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Legislative priority: Enact spending reform

Minnesotans are in for another rollercoaster ride when the Legislature tackles the state bud-get. The econ-omic down-turn makes this year's task of balan-cing the books even more challenging.

Most frustrating, however, is that the "tax and spend" debate is increas-ingly polarized during both good times and bad times. Too often short-term political interests preclude sound, long-term fiscal decisions. The process doesn't have to be that way. Enacting spending reform is among the Minnesota Chamber of Commerce's priorities for the 2010 Legislature.

The state faces a shortfall of $1.2 billion in the general fund for the current biennium - even after Gov. Pawlenty unallotted $2.7 billion from the budget in July. The forecast is more daunting for 2012-13.

Circumstances worsened when Distinct Court Judge Kathleen Gearin recently ruled the governor's unallotment unconstitutional. Though the judge's temporary restraining order reinstated money for a small nutrition program, it's unclear whether other parties will seek to have their cuts restored. The state Supreme Court is scheduled to hear the governor's appeal in March.

Minnesota's current budget logjam must be resolved through one of two avenues -- either through an agreement between the governor and Legislature, or further unallotments by the governor. But the wide swings between budget surpluses and shortfalls -- and dead-locks among policy-makers -- will persist unless common-sense is applied to keeping spending within tax revenues.

The Minnesota Chamber's spending reform policy focuses on three principles: budget process reform; enhancing productivity of state and local governments; and reducing expenses.

Reform budget process: The governor and Legislature should "budget by priorities." This approach would focus scarce state resources on the most important statewide programs and services. Wash-ington State provides an ex-cellent example. Each govern-ment program is evaluated and ranked by its importance and the results it achieves. The governor then recom-mends to the legislature which programs he or she wants to "buy" with the avail-able money. Those programs with the highest value are funded, and those with a poor return on the tax-dollar investment are eliminated.

The second element of bud-get reform is changing the way revenues are forecast. Permanent spending and tax changes should be limited to the long-term rate of growth or the two-year forecast of tax revenues, whichever is less. At present, policy-makers tend to assume surplus rev-enue will continue forever and base permanent tax and spen-ding decisions on that prem-ise. As a result, the state typi-cally over commits its resour-ces. Distinctions must be made and attention paid to perman-ent vs. one-time commitments.

Increase productivity: Government must become more efficient. In many cases, that means totally redesigning the way services and programs are delivered. As just one example, the Minnesota's Bottom Line report -- prepared by Public Strategies Group and five of the state's largest foundations -- suggests that by spending state dollars on health out-comes rather than fee for ser-vices could save $3.7 billion.

Reduce overhead expenses: People represent a substan-tial cost in running a business or government. The recession has forced the private sector to review employee benefits and compensation. Government must do the same, especially as it relates to health insurance and retirement benefits.

Changing demographics are the driving force for re-forming state and local spen-ding. The first warning of the state's changing demograph-ics and the impact on the state budget came in 1995 in the Brandl-Weber report, "An Agenda for Reform." We continue on a collision course between an older population requiring more government services and a shrinking pool of workers to pay for public programs.

The urgency for changes to the spending and budgeting processes cannot be ignored any longer. Businesses and households don't have the ability to collect higher taxes to fund their wish lists. Government must follow suit by seeking greater efficiencies in its operations and focusing on true statewide priorities.

Scott Brener is vice president and general counsel at SFM in Bloomington and chairman of the Minnesota Chamber of Commerce Fiscal Policy Committee.