Saturday, March 06, 2010

Radical idea: live within our means

When the amount of money going out exceeds the amount coming in, many households and governments alike delay short-term pain by going (further) into debt, or by spending from savings. While both measures have their legitimate uses, neither is sustainable — in either a household budget or a government budget.

Going deeper in debt, and robbing Superintendent Peter to pay Saint Paul are two dubious tactics that the Minnesota Legislature will again consider this session as they face what the Minnesota Management & Budget office reports is a multi-billion dollar budget deficit for the 2010-2011 and 2012-2013 bienniums.

Moody's Investors Service downgraded the state's debt outlook rating, citing the budget deficit and "the state's ongoing financial and economic weakness as the primary reasons. The ratings agency also singled out the state government's depletion of reserves and a heavy reliance on one-time resources to balance its budget as reasons for the downgrade," according to a report in Finance & Commerce. "This leaves the state facing the challenge of addressing ongoing structural imbalance with limited resources in an uncertain economic environment."

A downgrade by Moody's often leads to states having to pay higher interest rates on debt.

Predictably, Republicans like Rep. Sarah Anderson (R-Plymouth) are trying to deal with the fiscal realities, while the DFL is virtually deaf and blind to them. In an e-mail to constituents, Anderson said about the DFL bonding bill, "Though some of the projects in the bill are important for maintaining Minnesota's infrastructure, many of the proposals contained in the bill fail to meet the 'project of statewide significance' standard or are not fiscally prudent given the state's deficit of $1.2 billion [in the current biennium]. We will be spending state general fund dollars to support this debt bill at a time when other areas of the budget such as our schools are facing potential cuts."

"I have authored a bill requiring the Legislature to pass a balanced budget before they pass any other bill," said Anderson.

The state is also planning to temporarily withhold aid payments to school districts, forcing many districts to borrow or spend down their cash reserve funds. Sen. Terri Bonoff (DFL-Minnetonka) said, "I am very concerned by the precedent being set to borrow from school district reserves and penalize districts for sound fiscal management. Our local school boards and school administrators have worked hard to manage their budgets and secure positive cash reserves. Districts hold money in reserve for financial stability, cash flow, and to maintain their credit rating. Fund balances are often derived using local taxes paid by homeowners and businesses. It sends the wrong message to fiscally responsible school districts that the state would look to their positive cash reserves in order to manage state finances."

Messing with public school funding is highly disruptive to district operations. The state should get its runaway spending addiction under control, which would make accounting tricks like this unnecessary. The state does not have a revenue problem, it has a spending problem.

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