The thing about surpluses is they never last.
Our nation’s federal system of 50 states makes it a laboratory of democracy and that is especially true in fiscal policy. Illinois, Louisiana and Kansas, for example, still wallow in budgetary messes, while my home state of Minnesota faces a budget surplus of $1.8 billion for the fiscal year. We have a law requiring that a third of any surplus be allocated to environmental and budget reserve funds, so there is $1.2 billion up for grabs.
Such fiscal health poses a problem for elected officials: What do we do with this projected surplus?
First, we could simply save the money. Current law in Minnesota requires that one-third of any projected surplus in the November forecast be allocated to the state’s formal budget reserve. That $594 million slice will bring this reserve to a projected $1.871 billion. That sounds like a lot, but it is less than 4 percent of the $42 billion in annual state revenues and spending.
If not “saved,” then surplus revenue could be “invested” in long-term physical assets, such as roads, bridges and government buildings, whether DOT garages or vocational college classrooms. It could also be “spent” on short-term goods and services.
We have a backlog of needed road and bridge work, and catching up on much of this strikes me as the best use for a big chunk of the projected surplus. We have let roads and bridges get to such a bad state that the rate of return on repairs and upgrades is high.
One advantage of buying physical infrastructure is that it need not lock us into long-term annual outlays. Yes, if you build a new classroom or office building, you do have to heat it and clean it and periodically replace the roof. If you build an entirely new highway, you have to plow snow from it and seal-coat it. But many projects in the backlog of road and bridge work would save on short-term stop-gap spending.
There are many ways one could increase current spending. We could hire more staff at state hospitals, prisons and colleges. We could boost the fraction of higher-ed instructional costs paid by the state at least partway back to the levels that baby boomers like me enjoyed. We could relax eligibility criteria or increase benefit levels for the state’s medical care services for low-income people and other social welfare programs. We could increase the state’s transfers to local school districts, add educational programs at state parks and plant bee habitat on public and private land. The list is nearly endless.
But here we have to acknowledge the challenge with making long-term funding promises with a short-term windfall.
There are programs that fall into a gray zone between traditional one-time physical investment and augmenting current services. Advocates of early childhood education argue that outlays for it are an investment in human capital that makes citizens more productive throughout their lives and reduces outlays for remedial education, criminal justice and other social programs later in these children’s lives. These are far longer-term benefits than keeping the library open longer hours at a state college. Because they involve a current expenditure that produces a return over decades, such early childhood programs meet the classic definition of “investment.”
Skeptics counter that once you argue for one social services program for its “investment in human capital,” you open the door to that rubric being applied to all sorts of other programs. Won’t better dental care for the poor improve their health later on? Won’t more bee habitat foster better crops years from now? One will imagine many such pleas.
Of course, one could deal with a projected surplus by simply giving money back to citizens. Cut taxes “permanently” for either households or businesses. Or give everyone one-time rebates, as when we did with a similar “boatload of money” in the late 1990s.
The projected level of surplus revenues is not permanent. They are likely to be a short-term phenomenon. Time and again, the Minnesota Legislature has acted prematurely to make long-term tax cuts and spending increases based on ephemeral surpluses. It did so with much approval from voters. It is likely to do so again in the coming session unless citizens communicate their desire for erring on the side of fiscal prudence in a very uncertain world.
My mother’s old saying of “hope for the best and expect the worst” applies very well right now.