Spending Priorities Differ Among Politicians in Minnesota

The Republican Governor of Minnesota, Tim Pawlenty, just vetoed the a bill that funded economic development across the state. The reason given was that the City of St. Paul was using the bill to forgive a $33 million loan from the state used for a hockey arena in the city. The city had used the loan a part of paying to build the Xcel Energy Center in 2000. The arena is used for concerts, hosts the Minnesota Wild professional hockey team and the Minnesota Swarm, an indoor lacrosse team. The city planned to use the money saved by not paying the loan to build a new hockey facility. Pawlenty objected to the city cutting services while building what seems like a duplicative building.

The state like many others is facing a deficit in the next year and is cutting aid to localities as part of making it up. The legislature is preparing a budget bill that raises taxes on “rich” Minnesotans as well as on alcohol. Pawlenty has said he will veto that bill as well. The Governor had proposed raising revenue by borrowing against future payments from the tobacco settlement. In the current economic situation neither of these proposals is a good way to raise revenue.

As demonstrated by high tax states further raising taxes will only reduce business activity and drive away the high income earners to other states. In the long run the amount of revenue raised this way will not meet projections causing further issues with the budget. Borrowing against future money from whatever source — taxes or windfalls like the tobacco settlement — have its own issues as you are spending money before it is available. Short term spending versus long term revenue will cause issues with the future budget of the states.

All levels of government in the United States are facing problems with declining revenue while spending on fixed programs like medical care, union contracts and personnel costs are growing. Like Obama is facing at the Federal level there is only limited areas that can be cut and the states and localities have to pick-and-choose. Most often they have to cut back in hiring or lay off workers which reduce services to the population. The Federal stimulus funds are being used to make up some of this funding shortfall, but that is not a long term solution to fixing the budget in an area where revenue will either continue to decline or face slow growth as the economy recovers.

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