A ROSE IS A ROSE…

As we head into the final days before a state government shutdown, there will be increased proposals for settlement and more speculation on what will likely transpire.  The June 22nd Star Tribune contained an interesting editorial essentially suggesting that the healthcare provider tax be increased and that this increase be regarded as a surcharge and not labeled a tax increase thereby saving face for legislative Republicans.   Ultimately, this surcharge would produce some $600 million in new revenue which would come from state providers and the federal government.  The benefit would not only be the additional money but, more importantly, the preservation of MinnesotaCare and keeping some 85,000 to 140,000 people on the insured rolls.  Further, it would prevent thousands more from being disenrolled from Medicaid.  Overall, it is a huge step forward.

However, relative to the overall settlement it still leaves the Republicans and the Governor approximately $1 billion apart.

In terms of politics, the editorial is disturbing.   Allowing disagreements to be settled in a way that saves face is as American as baseball and the hotdog.  But saving face is considerably different than the perpetuation of a fundamental untruth.

It has to be said once and for all that a variety of taxes were increased under Governor Pawlenty and no amount of camouflage can mask that realty.  As a matter of fact his “borrowing” of some $400 million from the health care access fund has helped precipitate this crisis.

 In addition, the current Republican budget proposals contain some $400 million in property tax increases (http://www.scribd.com/doc/55548698/5-16-11-Compromise-Budget) on top of a variety of other cost increases.  It should also be noted that Republican legislators (Sen. Julie Rosen-Fairmont and Rep. Morrie Lanning-Moorhead) are the authors of legislation to provide public funding for the building of a Vikings stadium in Ramsey County.  This increase in the sales tax in Ramsey is a tax increase just as Pawlenty’s support for a Twins stadium was a tax increase in Hennepin County.

It should also be remembered that when oil company executives testified in Congress against the removal of public subsidies for oil, many Republican leaders declared that any withdrawal of subsidy funding would constitute a tax increase.  If that is to be the case, then what about the thousands of Minnesotans thrown out of healthcare and told to go on “vouchers” to pay for policies that are beyond the financial reach of low-income people?   Is that not a tax increase?  How about the student losing state support from institutions of higher learning and having to pay higher tuition?  And what about the rest of us who will pay higher healthcare premiums to accommodate the costs of the uninsured receiving emergency care?  One must also add to this list of growing tax increases the likely wage losses that would be suffered by public and private sector employees who are laid off as a result of the shutdown.

Frankly, this debate could use a lot more honesty and far less propaganda.  The bottom line is that both budget proposals contain revenue enhancements or tax increases.   It is not a question of labeling, it is a question of who pays and how

TRAPPED BY THE PAST

National and state media have been uniformly critical of Governor Pawlenty’s failure to confront Governor Romney on health care in last Monday’s debate.  Well, make room for a dissent.  I would contend that Pawlenty had no choice but to avoid any mention critical of Romney’s Massachusetts plan.

It appears from a recent blog by Jo Loveland (http://thesamerowdycrowd.wordpress.com/2011/06/02/the-beginning-of-the-end-for-pawlenty/) that on November 14, 2006, Pawlenty was effusive in his praise of Romney declaring he is an unbelievably bright and nimble and gifted public policy leader.   He went on to endorse mandated universal health care coverage by declaring:  In Minnesota, as to the access issues, I believe we should move toward universal coverage.  Everybody should be in a health plan of some sort.  How we get there becomes important.  I think a mandate by itself is potentially helpful, but it’s not the answer by itself.  Pawlenty seems to be suggesting that we should go beyond mandated coverage.   Loveland also wrote that this tape was likely making the rounds into Iowa and, hence, available to both Romney and Michele Bachmann.

This again has Pawlenty tripping over his past.  On Sunday, during his FOX appearance, he felt comfortable going against Romney and linking his health care plan to Obama’s.  I suspect he thought the 2006 comments would not come to the public’s attention.  After all, that position had been expressed more than four years ago and well before the national emergence of the Tea Party movement.  He also was probably not aware that Minnesota blogger, Andy Aplikowski, had a tape recording of his 2006 sentiments about Romney.

Had Pawlenty launched his attack on Romney’s healthcare plan, it is possible that Bachmann would have retaliated with an instant right that would have put Pawlenty on the canvas and, possibly, out for the full count.

Bachmann’s candidacy now prevents Pawlenty from being able to gloss over his Minnesota record and his numerous position changes including global warning, cap and trade, gay rights, deficits, light rail, and mandatory health care, etc.

By trying to be acceptable to all groups within this right-wing coalition, Pawlenty may be finding his tendency toward philosophical flexibility a serious, if not fatal, hindrance.

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....