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Capitol View®
Catharine Richert

PoliGraph: Dayton claim leaves out key details

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poligraph-misleading

During a press conference to unveil his supplemental budget, Gov. Mark Dayton put a Republican Party call to use the entire $1.9 billion budget surplus to cut taxes in historical context.

“The Legislature and the Governor did that 15 years ago: they returned the expected surpluses to the taxpayers,” Dayton said. “Within two years, those surpluses disappeared. It’s taken us over a decade to recover from those mistakes.”

It’s time for a history lesson.

The Evidence

Dayton is specifically referring to the Ventura administration, which began in January 1999 and ended in January  2003.

When Ventura took office, he also inherited a large budget surplus from his predecessor Republican Arne Carlson.

During Ventura’s tenure, the state enacted one-time tax cuts amounting to $2.7 billion and $2.5 billion in permanent tax cuts.

But by the fall of 2001 – just months after the 9-11 terrorist attacks – a major recession kicked-in across the country. Minnesota was looking at a nearly $2 billion deficit for fiscal years 2002 and 2003 and a structural deficit of $1.2 billion for 2005.

Though there were times over the next decade when the state had money in the bank, it largely struggled to keep structural deficits at bay.

So, the basic facts of Dayton’s statement are correct.

But did the Ventura-era tax cuts leads to years of budget woes for the state as Dayton claims?

PoliGraph ran that question by a few budget and economic experts, and got mixed replies.

Former Carlson finance commissioner John Gunyou said they had a big impact. Here’s why:

The one-time tax rebates – otherwise known as “Jesse Checks” – weren’t a big deal because it was one-time spending; the state wasn’t obligated to spend money on those rebates into perpetuity, Gunyou said.

It was the permanent tax cuts paired with bigger state spending on schools that created what Gunyou calls a “budget cliff” that was made worse by the 2001 recession.

“Even if the economy had remained strong, [the state’s finances] would have been bad, but not as bad,” Gunyou said. “They created a problem that was worsened by the recession, but the recession didn’t create it.”

Former state economist Tom Stinson, who served under Carlson, Ventura, former Gov. Tim Pawlenty and Dayton, agrees that the Jesse Checks didn’t have a big impact on the state’s future finances.

But he also said that the national recession that started in 2001 was the driving force behind subsequent budget deficits.

“The permanent tax cuts and the school aid didn’t create a deficit going into the future,” Stinson said. “Prior to the start of the recession, Minnesota was in as good a position as we could be in. We’d added to the budget reserve, and had a structurally balanced budget, not just for the current year but looking two years out, everything was taken care of.”

Former Minnesota Management and Budget Commissioner Tom Hanson, who served under Pawlenty, said Dayton’s statement and the details of his budget underscore a major philosophical difference between the parties: Dayton believes the extra money should mostly be committed to programming, while Republicans think a lot of the money should be given back in tax cuts.

Regardless, spending and tax cuts have the same effect on the budget, Hanson pointed out.

“If you give it back - or if you spend it - the future obligation is going to be there,” Hanson said.

Between Dayton’s initial budget proposal and his supplemental plan, about $13 million of the budget surplus would be unspent.

The Verdict

Dayton’s claim is meant to make the political argument that it’s a bad idea for the state to give all of the state’s budget surplus back to Minnesotans in the form of tax cuts.

He’s presenting one side of an ongoing divide between Democrats and Republicans about the wisdom of government spending.

But linking Ventura’s tax cuts – both permanent and one-time – to the state’s deficits glosses over some key issues.

First, a national recession played a big role in the state’s financial situation, a dynamic that was largely out of control of the governor and Legislature.

Second, economists and budget experts on both sides agree that one-time budget rebates are really different from ongoing tax cuts. They’re “safer” during times of budget surplus than permanent cuts or spending because they don’t obligate the state in the future.

Dayton’s claim earns a misleading for leaving out these key facts.