After more than a year of intensive research and discussion, the Budget Trends Study Commission released their report on how the state can improve its long-term fiscal health. It was worth waiting for.
Here are some of the key findings and recommendations (but I recommend paging through the full report because it is packed with great information):
- The Commission points out that Minnesota has a structural budget problem – over the long-term, growth in expenditures is likely to outpace growth in revenues. They find that controlling health care costs is key to controlling rising state expenditures (my editorial comment…remember that simply cutting health care is not the same thing as controlling health care costs. People get sick whether or not they have insurance.) They recommend establishing a public-private group to develop cost-controlling policies on a regular basis.
- The Commission also talks about the volatility of the state’s general fund tax base. However, they recognize that shifting to more stable revenue sources would lead to a more regressive system with slower growth rates. Instead of attempting to rebalance the tax system, they recommend establishing a much larger budget reserve ($2.1 billion for now) to help carry the state through economic downturns.
- The Commission recommends that policymakers and the public have access to more information to improve the decision-making process. That includes releasing a demographic forecast every biennium and adding inflation back to the expenditure side of the state’s budget forecasts.
- The Commission also suggests numerous changes to the current forecasting and budgeting processes to smooth out the peaks and valleys we have been experiencing. Recommendations include using one-time surpluses strictly for one-time purposes (like rebuilding the reserves), ensuring that the budget is balanced in the current and following biennium, analyzing trend lines in revenues to temper overly optimistic economic forecasts, and avoiding permanent tax cuts or spending increases unless reserves are filled and shifts have been bought back.
- One small recommendation by the Commission that hopefully won’t get overlooked: “address education attainment gaps in the current K-12 system.” Every one of these children will be needed to take the places of the retiring baby boomers in our workforce.
This isn’t sexy stuff…and it’s not going to fix our current budget mess. However, implementing these recommendations would go a long way to preventing this kind of trouble in the future. Since many of these ideas are things the Minnesota Budget Project has been pushing for years, we really hope that this year policymakers will get some legislation passed.