The Free Press, Mankato, MN

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January 16, 2007

Issue analysis: Proposal to include inflation in budget

ISSUE: Whether to require an inflation estimate on the spending side of budget forecasts.

SPONSORS: Sen. Richard Cohen, DFL-St. Paul; Rep. Tom Rukavina, DFL-Virginia.

STATUS: Awaiting a vote on Senate floor; no House action yet.

KEY DETAILS: The bill would require finance officials to build inflation into spending projections in budget forecasts, as they now do for tax collections. That was the standard practice until 2002, when lawmakers facing budget problems passed legislation to ignore inflation and, in the process, make a projected deficit appear smaller.

WHAT PROPONENTS SAY: Forecasting growth in tax collections while not accounting for it on the spending side of the ledger gives a false impression of the state’s budget picture. Backers point out that it costs more to deliver state services and buy supplies every year. In turn, it is more expensive to offer the same level of services from year to year even before lawmakers enact new programs.

WHAT OPPONENTS SAY: Not all costs rise by the same percentage, so building it in across the board is also a distortion. They often say that adding inflation to spending estimates assumes government is on autopilot and that lawmakers would adopt a carbon-copy budget.

ANALYSIS: The bill is a good bet to land on Gov. Tim Pawlenty’s desk — and soon. The most recent budget forecast — sans inflation on the spending side — projected a $2.17 billion surplus. Had inflation been factored in the November report, Minnesota could be facing a deficit for 2008-09. Some legislative Democrats are pressing for tax increases, and it would be easier to make that case if there were a deficit projection in the economic forecast due in late February. With the projected surplus, expectations for new spending are through the roof. Those will be hard to meet unless the size of the tax pie grows. That prompted Sen. Steve Murphy, DFL-Red Wing, to put it this way: “There’s going to be a few heads put on pikes because of all the promises that were made and expectations that were made.”

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Analysis by Brian Bakst, Associated Press writer

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