Address the budget shortfall with smarter spending and economic growth, not tax increases
When the Legislature reconvenes in January, one of the biggest items on the agenda will be creating a new state budget. In May, we were told to expect a massive budget deficit of $4.7 billion. Thankfully, this week the news improved somewhat.
On Tuesday, the office of Minnesota Management and Budget released its annual November economic forecast. The report, which details the state’s budget picture, projects a surplus of $641 million for the current 2020-21 budget cycle, and a $1.27 billion deficit for years 2022 and 2023.
The turnaround is attributed to a number of factors, but it boils down to a simple formula: revenues were higher than we expected and spending was lower than we expected.
It is good news that next year’s budget shortfall is smaller than we thought it would be, but it doesn’t change much about how we should approach the budget.
The pace of budget growth in recent years is unsustainable, and we have a duty to go through each budget area and eliminate wasteful spending. I have been a longtime advocate for something called zero-based budgeting, which a simple budgeting concept where the budget for an organization or an agency starts from zero at each new budget cycle. Currently, we budget by effectively starting with the previous budget and building off it. As you can imagine, this process makes it very difficult to weed out programs that are ineffective, outdated, or unnecessary.
That said, we still have to make the effort to eliminate wasteful spending. At a time when Minnesotans are tightening their belts to survive coronavirus restrictions and executive orders from the governor, we have to expect government to make tough choices of its own.
Only one thing is certain: we cannot – I repeat, cannot — raise taxes. There are so many small businesses and workers out there who are already struggling to get by. The economic forecast notes that lower-wage workers have felt a disproportionate economic impact from the coronavirus. As I write this, one of the hottest debates around the legislature is a relief package for workers and mom and pop businesses who have been hit hard by the latest round of business restrictions. It does make any sense to me that we would provide an urgent relief package to help these folks out, only to turn around and raise their taxes in the spring. So let’s take that option off the table right now.
The bottom line is that we must do everything we can to get our economy going at the same strong pace as before the pandemic. Obviously, this will require some adjustments to make sure we are prioritizing safety and public health, and it goes without saying that we have to take coronavirus seriously. But to the extent possible, we have to get businesses back open, get workers back on the job, and start generating economic activity. We have to be able to address the economic crisis at the same time we are addressing the health crisis.