When $4.6 billion was cut from the state’s biennium budget last year, we hoped that would be sufficient to last into 2011. But worsening economic conditions have further hurt the state’s financial situation, and now the Legislature and Governor will be forced to make another $1.2 billion in cuts during the 2010 session.
I would like to take some time to explain how Minnesota arrived in this current budget dilemma, and how lawmakers can prevent further difficult deficits and make long-term plans for a financially stable state.
Minnesota has an unemployment rate of 7.4 percent. The Great Recession has left 217,000 Minnesotans jobless. The affect a layoff has on a family cannot be understated. But unemployment also puts a serious strain on the state budget. When workers are at home not getting paid, they aren’t paying income taxes either. Seventy percent of the state budget deficit comes from loss in income tax revenue.
The most obvious yet difficult way to solve this problem is to get people back to work and paying taxes. That’s why on Feb. 15 the Minnesota House of Representatives, with bipartisan support, passed an omnibus bonding bill that funds construction projects across the state. It’s estimated that the bill will create between 10,000 and 20,000 jobs, most of which are in the private sector.
Bonding bills aren’t new to the state; the Legislature typically passes a state budget in odd-numbered years and then a bonding bill in even-numbered years. But there is misinformation out there that lawmakers, facing a $1.2 billion deficit, want to spend another $1 billion on “pork” projects. That’s not true. If we fund $1 billion in bonding projects this year, we will add $3.28 million in debt service in 2010-2011 — debt that was already in the budget forecast. For those who think that the state is racking up debt that will plague future generations, first take a look at Minnesota’s recent ranking from Moody’s, that praised Minnesota’s low debt rate. Only eight states have less debt per capita than Minnesota. Even with this bonding bill we will be well under the conservative debt service guidelines set by Minnesota Management and Budget.
The road to economic recovery will be a long and slow one, and we know that it will be years before we see unemployment rates similar to those before the recession. In the meantime, we at the Capitol are forced to make painful budget cuts or raise taxes — both unpopular choices.
I believe we need to take a balanced approach — that is, to cut services but also changing our state’s tax system to make it more progressive and help working people. Under Gov. Tim Pawlenty’s proposed budget, aid to local government will be reduced by $181 million. By cutting their funding, most cities and counties have cut public safety services and raised property taxes. On average, municipal tax levies increased by 5 percent in 2010, according to the Coalition of Greater Minnesota Cities.
It’s not fair to raise property taxes during these tough economic times. If property taxes — which are regressive taxes — are raised, suffering small businesses will have to pay more even though their business is making less money. According to a recent House survey of over 1,000 Minnesota small businesses, 40 percent cited property taxes as a barrier in the way of starting or growing their business. Only 24 percent cited income tax as a barrier. Considering that small businesses over the past 15 years are responsible for 64 percent of new net job growth nationwide, we can’t ignore their needs.
People often tell me that as a lawmaker I have a tough job. While I agree that it’s no fun to make cuts that affect Minnesotans directly, the people of West Central Minnesota are the ones who have it tough. There are 1,500 unemployed people in Renville, Chippewa and Yellow Medicine counties. Countless others have had their hours cut and been forced to tighten their belts. Those who still have jobs are working hard while still remaining concerned for their families. But Minnesotans are resilient people, and we will come out of this stronger than ever.
Rep. Lyle Koenen represents District 20B including Chippewa County, Renville County and the eastern portion of Yellow Medicine County.
