed.