Progressives sometimes support good government fiscal ideals even when they happen to work against our best interests. When it comes to the state budget roller coaster, we gravitate toward endorsing the idea that “accounting shifts” are a fiscal devil — a vile short-term solution. On goo-goo principle, perhaps, we advocate stable sources of state revenues as the remedy.
Neo-cons should celebrate.
In the real world, such thinking about shifts and revenue stability is 100 percent wrong. Accounting shifts from one biennium to the next are the ultimate cushion against budget devastation, nothing short of salvation for the fiscal troubles inherent in progressive taxation.
As we all know, tax fairness is based on ability to pay. Unfortunately, our collective ability to pay inherently stoops to swings in the economy. On the other hand, stable tax sources on consumption (sales and use) or property tend to be regressive because they are assessed without regard to fairness or ability to pay. If we want to achieve a progressive tax system in Minnesota, we must accept – and even embrace – a system of accounting shifts as our protective release valve.
As such, I was grudgingly prepared to accept the inevitable shifts that come with the huge state budget shortfall projected in FY 2010-11. Then came the Mother of All Shifts – the ultimate in fiscal irresponsibility — the so-called Tobacco Appropriation Bonds. In the all-time understatement, even the Minnesota Department of Management and Budget (MMB) officially admits [PDF], “One-time funds such as these are not a long-term solution to the state’s current budget deficit.”
It is one thing to shift general fund dollars back and forth from one biennium to the next. It is quite another to take anticipated money every year for the next two decades.
Keep in mind, the full faith and credit of our state will back these bonds. Otherwise they almost certainly would not even be remotely marketable in the current economy. If this sounds like something that the State Constitution might prohibit, it is, in fact, a very close call. Even MMB admits, “To meet state constitutional requirements and federal regulations for tax exempt bonds, all proceeds from these bonds will be used directly for one-time, non-operating costs.”
The money conveniently goes to retire next-biennium borrowing costs. Perhaps we can rename the new U of M stadium “TCF & Tobacco Field.” Nice try skirting the rules. In reality, the plan simply ties the hands of the next 10 legislatures.
Right now, the state general fund pulls in around $200 million a year from the ongoing tobacco proceeds. The proposal would sell off about half of the slowly declining revenue stream for 20 years with a paltry projected one-time payoff of $983 million.
At just about any other time, this ill-conceived sell-off would pay out far-more handsomely. Not only is it a stupendously bad deal, but this unprecedented move surely will be poorly received by the bond-raters. We could easily see higher borrowing costs for decades to come. To be concise, this is the ultimate plan for huge long-term tax obligations in the not-too-distant future — with nothing tangible to show for it.
So if garden-variety accounting shifts give you bad dreams, the tobacco revenue sell-off qualifies as nothing short of “A Nightmare on Rev. Dr. Martin Luther King Jr. Boulevard.”
— Guest poster Jim Robins is a former Minnesota Senate Majority researcher assigned to taxes, metropolitan and local government, and transportation issues. He currently operates www.ScooterMaxi.com.
[Ed. Note: Growth & Justice will occasionally run guest posts that challenge orthodoxies on the left and right, including our own.]