Minnesota Governor Tim Pawlenty toured eastern Iowa over the weekend to raise money for several Iowa House Republican leaders and state Senate candidate Bill Dix. It was his fourth Iowa trip during the past year. Since Pawlenty is laying the groundwork for a future presidential bid, journalists covering his latest visit focused on what he is doing for Iowa Republicans, as well as his views on foreign policy, government spending and the economy.
I’m more interested in the way Iowa Republicans embraced Pawlenty. Naturally, they liked his message about retaking the state legislature, and GOP House leaders can really use the campaign cash. But it’s surreal to watch Republicans promise their serious consideration for Pawlenty as a presidential candidate when you compare his record with the case conservatives make against Iowa Governor Chet Culver.
Iowa Republicans blame Culver for job losses during the most severe national recession in six decades. But before a slight turnaround in the last few months, Minnesota "had experienced year-over-year job losses in every month since May 2008, with the pace of loss accelerating for the state as well as the nation in 2009." Minnesota’s unemployment level peaked significantly above the rate Iowa has experienced. Pawlenty can fairly claim that the state’s current jobless rate of 6.9 percent is far better than the national average, but that’s not an argument Iowa Republicans would ever accept from Culver.
Pawlenty’s questionable fiscal record puts more hypocrisy on display. Republicans blast Culver and statehouse Democrats for using “one-time money” from state reserve funds and the federal stimulus package to balance the budget. Here’s a brief history of Minnesota’s recent budgeting (note that Minnesota uses biennial rather than annual budgets):
The 2006-2007 biennium closed with a balance of $2.2 billion, or approximately 13.5% of fiscal 2007 general fund revenues, including budget reserve ($653 million) and cash flow reserve ($350 million) accounts funded at their statutory caps. Conditions deteriorated sharply in the 2008-2009 biennium, and the state drew down balances, in addition to taking some revenue and spending actions, to maintain balance. The biennium ended with a balance of $447 million including the $350 million cash flow reserve. The budget reserve was depleted.
The state reviews its economic and revenue forecasts in February and November of each year. Based on the February 2009 estimates, the state needed to resolve a $6.4 billion budget gap for the current fiscal 2010-2011 biennium. The gap was narrowed with $2.6 billion in federal stimulus funds and about $1.1 billion in legislative actions; revenue raising measures were minimal. The regular legislative session ended without agreement on a plan to close the remaining gap and the governor elected not to call a special session, relying on his unallotment powers and administrative authority to match revenues and expenditures. The remaining $2.7 billion shortfall was resolved by the governor primarily through deferrals of payments to local governments ($1.8 billion), a practice that the state has employed in past downturns as well, though to a lesser degree. The legislature had proposed significant revenue raising measures.
Following budget passage, the revenue forecast was reduced in November 2009 (by $1.2 billion, largely due to income tax underperformance) and increased slightly in February 2010 (by $25 million) and the expenditure forecast was reduced (by $228 million, reflecting the benefit of additional federal stimulus funds). The net result was a $994 million deficit to be addressed for the biennium, assuming maintenance of the $350 million cash flow reserve. The deficit to be addressed grew to $3.4 billion following a May 2010 state supreme court decision that the governor had exceeded his authority in using his unallotment powers at the start of biennium, rather than to address gaps that emerged following passage of a balanced budget.
The subsequent supplemental budget bill took essentially the same balancing actions as the governor had last year to address the court decision, and resolved the new $994 million gap through additional school payment delays, tax refund delays, fund transfers, some spending reductions ($170 million), and a reduction in the cash flow reserve. The budget does not assume any extension of the federal stimulus program. Following these actions, the biennium is expected to close with a balance of $272 million (including $266 million remaining in the cash flow reserve). This does not take into account that fiscal 2010 revenues are reported to have underperformed the February 2010 estimate by $99 million. The next estimate will be released in early December 2010. Based on the February 2010 forecast and subsequent actions, the projected gap for the 2012-2013 biennium is estimated at $7 billion, including inflation.
So, to recap: the economy drove down state revenues, straining Minnesota’s budget. Leaders used $2.6 billion in federal stimulus funds (the dreaded one-time money) to help close the gap, but even after depleting state reserve funds, that wasn’t enough. They had to delay school payments and tax refunds as well. Minnesota is now looking to rebuild its reserves, while Iowa’s remain at healthy levels.
Iowa Republicans claim Culver has “forced property tax increases” by reducing allocations to local governments and school districts. Pawlenty sought to impose far more hardship on local governments. In fact, the state Supreme Court found Pawlenty exceeded his authority in making those cuts (more on that ruling here and here).
Side note: Minnesota’s fiscal problems suggest that moving to biennial budgeting, as Terry Branstad advocates, would be a bad idea. It’s hard enough to accurately project state revenues 12 months into the future, let alone 24 months out. That’s why many states have abandoned biennial budgeting.
Back to the subject at hand, Republican hypocrisy. Iowa Republicans claim state spending should not exceed 99 percent of projected revenues, never showing how they would have met that standard during the current fiscal year. Pawlenty bashes Democrats’ alleged overspending and even calls for a federal constitutional amendment requiring balanced budgets, knowing full well that his state (like all others) relied on federal stimulus funds to balance its budget and maintain essential services. Iowa Republicans either don’t know about this part of Pawlenty’s record or don’t care, as long as he talks a good game on making government more “lean and efficient.”
In his defense, Pawlenty says he slowed the rate of increase in Minnesota spending from about 21 percent a year before he was governor to on average 1.7 percent a year. Culver and the Democratic-controlled legislature actually reduced state spending from the general fund during the last couple of fiscal years.
Iowa Republicans detest Culver’s I-JOBS infrastructure bonding initiative. From the beginning they’ve used misleading arguments against borrowing for flood recovery and capital investment. From Branstad on down, Republicans continue to lie about I-JOBS’ costs and benefits, which I discussed at length here.
Perhaps these Republicans aren’t aware of how much Minnesota has borrowed for capital improvements under Pawlenty’s tenure. Today Minnesota is scheduled to sell more than $850 million in state general obligation bonds. Most of this money is intended for the same kind of projects I-JOBS has been funding in Iowa. Pawlenty did line-item veto parts of the bonding bill. His veto letter (pdf file) explains that he requested a capital investment bill no larger than $725 million, funding “key priorities such as veterans, military and public safety.” He cut the general obligation bonding from the $999 billion approved by the Minnesota legislature to about $680 million: “Reducing the bill to this level reflects my commitment to fiscal discipline and an attempt to prioritize important state projects.”
Iowa Republicans are against all state borrowing for capital investment. Minnesota regularly passes bonding bills, at least every other year. The state just issued about $600 million in bonds in 2009. Pawlenty hasn’t vetoed these bonding bills on principle, saying Minnesota should pay as it goes for infrastructure projects. He’s just haggled over the appropriate level of state borrowing.
Even worse, in 2009 Pawlenty proposed bonding as a way to help close the budget gap, but the state legislature didn’t agree to his plan: “The most contentious issue was where to find new revenues and whether the state budget must be balanced for the next two years or four years. The governor proposed a bond issue that would be paid for by existing and forecast revenues from the tobacco settlement-a one-time fix disliked by some because it aimed to use long-term borrowing to pay for current state operations.”
By the way, Minnesota’s overall debt burden is much larger than Iowa’s. This chart ranks the states in terms of state and local debt as a percentage of each state’s gross domestic product in fiscal year 2010. Minnesota doesn’t look too bad by national standards: 29th on the list, with state and local debt comprising about 18.4 percent of GDP. Iowa is way down at number 46, with state and local debt comprising 12.4 percent of GDP.
Now here’s a chart ranking the states in terms of state and local government spending in fiscal year 2010, again as a percentage of each state’s GDP. Minnesota ranks 29th, a little above the national average. Iowa is 34th, spending less than the national average.
After today’s bond sales, Minnesota will have a “net tax-supported debt burden of approximately $6 billion,” much more than Iowa has following the I-JOBS bond sales. Minnesota’s population is about 5.27 million, not quite double Iowa’s population of just over 3 million. Minnesota’s borrowing under Pawlenty far exceeds Iowa’s borrowing under Culver.
If Iowa Republicans believe their own propaganda about state spending and borrowing, they should shun Pawlenty.
UPDATE: On August 3 Moody’s came out with a report on state debt across the country (pdf file). As of June 30, 2009, just before Iowa sold the first $600 million of I-JOBS bonds, Iowa’s net tax supported state debt was 0.2 percent of personal income; Minnesota’s was twelve times higher at 2.4 percent. Iowa’s net tax-supported state debt as a percentage of GDP was 0.16 percent (48th place); Minnesota’s was twelve times higher at 2.08 percent (28th place). Iowa’s total net tax-supported state debt was about $219 million (46th place); Minnesota’s was $5.76 billion (22nd place). Iowa’s net tax-supported state debt per capita was $73 (49th place); Minnesota’s was $1,037 (23rd place).
In that context, it is illogical for Republicans to claim Iowa couldn’t afford to borrow $810 million for flood recovery and capital investment in infrastructure, while letting Pawlenty off the hook for signing a large new state bonding bill in 2010. Even including the I-JOBS borrowing in 2009, Iowa’s state debt per capita is around $275, way below Minnesota’s level. Assuming other states added no debt during the last fiscal year, Iowa’s per capita state debt after I-JOBS is still quite low and would put us in 47th place on the chart compiled by Moody’s.
SECOND UPDATE: Iowa Republicans have no room to criticize Culver on property taxes in light of what has happened in Minnesota under Governor Pawlenty. Minnesota’s State Auditor Rebecca Otto wrote in February 2010,
Under Gov. Tim Pawlenty’s leadership over the last seven years, Minnesotans have experienced a fundamental shift in taxes. The governor drew a line in the sand early on in his first term with his no-new-tax pledge. But the pledge has not cured our fiscal problems; it has simply shifted the state’s fiscal mess onto local property taxes. […]
An example of this shift is illustrated in the 2008 City Finances Report recently issued by my office. The report shows that city revenues derived from property taxes increased 102 percent from 1999 to 2008. As cities have received less state and federal aid, the lost revenue has been replaced with an equal proportion of property tax revenue to make up the difference. During that same 10-year period of time, inflation-adjusted city expenditures have decreased by 7 percent.
With the current deficit, the governor said he would use a law on the books to have the state borrow money from school districts to make the state’s finances look better on paper. This is another shift of the state’s fiscal mess onto local property taxes. Many school districts will have to do short-term borrowing to pay the state’s bills. When they borrow, they will have to pay interest. “They” ends up being you and me — the local property taxpayers. The shift also puts many of our schools in a precarious position, and could mean layoffs in some districts, and lost opportunities for our kids.