Note to our friends in the MN Tea Party Alliance: Budgets are not simple

In their report on the House budget targets the Star Tribune noted how the Minnesota Tea Party Alliance “called the plan ‘a slap in the face to conservatives’ because it did not cut government below current spending levels.”  Later I received an email alert from the Alliance directing me to a podcast entitled, “Broken Promises – The GOP Budget.”

The podcast is hosted by Jack Rogers and Jake Duesenberg.  These are two guys doing very important work to educate and mobilize people to actually give a damn and show up to advance free enterprise, fiscal responsibility and limited government principles.  

Their email arrived just after I had posted a blog praising the House Republicans for outlining “a responsible budget that fully funds the current needs of the state, while at the same time recognizes the need to control spending.”

Being at odds, I couldn’t help but click “LISTEN HERE.”

So what’s their basis for such a strong attack on Kurt Daudt and the House Republicans? 

Right up front Jake revealed there wasn’t much underlying his claim when he said, “What we’re going to talk about is really simple, really simple when it gets down to it.” 

In the Alliance’s simplistic view, Kurt Daudt and House Republicans “raised spending” because they’ve proposed to increase General Fund spending 1.7 percent from $39.300 billion in the current budget to $39.949 billion.  Apparently, that’s all anyone needs to know.  Case closed.  They’re “spending crazy like Democrats” and officially sellouts to anyone who believes in limiting government.

Let me assure you there is nothing simple about the state budget and there is nothing simple about comparing budgets across time.  Anyone who calls it simple doesn’t account for the 34 revenue funds that now collect over $16 billion/year in revenue on top of the $20 billion in General Fund revenue.  They also don’t account for the transfers between these revenue funds and the General Fund, reallocation of revenues to different funds, one-time spending items, shifting spending to future budgets in budget crises, paying off budget shifts, back loading spending increases to the second year of a biennium, inflation, population growth, federal funding, and the federal strings tied to that funding.

They didn’t bother to discuss any of this, which is why they fell short of material for the 30-minute podcast. 

On the podcast the Alliance did repeat an old complaint about how Republicans increased General Fund spending by $5 billion when they controlled the House and the Senate back in 2011.  This repeated complaint offers a great example of where their analysis falls short. 

To begin, they claim to care about the size of government but they only look at the General Fund and fail to look at spending from All Funds, which reflects the actual size of government.  The 2012-13 budget did increase by about $5 billion, which translated to a whopping 17.9 percent increase.  But spending from All Funds rose by a far more modest 5.6 percent.  Of course, that still appears to be an increase in the size of government, which brings us to the next point.

They also fail to account for inflation and population growth when comparing budgets across time.  They might call this “spin” because it requires some math, but virtually every effort to responsibly compare financial data across time accounts for inflation and, when it comes to state spending, population is accounted for as well.  Adjusted for inflation, the 5.6 percent increase in spending drops to a 0.8 percent increase.  A further adjustment for population growth drops the change in spending to -0.6 percent.   

Yes, that’s a minus.  Adjusted for inflation and population growth, Speaker Kurt Zellers and Majority Leader David Hann successfully negotiated a reduction in the size of government for the 2012-13 budget.  The figure below charts this drop and shows the remarkable jump in spending that occurred when the DFL gained complete control.  Republicans might not be reducing spending enough for certain constituents, but let’s at least agree they’re not spending like Democrats. They are not even in the same league.

UPDATE: A legislator recently contacted me to ask whether the above information accounts for how K-12 shifts work to understate spending when borrowing and overstate spending when paying it back.  The above chart draws directly from the state’s Consolidated Fund Statements and so does not adjust for these K-12 shifts.  Nor does the general fund line account for other one-time budget maneuvers to support general fund spending, such as the federal stimulus and securitizing the state’s tobacco settlement that supplanted the pronounced dip in general fund spending in 2010-11.  This spending, however, is accounted for in the All Funds spending, which is the main reason why All Funds spending increased far more modestly in 2012-13.  Because the All Funds budget often accounts for one-time budget maneuvers, it represents the  better metric for understanding spending growth over time.  Finally, the chart doesn’t account for the fact that the 2014-15 budget delays most of the spending increases to 2015—midway through the budget cycle—which delays the full financial impact of the policy changes to the next budget.  Detailing those issues is another project.  Did I mention the budget isn’t simple? My point here was to keep things at least a little simpler and demonstrate how the perspective on the budget can change when you just account for inflation and population growth.

Let’s now turn to the current budget proposal.  If a 5.6 percent increase in 2012-13 spending turned into an actual decrease after adjusting for inflation and population growth, then after adjustments the House proposal to increase General Fund spending by just 1.7 percent will almost certainly turn into a reduction too.  And that’s exactly what the figure shows below.  Based on current economic and population projections, the 1.7 percent increase turns into a 2.9 percent decrease after adjusting for inflation and population growth.  Compared to Governor Dayton’s budget, that’s $518 less per person. 

But that’s just the General Fund.  Recall, if we want to be accurate, we care about All Funds.   Unfortunately, it’s hard to assess the House proposal from this perspective because they don’t provide an “All Funds” target and we don’t have a fiscal analysis of all their bills yet.  We do know spending outside the General Fund will increase by at least $384 million after sales taxes from auto parts are shifted from the General Fund to a new transportation fund.  But the House has also proposed to eliminate MinnesotaCare, which is funded from the Health Care Access Fund (HCAF) and projected to cost over $800 million in the next biennium.  This would be a substantial reduction that doesn’t show up in the General Fund target.

It’s worth noting here that budgets should not be this complicated.  Citizens can’t hold their government accountable for how much they spend when it’s so hard to tally the total bill.  Which is also to say it’s a good thing the Alliance stands up to hold politicians accountable.  I just happen to think their criticism went too far in this case.

Admittedly, any net reduction under the House proposal is probably not large.  So, I don’t expect Jack and Jake to be satisfied and right now I’m not going to dig into why big, immediate cuts are real hard.  

But when we’re talking about the budget, I hope folks can at least agree we should focus on spending from All Funds for the complete picture and adjust for things like inflation and population when comparing budgets across time. 

And hey, let’s give Zellers and Hann more than a little credit for containing spending with Governor Dayton in office.