As the Minnesota Legislature struggles to close a gaping revenue shortfall, I'm in Colorado watching how another set of lawmakers attacks the same problem.
The two states are similar in size, ethnic makeup and per capita personal income. They are weathering the recession better than many others, but are dealing with the harsh fact that a contracting economy shrinks revenue at the same time it increases demand for government services.
So it’s not surprising some of their budget-balancing efforts look similar, too.
They’ve both searched out one-time infusions beyond federal stimulus dollars. (Colorado is testing whether it can draw upon reserves in the state-founded workers comp insurance company, and Minnesota has proposed borrowing backed by tobacco settlement revenues.) Lawmakers in both places consider rescinding hundreds of millions of dollars in tax credits and exemptions — called tax expenditures — that divert money that would otherwise flow into the tax system.
And, Democratic Gov. Bill Ritter, like Minnesota Gov. Pawlenty, has been raising fees, which may look like taxes but — like all these other measures — don’t constitutionally quack like them.
In fact, the greatest similarity may be this urgent pantomime of raising enough revenue without appearing to raise taxes. The main difference? Colorado is constrained by constitutional amendment; Minnesota, by a tax-averse governor.
Strict revenue limits and no-tax pledges were enabled by a growing economy that supplied sufficient public dollars without the states having to face severe consequences… until later.
Colorado went furthest in imposing what the state’s Bell Policy Center calls “the most restrictive tax and spending limitation in the country” — TABOR, the Taxpayer's Bill of Rights. Designed to hold down taxes and shrink government, TABOR requires voters to approve tax increases that exceed a certain formula of growth. About 90 percent of revenues are dedicated, leaving little room to deal with changing conditions. Fed up with how the state was shortchanging education and transportation, Coloradoans have twice voted to loosen TABOR’s revenue straightjacket.
An inflexible, rule-based approach appeals to those who want the pre-emptive accountability of a bathtub-sized limited government. But it has little to offer the majority who have a broader definition of accountable government. They want the overall tax burden to be distributed fairly and expect spending programs and tax breaks to deliver their promised benefits.
On paper, Minnesota’s more flexible accountability framework looks pretty good.
The Legislature enacted a law in 2008 to revive the Minnesota Milestones established by Gov. Arne Carlson in the 1990s that mark progress against long-term goals for the state, and now there’s an Accountability Minnesota website that reports on the milestones by category and agency. Many legislators from both parties also have initiated goal-setting and accountability initiatives in the Legislature.
But reporting on progress against long-term goals and high-level priorities is only part of holding government accountable for results. The real test of these principles comes at budget time when dollars are scarce and choices must be made.
The scrutiny forced by scarcity can be healthy. For example, both states are finally taking a serious look at whether tax expenditures actually achieve their intent, and how they tend to benefit businesses and higher-income taxpayers over those whose benefits must go through the appropriations process.
According to a recent Public Strategies Group report, “Minnesota’s Bottom Line,” [Download pdf] regular legislative review is already required to evaluate the cost, effectiveness and fairness of this $11 billion in “hidden spending.” Yet cost is the only aspect publicly reported by the Department of Revenue.
And that’s a general shortcoming. Measuring cost is relatively easy, since expenses are routinely captured in the system. Determining effectiveness is more difficult and costly, particularly when the greatest payoffs come from education, health care and transportation systems that deliver value over the long term.
Minnesota needs to know what works as well as what things cost. It’s the most fiscally responsible way to govern and the only way to ensure government can deliver what we expect.
The apparent simplicity of rules that limit revenue and formulas that disperse money has some appeal in a complicated and changing world. But it’s not the way to manage for results. Maddening as it may be to muddle through this year and push some problems into the next, Minnesota is on a better path — provided we continue to emphasize fairness and effectiveness, guided by facts and a long-term vision for Minnesota.
— Charlie Quimby
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