Can We Learn From The Past?

Over the past year, we have lost two of our finest business and community leaders:  Win Wallin and “Pinky” McNamara.  Their lives were similar in that they rose from modest circumstances, were enormously successful in business, and gave generously to create opportunities for others.  They dearly loved Minnesota and fully embraced the University of Minnesota.

Perhaps as we look at the current budget impasse, we can learn from them.  They knew how to put together a deal and make everyone feel good about it.  This was due to their ability to see opportunity when others could only see failure and to turn disadvantage into success.  Why not apply this attitude toward our state budget.

Since Wallin and McNamara understood the value of opening doors for the young, it may be well for the ultimate budget to do the same.  This vision covers wider concerns from education to creating an innovative growth-oriented economy.

Why not broaden the current debate from taxes (both party budgets call for sizeable tax increases but disagree on who pays) and focus instead on growing our economy and maximizing opportunities for the young.

Imagine bringing together community, academic, and business leaders in the mold of Wallin and McNamara and working towards an agreement that represents opportunity rather than political advantage?

After all, it was this focus that gave us these two remarkable men.

THE PRESIDENCY: A BIT SHORT IS PAWLENTY

One thing is certain about Monday’s Presidential announcement by former Governor Tim Pawlenty:  he will not bring up the fact that he presided over one of the larger tax increases in Minnesota’s history.  Yes, that is quite correct.

During his two terms as Governor, property taxes rose a stunning $2.5 billion – more than the previous 16 years combined (see note below).

To further amplify this enormous growth consider this fact:  in the 8 years prior to Governor Pawlenty, property taxes rose some $716 million.  Compare this to the $2.5 billion increase during the Pawlenty years.  That is an approximate 250 percent increase.

But this data also illustrates the close relationship between state and local spending in Minnesota.  All too often, state budget cuts simply translate into increased local costs.  This is particularly true when considering school financing and local government aids.

It would be a bit akin to President Obama announcing that he will cut federal funding for highways.  This would reduce the federal budget by over $40 billion and may produce some solid conservative sound bites.  But, unfortunately, the cost of those highways does not disappear.  Rather, it will show up in strained state and local government budgets.

Without reform, spending cuts all too often reappear as cost increases elsewhere.  The sad and tragic reality is that this is what happens when politics and simple slogans become the prime concern rather than quality long-term budgeting.

Further evidence of this can be seen in the fact that from 2003 to today, Minnesota has been rolling from deficit to deficit and in spite of warnings from Moody’s concerning the folly of short-term fixes, Governor Pawlenty continued to achieve budget balance by employing the following:

➢ Borrowing over $1 billion from the tobacco settlement – money designated for health care.
➢ Taking over $2 billion from the federal stimulus funds.
➢ Borrowing over $1.4 billion from K-12 education funding.
➢ Borrowing over $400 million from the Healthcare Access Fund for low-income families.
➢ Accelerating tax payments.
➢ Delaying bill payments.
➢ Engaging in accounting shifts.

In the process, Moody’s lowered Minnesota’s bond rating.

And, much of this activity preceded the recession of 2007 and no borrowed monies have been paid back thereby leaving Minnesota with a $5.1 billion deficit – the 7th most severe in the United States.

It is my belief that the President we elect in 2012 should have compelling leadership skills and a demonstrated background of financial excellence.  This requires not only an appreciation of America’s financial problems but also a willingness to place the nation’s long-term well being ahead of short-term political gains.

Unfortunately, Governor Pawlenty falls short of this expectation.  There is nothing personal in my assessment.  He is smart and pleasant.  I appointed his wife to a state judgeship and I supported his first run for Governor.

However, I come from the more traditional wing of the Republican Party and truly believe in fiscal discipline and that the office of the Presidency should go to our nation’s best and brightest and not its most ambitious.

Note:   Property tax numbers trail by one year – hence Pawlenty’s years total 7 years since the 2011 figures are not yet in.

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.

NEEDED: REAL PRESIDENTIAL LEADERSHIP

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.

RESOLUTION VERSUS STALEMATE

Governor Mark Dayton’s March 28^th letter to Republican legislative leaders was less about a negotiated budgetary settlement and more about framing the debate after he vetoes their budget proposal.  From a strategic perspective it was masterful.  It was clear, intelligent, and firm.  Assuming legislative Democrats remain firm, the Governor will have the upper hand.

In any type of struggle involving a Governor versus the Legislature, a Governor will almost always prevail.  First of all, a Governor is the sole leader of a vast statewide management system; can move with speed and flexibility; and has the ability to instantly communicate to the media and the public.  Secondly, he has the full muscle of the veto.

Governor Dayton’s letter suggests that he fully understands the powers of his office and is prepared to use them.

The Legislature, on the other hand, is designed to be slow moving and cumbersome with power divided among 201 members and two separate chambers, House and Senate.  Even caucus leadership is divided thereby making it very difficult for any one leader to speak for all.

The specific situation as it pertains to Republicans and their control of both houses has additional burdens including:

1—They are locked into their own campaign rhetoric which railed against any form of “revenue enhancement” and this includes debt.

2—The expectations held out by their leaders during the campaign – Emmer--Pawlenty--Sutton—to the effect that either there are no deficits or that they will be easy to manage.

3—The increasing pressure from Tea Party supporters demonizing “revenue enhancement” and all the tools normally employed by political systems to resolve conflict such as compromise, negotiating, or even meeting with the other side.  In Minnesota, this pressure increases as Michelle Bachman’s presidential campaign gains strength.

All these forces are designed to push legislative Republicans away from a negotiated settlement and more towards a stalemate that would close government.  There can be no doubt that the Republican Party will be split between those willing to govern and the new far right which will not compromise.

Frankly, legislative Republicans deserve a more favorable destiny.  Many truly believe in reducing the size, scope, and costs of government.  But this approach cannot be successful in a slash and burn budgetary environment.  Roughly, 85 percent of state monies end up in local districts.  Inflicting harm, particularly when it is perceived to be extreme, is a sure path to political defeat.

However, closing the legislative session with a compromised budget situation and an agreement to work with the Governor on a reform agenda designed to review concerns of affordability along with size and scope of government has enormous appeal.  Minnesotans care deeply about quality of life issues and it is important that Republicans once again identify with those concerns.

This approach to governance helps both parties in that it brings intelligent bi-partisanship into play and embraces the middle of the political spectrum which is where most Minnesotans reside.  Perhaps of greatest importance is that it focuses positively on building a more promising future.

Let’s hope....

Another Republican Loyalty Test

Last month, Minnesota GOP chair, Tony Sutton, wrote a very public letter to Republican lawmakers warning them not to violate what he terms are the “principles of the Republican Party” with a sharp focus on any form of “revenue enhancement” including “raising taxes, raising fees, expanding gambling, expanding the sales tax, or any such schemes that not only violate our principles but are also bad politics and bad public policy.”

This represents a remarkable turn from his sturdy defense of these very same practices when Governor Tim Pawlenty was leading Minnesota. Come to think of it, he branded anyone who challenged Pawlenty’s financial management as “traitors” and banished them to non-Republican exile.

Just look at the record that Tony Sutton so vigorously defended:

Borrowing:         
$1 billion – tobacco settlement fund
$2.3 billion – federal stimulus funds

$1.4 billion – K-12 education           

Taxes raised:               

Sales tax in Hennepin County for new Twins Stadium                                                    

$400 million - Health impact fee (75 cents/pack cigarettes)

In addition, a variety of significant fee and tuition increases occurred along with shifts to local governments.  The Star Tribune estimated that property taxes during this period rose by 75 percent.  Further, Pawlenty “borrowed” hundreds of millions of dollars from the Health Care Access Fund.

But what is most disturbing about Tony Sutton’s vigorous defense of poor financial management was his ignoring the repeated warnings of Moody’s which go back to 2003, long before the recession of 2007.  From 2003 through 2010, Moody’s warned of “non-recurring fixes” which were the hallmark of Minnesota’s budgets from 2003-2010.  Even Moody’s lowering of our credit rating did not disturb the GOP party chair.

There is no way for anyone with an IQ approaching room temperature to maintain that Tony Sutton’s turnabout is anything short of 180 degrees.  The question then becomes, why now?

I think the answer lies just east of Minnesota and the rapidly rising star of Governor Scott Walker as a very possible GOP standard bearer. In his budget speech, he drew the same rigid lines as Tony Sutton and criticized past governors – Republican and Democrat – of “one-time fixes, accounting gimmicks and tax increases” and proceeded to take aim at the various borrowing practices similar to those utilized in Minnesota.

The simple fact is that this latest loyalty test of Sutton and Walker is an extension of what has been developing in New Jersey, Indiana, Florida, Ohio and other states where Republican governors are drawing a very hard line on debt and “revenue enhancement”.  These governors, who include likely Presidential contenders such as Christie of New Jersey, Daniels of Indiana, and now Walker of Wisconsin,  are increasingly separating themselves from the financial management practices of the older set of governors who also aspire for the prize including Huckabee, Romney and Pawlenty.

As a matter of fact, while writing this blog, a Reuter’s poll came out listing Walker as having a greater favorable rating than Huckabee and Romney as potential GOP Presidential nominees.

Again, why the sudden reversal by Tony Sutton?  Perhaps, he recognizes changing wind patterns and, like so many leaders, is trying to catch-up with his followers.

But this is precisely what is wrong about today’s politics.  It is more about personal gain than good public service and more about ambition than substance.    Sadly, this damage to democracy is cloaked under the guise of higher virtue such as loyalty and divine power.

Political parties in a two-party system should be wide and broad reflecting and respecting the positive role of diverse and dissenting opinion.   Now we are witnessing the irony of  an older set of leaders who were so quick to impose loyalty when they reigned becoming victims of a new and more demanding standard.  Apparently, the Republican Party has not learned a fundamental lesson of the French Revolution of 1848 and, that is, leaders who impose loyalty tests will soon find themselves branded disloyal and their necks in the guillotine.

WHEELOCK WHITNEY - A MINNESOTA GIANT

In 1929, Ole Rolvaag wrote Giants in the Earth, depicting the trek of Norwegian immigrants and their families coming to the upper Midwest and instilling their values of hard work, perseverance, community, vision, sacrifice, and a love of God and their new land.  They were truly giants.

Now fast forward to March 6^th and the annual gathering of MOFAS (Minnesota Organization on Fetal Alcohol Syndrome) and the honoring of another Minnesota giant, Wheelock Whitney.  On this date, he was being lauded for his efforts in founding MOFAS along with my wife, Susan.

But like most giants, his fingerprints are on virtually all efforts that define Minnesota’s quality of life ranging from bringing big-time sports to Minnesota to his leadership in the arts and education.  However, in chemical dependency there is hardly a program that does not reflect Wheelock Whitney’s vision and personal commitment.

What I have always appreciated about Wheelock was his ability to think big and radiate optimism.  For instance, in 1976, the 200-year anniversary of the freedom of our nation, Wheelock thought it a good idea to celebrate freedom from the confinement of chemical addiction by bringing everybody to Met Stadium in Bloomington.  At first blush, the idea of attracting over 45,000 to an outdoor stadium to celebrate sobriety seemed impossible.  But it wasn’t.  The stadium overflowed.  Freedom Fest became a national event, and Dick Van Dyke, who came to Minnesota for treatment, returned as Master of Ceremonies.  That is a Grand Slam in any park.

Due to Wheelock’s efforts, Minnesota became the world’s leader in chemical dependency treatment and many of those providers and recipients of treatment were there to simply say “thanks.”  Among those were Governor Mark Dayton who personally expressed his gratitude for the impact that Wheelock Whitney had on him and his family.

It should be noted that it is impossible to be in a room with Wheelock without humor and laughter.  But the surprise was the quick and delightful banter between Dayton and Whitney.

More than anything else, it is nice to know that giants did not pass away with Rolvaag’s book.  No, they live on and we are truly blessed……