Late Thursday afternoon, Governor Dayton and legislative leaders came to an agreement on a framework for the state’s budget that will have a profound impact on Minnesota’s future economic vitality and fiscal health. The agreement increases the size of the shift in payments to school districts, borrows $700 million from the future through tobacco bonds, and reduces funding for vital public services by more than $2 billion.
Lawmakers agreed to approximately $2.2 billion in cuts to services that will impact our quality of life and our current and future economy. While the details will be worked out over the next few days, cuts of this magnitude will likely mean fewer vulnerable Minnesotans will have access to basic health care insurance, some individuals with disabilities will lose vital community-based services that allow them to avoid institutionalized care, many people will find it harder to get to work as mass transit options decrease, students will find it more challenging to access higher education, fewer individuals will get the training they need to find and keep jobs, and some parents will no longer be able to access affordable child care so they can work. More details on the possible impacts are available in our recent analysis of the Governor’s and Legislature’s budget proposals, and we’ll be sure to blog as details of the deal emerge.
The Governor and legislative leaders also agreed to $2.8 billion in one-time solutions, including $1.4 billion by continuing the current shift in payments to school districts, another $700 million in a new shift in payments to school districts, and $700 million in tobacco bonds. So, instead of paying upfront for an educational system we value, we have said we will pay for it sometime in the future. That is unsustainable. And this heavy reliance on one-time solutions means the state will be back facing deficits in another two years.
Minnesotans are proud of our quality of life – our highly skilled workforce, amazing outdoor spaces and vibrant culture are what attract people and businesses to this cold weather state. However, maintaining this quality of life requires investments in our people, our communities and our infrastructure. We do not have a revenue system that raises enough to meet the state’s priorities, and this budget deal does not correct that current inbalance.
Unfortunately, the reliance on one-time resources also means Minnesota’s bond rating is very likely to be downgraded (again), making it more expensive for the state to borrow for capital projects in the future. Just last week, Fitch Ratings downgraded Minnesota’s bonds from AAA to AA+. Their decision was triggered by the state’s recent track record of using accounting gimmicks and one-time resources to address budget deficits. While Fitch had anticipated that lawmakers would use $1.4 billion in one-time solutions to solve the current deficit, the final agreement actually doubles that amount to $2.8 billion. This signficant and repeated use of one-time resources could trigger other rating agencies to take action. A lower credit rating means higher borrowing costs not just for the state, but also school districts, cities and counties across Minnesota.
It’s time to face reality. We are no longer kicking a can down the road, it has become a 55-gallon drum. Minnesotans value healthy families, educated workers, vibrant communities, thriving outdoor spaces and a strong infrastructure – all of which are building blocks for our future economic growth – and we need to step up and pay for them. And that means ensuring that the revenues we collect match up with the investments we need to make to meet our expectations.