PoliGraph: Parsing claims over the state budget

This week, state officials released their latest predictions about Minnesota’s fiscal outlook for the next few years.

The news was mixed. The state has money to pay some bills right now, but it also has a long-term budget gap of $1.1 billion. Complicating matters is the looming fiscal cliff, which Congress and the president are in the midst of trying to solve.

PoliGraph took a look at several statements from both sides of the aisle about the latest Minnesota Management and Budget (MMB) forecast.

“For the next biennium, of course this is a long-range projection, [the budget] is almost balanced. There’s a $68 million deficit, which would be the best it’s been in over a decade.” – Gov. Mark Dayton

In an interview on Dec. 5, MPR’s Cathy Wurzer asked Gov. Mark Dayton about Minnesota’s structural deficit, and he replied that things may look better in a few years.

Dayton says he misspoke.

MMB predicts the state will actually have positive balance of $263 million for fiscal year 2016-2017, and prior years have boasted larger surpluses. MMB also warns that the figure does not include the more than $2.33 billion the state will owe in interest or any additional money the state will owe schools.

“Therefore, future increases in state spending may be significantly greater than those shown,” according to the MMB forecast.

You know,[the wealthiest] were paying the higher rates during the 1990s when President Clinton was in office, and we enjoyed boom years in the states. We had the highest real per capita family income in 1999 than we’ve had in our history. Since then, we’ve dropped almost 9 percent from that high in the aftermath of the Minnesota tax cuts in 1999 and 2000, and also the Bush tax cuts in 2001 and 2003.” – Gov. Mark Dayton

Dayton made this statement in response to a question about Republican concerns that a state tax increase on the wealthiest to close the budget gap, which has been a priority for Dayton, and the expiration of the Bush-era tax cuts on the federal level would hurt the state’s economy.

Dayton was arguing that their logic is flawed because tax cuts don’t always correspond with a strong economy.

It’s true that the wealthiest paid more in federal income taxes during the Clinton years. Clinton raised the top marginal rate from 31 percent to nearly 40 percent. It also happened to be a time of strong economic growth, partly because of Clinton and George H. W. Bush’s broader fiscal policies, which lead to lower interest rates and lots of activity on Wall Street, as reported by the Washington Post and PolitiFact.

George W. Bush slashed those tax rates; Minnesota lowered its tax rates around this time, too.

Assuming Dayton is talking about the national decline in real household income – real per capita family income doesn’t exist – it’s true that it took a 9 percent nosedive after 1999, according to data from the U.S. Census Bureau.

Republicans are responsible for the third consecutive budget surplus – Republican legislators

A bright spot in MMB’s forecast is that the state currently has a balance of $1.3 billion this biennium, something Republicans were quick to take credit for in press conferences and constituent emails. It’s the third time since last November MMB has found the state has a positive balance.

But there are a few things to know about this money and where it came from.

First of all, the cash is already spoken for. Surpluses announced earlier this year and last year were legally obligated to the state’s cash flow and budget reserves. Similarly, the latest $1.3 billion must be used to pay for money the DFL and GOP controlled legislatures borrowed from schools to balance the budget in prior years.

In fact, MMB Commissioner Jim Schowalter said that he’s not calling the extra cash a surplus because the current budget relied on one-time deficit reduction and school payment shifts. The state still has a $1.1 billion deficit.

“One time actions only happen one time,” he said. “When you’re trying to get a structural balance together, we still have some work to do.”

To say that this biennium’s balance is the result of Republican policies isn’t entirely accurate. While it’s true that the budget approved by the GOP-controlled Legislature and Dayton included some spending cuts, the vast majority of the balance comes from higher tax revenues, including “strong, strong corporate profits over the biennium,” according to State Economist Tom Stinson.

Stinson warned that the news isn’t so good for the coming biennium when revenue is expected to be down by $68 million.

SOURCES

Minnesota Public Radio, interview with Gov. Mark Dayton, Dec. 6, 2012

Minnesota Management and Budget, November 2012 Forecast

Minnesota Management and Budget, General Fund – Fund Balance Analysis, November 2012 Forecast

Minnesota Public Radio, Minnesota faces $1.1 billion deficit, by Tim Pugmire and Tom Scheck, Dec. 5, 2012

The UpTake, videos of Gov. Mark Dayton, MMB, House and Senate Leadership discussing the budget, accessed Dec. 6, 2012

Email exchange, John Pollard, spokesperson, Minnesota Management and Budget, Dec. 7, 2012

Email exchange, Katharine Tinucci, spokesperson for Gov. Mark Dayton, Dec. 7, 2012

Phone interview, Matt Mossman, Minnesota Department of Revenue, Dec. 7, 2012