Future budgets expected to be worse
ST. PAUL - Legislators have yet to begin balancing the next Minnesota state budget, but already are being warned that the $4.85 billion deficit they face is nothing compared to what is to come in future years.
"The problem, in fact, is going to get worse," ex-state Finance Commissioner Jay Kiedrowski said.
Kiedrowski and Kevin Goodno, a former state representative from Moorhead and state human services commissioner, co-chaired a commission to make suggestions about how to handle future state budgets. After 14 meetings in more than a year, the commission recommended on Monday changes in the budget process, including a massive increase in a rainy-day fund.
Regardless of any changes lawmakers make, they face the double-whammy of an aging population and declining tax receipts because there will be more retirees than workers. Those demographics will make future budgets even more difficult, Goodno and Kiedrowski said.
The commission's report shows that the state's population will age during the next dozen years and baby boomers' "pending retirement will put an incredible strain on the state's labor force."
Policymakers have not prepared for the shift, the report says. "Although little has been done to prepare for this demographic shift, it will have extraordinary implications for the state's economic and workforce development policies, health care, economic assistance, social service and education programs."
In the 10 years ending 2015 the biggest population growth will come in the 55- to 69-year-old bracket, the report says.
Even with the aging population, the report suggests policymakers can deal with the budget by taking several steps, including changing how the state taxes its citizens. The commission did not make a tax recommendation, but its two leaders said that more reliance on property taxes - and less on income and sales taxes - would make the system less volatile.
"There is no silver bullet" in the report, Goodno said, but said it lays out a path for the future. Little in the report addresses the immediate deficit, which many expect to top $6 billion this winter.
Gov. Tim Pawlenty was forced to deplete the state's budget reserve to fill a deficit in the budget ending June 30. In recent years, it has been a few hundred million dollars, but the report called for a reserve of at least $2.1 billion.
That size of a reserve is needed for the state to survive another economic slump like the recession now affecting Minnesota and most other states, the report indicates.
The problem rests on the aging baby-boomer generation.
"The baby boomers are going to be retiring and retirees pay less to the state than working people," Kiedrowski said.
Goodno, who used to administer health programs for Pawlenty, said as the population ages it needs more health and other state services.
Health-care program costs increases are expected to be more than twice that of any state tax and other revenue increases.
Minnesota conducts better health-care programs, such as those providing help for the poor, than other states, Goodno said. However, he added, "for any decision we make, there are consequences."
Politicians long have known a bigger budget reserve would be good for the state, but Kiedrowski said legislative leaders, at least, may understand the need for long-term changes. "They are very tired of this yo-yo ... type of budgeting."
"What we have to look at is how to handle the next recession," he said.