Friday, April 29, 2011

No More “Happy Budgeting” – Please

With the firm declarations from the Republican leadership in the House and Senate summarily dismissing any and all revenue increases, the prospects for a government shutdown clearly increase and should now become part of the overall political discussion.

However, before a principled stand can be taken, the budget presented by the Republicans must fully comply with those principles.  This means a balanced budget without any revenue increases and one that is truly in balance.  This would be in keeping with the repeated rhetoric suggesting government waste, abuse, fraud, etc.  As a matter of fact, during the campaign there were public declarations by gubernatorial candidate Tom Emmer and Governor Pawlenty that there actually was not a deficit but rather a surplus.

Hence, from the prospective of the current legislative Republicans, the task of balancing the budget based solely on spending reductions should be relatively easy.  Unfortunately, that has not been the case.

While the budgets from the House and Senate are not identical, they are roughly comparable.  For instance, both budgets start out with an agreement to continue borrowing $1.4 billion from K-12 education.  This borrowing constitutes some 28 percent of the solution, but hardly meets the standards laid out by the “principles”.  A debt represents an acceptance of spending but delays the payment. 

I would submit that the validation of the spending and the delay of repayment is a deferred tax increase.  For those who would suggest that it could be a future budget cut, I would simply note the lack of courage and integrity to do it now.  Why should we always expect the future to have the courage to do what we refuse to do now?

To continue, the proposed GOP budgets violate any accepted standards of budgeting integrity when they book over a billion dollars in savings that cannot be verified by either the state’s Department of Revenue or Department of Management and Budget.  This speculative piece of the budget constitutes over 20 percent of the total budget so its importance should not be understated.

Suggesting cost savings reforms is excellent but booking them as budgetary savings is wholly unacceptable particularly when the two state departments warn against it.
For instance, what happens if the anticipated savings is realized to the extent of 80 percent and that would be a generous assumption.  The answer is a $200 million deficit and another struggle between tax increases and spending cuts with all the attendant political charge and counter charge.  And again, Minnesota’s already diminished credit rating will be reviewed for another reduction.

It should be remembered that “happy budgeting” is precisely what got us into this mess in the first place.  Go back to the “Big Plan” presented by Governor Ventura in 2001 which called for property tax reduction on one side and a sales tax expansion on the other.  The legislature decided to accept the tax reduction and eliminate the revenue increase to pay for it.  This absurd act of foolishness had bi-partisan support but Senate Majority leader Roger Moe and Senate Finance Chairman, Larry Pogemiller joined with Finance Commissioner Pam Wheelock, in strongly opposing the measure while House Majority leader, Tim Pawlenty, pushed for its adoption.

The oddity here is that the more liberal leaders were actually fiscally conservative while conservative leaders were liberally reckless.

From that point on, Minnesota rolled from one deficit to another even during the high growth Bush years from 2002-2007.  Every tool was brought into play in order to avoid a “tax increase” including massive multi-billion dollar borrowing, accounting shifts, “fee” increases, reserve depletion and transferring costs to local government.  State governments even rewrote the basic laws of economics by allowing for inflation on revenues but not on expenditures.  It ignored repeated warnings from bond rating agencies and suffered the loss of our prestigious AAA bond rating from Moody’s.

As a more traditional Republican, I would suggest that the Republican cause would be better served if the focus were to shift from partisan “principles” which appear not to be working to a higher standard of governance which involves respect for differing opinions and the recognition of placing service to the people over party loyalty.  

When the greater good is served, political leaders win.  Republicans would be well advised to share governing responsibility with the Governor and put together a compromised budget for this biennium and then be part of a bi-partisan alliance to eliminate the ongoing structural deficit via long-term reform.

Tuesday, April 19, 2011


With the submission of President Obama’s deficit reduction plan, all major players are on board for what could be an enriching debate focused not only on deficit reduction but, more importantly, on creating an expectation for America and particularly for our children.  This involves deciding as a people our own quality of life and our role in global affairs.  Such a magnificent opportunity should not be blown away by ignorant and self-serving partisan rhetoric.  The real test is not the deficit but the broader issue of civil discourse and governance.

As an electorate, we have choices.  There are four major deficit reduction plans emanating from the Republicans, the President, the Bowles-Simpson Report, and the team of former GOP Senator Pete Domenici and Clinton Budget Director Alice Rivlin.  In addition, GOP Senator Tom Coburn of Oklahoma is working with a bi-partisan “gang of six” on producing another entry.  All plans have some genuine merit and give us an opportunity to piecemeal together a superb approach that not only reduces the deficit to manageable levels but also permits more investment in our transportation infrastructure and our young people via a real focus on educational excellence and opportunity for economic growth.  It must be about tomorrow.

In a sense, the budgetary dilemma is simple:  we are taking in some 18 percent of GDP in revenue and spending at a 24 percent rate.  The gap is the deficit and is currently being covered by heavy borrowing from investors both here and abroad.  Right now, foreign investors hold some $4.3 trillion of US treasuries.  We currently pay $413 billion per year in interest costs but the kicker is that within 10 years that figure will rise to approximately a trillion dollars – thereby crowding out other vital expenditures ranging from education to defense.

However with Standard & Poor’s warning and changing our government’s credit rating from “stable” to “negative”, time is no longer an ally and will likely compel some key decisions by July as part of the debt ceiling debate.

If there is a missing ingredient, it is not on the program side but rather in the area of leadership.  I would contend the President’s opportunity to take the political initiative was lost when he largely ignored the report of his own bi-partisan commission on Fiscal Responsibility and Reform (Bowles-Simpson Report) and gave the lead role to the GOP.  The President should fully accept this and now decide to fully commit himself  to providing broad Presidential leadership encouraging participants to sharpen their proposals and then laying down solid visionary goals that compel all approaches to deal with specific ideas relative to economic growth and excellences in global competition. 

What the debate needs is not an Obama proposal but rather an Obama vision with the leadership skills necessary to piece together the best from all proposals.

Realistically, his proposal is the weakest entry and has all the characteristics of a hasty effort.   It should be withdrawn.   Clearly, the two most solid approaches emanate from Domenici-Rivlin and Bowles-Simpson.  They appear to be well researched and reflect quality bi-partisan thought.   I also suspect that the “gang of six” will come up with a very workable plan.

After the election debacle of 2010 and the health care debate, I doubt that many Congressional Democrats will fall on their swords for the President’s late entry.  But what everyone would appreciate is Presidential leadership that guides the debate to a quality conclusion.

If I may, let me be blunt.  If the President is seen as a partisan combatant, the food fight will continue and we, the people, will truly suffer with higher interest rates and a declining economy.  Hence, we need a President that will lead all America.

Toward this end, it is imperative that he form a bi-partisan team to formulate an agreement.   This means real input from all sides, a non-partisan tonality, and shared ownership.

Nothing less will stabilize the financial ship of state.

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