Tom Horner has hardly any money, little name recognition and is far behind in the polls. But the Independence Party nominee does have the most detailed plan yet released for solving Minnesota’s projected $5.8 billion budget shortfall.
While DFL nominee Mark Dayton relies primarily on tax increases for the state’s wealthiest residents to balance the books, and GOP standard-bearer Tom Emmer insists that he can solve the fiscal crisis without any additional revenue, Horner has opted for a middle road. His eight-page fiscal blueprint relies on roughly equal amounts of program cuts and tax hikes.
“It’s the [budget plan] that provides the most balance, that recognizes there is no magic bullet solution,” said Horner running mate Jim Mulder, who played an integral role in crafting the proposal, which was based in part on his work on county government redesign as head of the Association of Minnesota Counties.
“It requires some really difficult decisions,” Mulder added. “It’s going to require courage on both the revenue side and the expenditure side.”
But there’s also a $400 million hole in Horner’s proposal related to a miscalculation involving the $1.8 billion K-12 cost shift. In other words, even if every plank of his budget vision is adopted as envisioned, the IP underdog still falls about 7 percent short of balancing the books.
On the revenue side, Horner’s calling for $2.15 billion in additional state taxes. As part of that package, he’s proposing an overhaul of the state’s tax system. The IP candidate would reduce the sales tax by 1 percent, but broaden it to include clothing and some services, such as massages or pet grooming. In order to counteract the disproportionate effect of an increased sales tax on poor households, Horner proposes setting aside $350 million to provide credits to low-wage earners.
In addition, the IP candidate wants to significantly expand so-called sin taxes. Specifically, Horner’s budget fix calls for an additional $1.50-per-pack tax on cigarettes, a 10-cent per-drink levy on alcohol and full-fledged casinos at the state’s two horseracing tracks. The state’s total estimated haul from these sources: $850 million.
Finally, Horner wants to gradually phase out the state’s corporate income tax. Beginning in 2013, he would reduce rates by 20 percent, with a long-term goal of eliminating it completely.
Mark Haveman, executive director of the Minnesota Taxpayers Association, a nonpartisan research organization, largely praises the proposed tax changes. “I don’t think you can argue against broad bases and lower rates as a mantra that you want to keep chanting with respect to tax policy,” he said. “Clearly that’s what Horner is attempting to do with the sales tax.”
But Haveman doesn’t believe taxes on alcohol and cigarettes are a reliable solution to the state’s chronic budget troubles, since they’re designed to drive down consumption and improve overall health. “I don’t think it’s good public policy to focus on those types of items for general fund purposes,” Haveman said. “You’re designing a tax where you’re trying to make the base go away. It doesn’t exactly lend itself to a stable tax system.”
Jeff Van Wychen, a fiscal policy fellow with the liberal think tank Minnesota 20/20, argues that Horner’s tax plan relies too heavily on the sales tax for revenue. “I personally disagree with their aversion to an income tax increase,” said Van Wychen. “I think a sales tax increase will have more of a drag on the economy in the short term by virtue of who it will be hitting. It’s a regressive tax, so it will be taking dollars out of the pockets of people who tend to spend more.”
Horner’s blueprint for spending cuts is equally ambitious, calling for reductions of $2.45 billion. Roughly a quarter of that amount would come through cuts in state aid to county governments. In order to soften that financial blow, the IP candidate proposes allowing county governments to levy a half-cent sales tax. Horner would also look to achieve significant savings by reducing or eliminating the Job Opportunity Building Zone Program, ethanol subsidies and solid waste grants.
But another $1.1 billion is expected to be achieved through “redesign savings” – a term sufficiently vague to raise questions about its legitimacy. According to Horner’s budget plan, this figure is based on concrete proposals put forth by groups such as the Minnesota Association of Professional Employees and the Association of Minnesota Counties.
For instance, he estimates that $60 million to $80 million per biennium can be saved by simply eliminating redundancies in the state’s information technology services. In order to uncover similar inefficiencies, Horner will set up at least a dozen “redesign teams” to scrutinize government programs. “We think that if you do that across the entire spectrum of all of these different places, we can find the $1.1 billion,” said Mulder.
Haveman shares this optimism about saving significant money through government redesign initiatives. “I think the ideas behind this $1.1 billion exist in these areas,” he said. “The question always is, will the $1.1 billion actually materialize? Who knows?”
The last major plank of Horner’s plan to eliminate the projected budget shortfall for the next biennium involves delaying repayment of the school aid shift enacted during the last legislative session. The IP candidate expects to save $1.8 billion by pushing any repayment back until at least the subsequent budget cycle. He does, however, plan to set aside $20 million in the interim to cover any interest costs local school districts incur from borrowing money to cover cash flow problems.
But there is a significant problem with this assumption: Not all of the school aid shift is expected to be paid back during the next budget cycle. A sizable chunk, $421 million, isn’t counted against the projected $5.8 billion budget deficit. In other words, pushing back repayment of the entire school aid shift would only take a $1.4 billion bite out of the budget hole. That leaves a roughly $400 million gap in Horner’s proposal.
“They just seems to have a little bit of a problem getting their hands around the aid payment shift,” said Van Wychen, who first flagged the problem. “It means he has to make another $400 million in either additional cuts or increase other revenues.”
Another potential problem for Horner’s proposal has nothing to do with finances. As an IP candidate, with no legislative caucus to rally for support, he would have an extremely difficult time getting a significant overhaul of the tax code passed. Former IP Gov. Jesse Ventura ran into legislative roadblocks when he attempted a similar broadening of the sales tax to include services.
But Mulder argues that if the underdog IP ticket prevails, it would send a message to legislators that the public is tired of gridlock at the Capitol. “What we believe is that the current Legislature is playing win-lose and playing for the next election,” he said. “Oftentimes it is dominated by the needs of the political leaders to move their political agenda. We think that’s cut out 75 percent of the legislators that are there for the same purpose we are, which is to get the job done and to do good things for Minnesota.”