Center of the American Experiment Releases Report: Minnesota Needs To Take Spending Off 'Autopilot' and Budget for Outcomes

Plan calls for legislators to better evaluate spending outcomes.

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Center for the American Experiment

“Maintaining or expanding our already high tax rates creates additional challenges that will do real and permanent economic harm to Minnesota unless we make changes now."

St. Paul, MN (PRWEB) August 25, 2014

Minnesota legislators – of both parties – must put an end to “autopilot” spending increases each year that inevitably lead to higher taxes without ever systematically reviewing whether the additional spending delivers results.

That is the conclusion of a chapter released Friday, August 22, 2014, by Center of the American Experiment at an event on the St. Paul campus of Bethel University. To learn more, click on this link: http://www.americanexperiment.org/sites/default/files/article_pdf/CAE%20Budget%20Blueprint.pdf

The chapter was released as part of the Center’s Minnesota Policy Blueprint, a wide-ranging series of policy recommendations released this summer aimed at the 2015 session of the Minnesota legislature. It was written by King Banaian, professor of economics and interim dean of the School of Public Affairs at St. Cloud State University and Peter Nelson, director of public policy at Center of the American Experiment.

The culprit for automatic spending growth, say the authors, is that Minnesota follows “baseline budgeting,” a process that starts with the prior year’s budget and then makes adjustments depending on available revenues, without evaluating the effectiveness of public programs.

“Without a budget process that forces policymakers to evaluate the effectiveness of current programs, inertia carries current spending programs forward and allows programs to be expanded and new programs added when revenue permits,” they argue. “In effect, the baseline budget process sets the budget to grow on autopilot, which allows budgets to grow consistently faster than inflation plus population.”

This is one reason, they contend, that Minnesota’s spending grew by 9.8 percent this biennium, which translates to an increase of $1,130 per Minnesotan. This process, say the authors, invariably leads to higher taxes and undercuts the state’s competitiveness.

“Minnesota’s businesses and our state’s economy compete on a regional and a global level,” Banaian said. “Maintaining or expanding our already high tax rates creates additional challenges that will do real and permanent economic harm to Minnesota unless we make changes now. In addition to the current increased spending, Minnesota also faces significant long-term challenges that include an aging population, rising health care costs, unfunded pensions, and uncertainty over federal spending. These are challenges and issues that every lawmaker must not only understand but have the courage to address.”

“The data is very clear and the impact is significant in terms of what happens if Minnesota’s budget process stays on its current trajectory,” Nelson said. “At the most basic level, it is time for elected officials to change the way we spend public dollars. The first step is to make sure that any decision to spend tax dollars is evaluated based on the value of what it buys for the public.”

Specific recommendations

Replace the baseline budget process with budgeting for outcomes.

  •     Instead of starting with the baseline, lawmakers start by setting the price of government and then establish priorities to guide spending decisions.
  •     Lawmakers evaluate programs regularly and allocate money based on whether a program is achieving results.
  •     The process forces leaders to clearly state priorities and periodically rethink the outcomes that matter most to citizens.

Create a Legislative Budget Office run by nonpartisan staff to manage and prepare the information necessary to create budgets.

  •     The office would be responsible for estimating the spending and revenue impacts of proposed legislation and preparing forecasts of budgets for upcoming sessions.
  •     It would also evaluate public program performance or at least audit evaluations.

Charge the Legislative Commission on Planning and Fiscal Policy with taking a stronger leadership role in creating the state budget.

  •     The Legislature provides the best avenue to consider and represent the diversity of views and values held by the citizens of Minnesota.
  •     With more legislative leadership, future budgets would better represents citizens’ values and priorities.

Revive the Sunset Commission that was repealed in 2013.

  •     This commission was created in 2011 to review the performance of state agencies and make recommendations for policy, organization, and structural changes.
  •     Money saved through restructuring would be freed to support higher priorities.

Improve spending limits through statute or constitutional amendment.

  •     Minnesota should require that budgeted spending rise no faster than the average of inflation and population growth in the prior biennium.
  •     Overriding this limitation should require super majority support from the Legislature.

“Minnesota’s competitiveness will suffer if we do not gain control of state spending,” Banaian said. “The looming fiscal demands from an aging population and past promises will challenge spending in other, more economically productive areas such as education and transportation. If we do not make changes now the only other solution is to continue to raise taxes that will continue to impact Minnesota’s ability to be more competitive with other states and countries. The resulting decline in economic growth will reduce revenue, creating a vicious cycle.”

About the 2014 Minnesota Policy Blueprint: Prescription for Prosperity
The 2014 Minnesota Policy Blueprint: Prescription for Prosperity is a series of policy recommendations that will mirror Center of the American Experiment's long-held commitment to help elected officials enact policies that promote a culture of prosperity.

About Center of the American Experiment
Center of the American Experiment is a nonpartisan, tax-exempt, public policy and educational institution that brings conservative and free market ideas to bear on the hardest problems facing Minnesota and the nation. The Center’s mission is building a culture of prosperity in Minnesota and the nation. To learn more please visit: americanexperiment.org

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