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< Weekly Recap | Main | Points in Senate >

The Constitution and the budget

Posted at 11:16 AM on April 14, 2008 by Michael Marchio (1 Comments)

In 2006, we had the chance to vote on (and approved) an amendment to the state constitution that directed 100 percent of the sales tax revenue on motor vehicles to transportation funding. This year, we're going to have at least one more chance to vote on an amendment, with the dedicated funding for the environment and the arts on the ballot.

There might be one more chance, if Sen. Linda Berglin (DFL-Minneapolis) has anything to say about it. SF3835 would force revenue from the health care provider tax to go to the Health Care Access Fund. The Health Care Access Fund supports MinnesotaCare, the state's subsidized insurance program. The tax was implemented in 1992 explicitly to pay for expanding health insurance, like MinnesotaCare, but it can be taken out to supplant general funds, and has been in the past.

In 2003, 38,000 people, including 20,000 children, were kicked out of the program because eligibility requirements were raised, while at the same time $192 million was taken from a surplus in the fund to help balance the budget during a shortfall.

This year, the governor has proposed using $250 million from the Health Care Access Fund surplus to help cover the $935 million budget gap.

Whenever a constitutional amendment that would lock in a portion of the budget is proposed, you see lawmakers on both sides of the aisle hesitant to tie their own hands in how they can use funding, and some lawmakers outright oppose budgeting through constitutional amendments.

But at the same time, when there is a budget shortfall, money intended to go to a specific cause, like MinnesotaCare, or the environment, tend to be the some of the first on the chopping block if raising revenue, i.e. taxes, is off the table.

I spoke with Sen. Linda Berglin, (DFL-Minneapolis), and she said the whole point of the Health Care Access Fund was to get the poor and the uninsured some coverage. "If we want to continue to support that, we shouldn't treat it like a slush fund," she said.

It seems like the problem here isn't really the raiding of the Health Care Access Fund, but the reason for the raiding - budget shortfalls. Minnesota's revenue stream is volatile, swinging from feast - well maybe not feast, but at least like a sandwich or something - to famine. In 2003, the state had a $4.2 billion deficit. In 2006, things looked rosy with a projected $2 billion surplus. Today, the state is looking at a $935 million deficit. Why?

Forty-seven percent of the projected revenue for 2008-2009 general fund is from the income tax. 27.5 percent is from the sales tax. While this makes our tax system less regressive, or less hard on the poor, it is also partly responsible for why we get these swings. Sales tax revenue is relatively consistent, but in Minnesota, there is no sales tax on food or clothes, which would bring in more revenue. And income tax revenue is sensitive to the changes in the overall economy. So if the country is headed for a recession, which pretty much everyone now believes, the state will have a lot of red ink to deal with next year.

Don't take my word for it, Sen. Tom Bakk and Rep. Ann Lenczewski were on Midday at the end of March, and discussed the issue. Both agreed that the tax system needs to be reformed to fix this.

Rep. Lenczewksi had this to say about it.

"There's really only a couple of ways that you can solve a deficit in a permanent way. You can solve a deficit in a short-term way by moving things around, but in a permanent way you have to do one of two things. You need to raise money, and then not spend it on something else[...]Or you have to cut things. Permanently [...] The Minnesota revenue system really keys off the federal revenue system. We are a conforming state, as are most states. When someone's whipping things around in the national economy or the world economy, we're getting whipped too. So a lot of it is something that's really out of our control, but we have to take the responsibility in the Minnesota tax system to say, okay, all these things are happening around us and in the nation with the Fed and world markets, but we're not going to say just because we can't control most of it, we shouldn't do anything, and to the extent that we can take the Minnesota portion of the volatility out, we should try."

Some of their suggestions were Rep. Lenczewski's bill, HF4103, that would end all corporate tax subsidies, and a provision in Senate tax bill that would make Minnesota corporations with overseas assets pay taxes here, which would bring in about $109 million over two years. Still, the big formula changes would need to be led by a governor, according to Sen. Bakk, and that isn't on the table for this session.

Former Gov. Arne Carlson had some harsh words about patching the budget hole with one-time money.

"Fully two-thirds of the solution is one-time money which means that the funding stream will not be available next year when a possible Gov. Molnau and the Legislature have to develop a new budget. That creates another deficit well in excess of $600 million in addition to the ramifications of a foolish policy that recognizes inflation in revenues and eliminates it on the spending side. The bottom line is that next January when the governor submits a new budget, the overall structural deficit which is the gap between revenues and expenditures will likely reach $1.5 billion."

It'll be interesting to see if the Legislature decides to tackle this next year.

The House is processing a bunch of bills off the Calendar, and when they're finished, I'll let you know who earned the big points. Check back later today.

Comments (1)

Constitutional amendments drive me nuts. The Constitution is *not* a place for calculations or tax law. This document is a policy statement for those policies which we anticipate will never change. E.g., You have the right to vote, no matter what you look like. "Set aside money here" is not a constitutional matter.

It's beginning to look like a 'constitutional amendment' is simply a way around the normal legislative process. We can't get the legislators to play nice and compromise, so we'll put it directly to the vote of the People. Not an inherently bad thing. The state's budget process is not a constitutional matter. Something like "we must have a balanced budget" is a policy and appropriate as part of this governing document. But, that's the policy. The implementation of it - i.e., deciding who gets the money - is a statutory matter.

If the Constitution is truly a non-flexible matter, then I don't want to commit funding decisions to it. Either we get screwed by not having the money in the 'right place' or else we simply ignore the matter and take the money anyway, which reduces the constitution to just some paper somewhere. Of course, I voted against the transportation amendment for that reason.

Posted by Elizabeth T. | April 14, 2008 11:08 PM