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While all eyes are focused on what is happening in Washington, D.C., Minnesota is facing a different type of fiscal dilemma, a mountain of new spending.

Minnesota’s fiscal mountain

Phil Krinkie

All the buzz in Washington, D.C., since the election has been about the “fiscal cliff.” This is a term that Washington insiders have applied to the spending reductions and tax increases that will automatically take effect if the lame duck session of Congress doesn’t act before the end of the year.

The fiscal cliff is a result of the Congress’s inability to reach an agreement on spending cuts and/or tax increases in order to resolve or at least reduce our nation’s massive budget deficit. If there is not an agreement by the end of the year, both $136 billion in “automatic” spending reductions and $592 billion in tax increases will take effect.

The Congressional Budget Office and most economists predict that if Congress and the President don’t act to prevent these tax increases and some of these spending cuts from taking effect, it could push the country back into another recession.

But while all eyes are focused on what is happening in Washington, D.C., Minnesota is facing a different type of fiscal dilemma, a mountain of new spending. The Democrats wrestled control of both the Minnesota House and Senate from the Republicans in large part by making commitments to increase funding to a variety of special interest groups. Now will be the challenge to deliver on their campaign promises.

As Thomas Sowell, noted economist and writer stated, “The real goal should be reduced government spending, rather than balanced budgets achieved by ever-rising taxes to cover ever-rising spending.”

Just two years ago, the state faced a $5 billion shortfall. With Republicans in control of the Legislature and with Democrat Mark Dayton in the governor’s office, there was a long, drawn-out budget process. As most Minnesotans remember, there was a suspension of some government services for a few weeks before a final budget deal was struck. The agreement balanced the budget without a tax increase but did use a combination of future revenues and delayed payments in order to increase spending by double digits.

That’s right: State spending still increased by more than 15 percent during the last biennium, despite the outcries that draconian cuts had taken place.

Now that Democrats control the Legislature and the governor’s office, there will be a spending spree at the state capitol, of a magnitude we haven’t seen in 20 years. Less than three weeks after the election, the spending wishes are already longer than a trust fund kid’s Christmas list.

It starts with Senator Tom Bakk, DFL-Cook, the new Senate majority leader, promising to reduce property taxes. That’s likely to cost the state at least half a billion dollars. Next is the stated commitment to repay the K-12 school shift at a cost of $2.4 billion. Then there is the desire to increase spending in K-12 education and higher education as well. This is just the initial spending list, and does not include any of the Health and Human Service appropriation areas where spending usually increases with economic slowdowns. In total, Democrats could be considering somewhere around $5 billion in new spending.

Next week the Minnesota Office of Management and Budget will release the state’s forecasted budget projections, which will likely show the state with yet another shortfall, probably ranging from a $1 billion to $1.5 billion deficit. Given that the state’s constitution requires Minnesota to have a balanced budget, and given that DFLers can’t seem to help themselves when it comes to spending taxpayer money, there is only one way the Democrats can climb this fiscal mountain, and that is with a corresponding amount of increased taxes.

It seems ironic that our federal politicians are working to reach some agreement on spending reductions and trying to extend tax cuts, while our Minnesota politicians are talking only about a mountain of new spending, which will be matched with a pile of new taxes. Maybe divided government isn’t such a bad idea.

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