Thursday, November 30, 2006

Surplus time!

The state budget news is in, and the headline, anyway, is good: a $2.2 billion surplus.

Surpluses are good, of course. Especially if the state uses them wisely -- to replenish reserves, lower tax rates and pay down debt, for example, rather than blow them on rebates or expensive new programs.

But let's not forget how we got here. Gov. Pawlenty balanced the state budget largely on the backs of local taxpayers, and the effects are still being felt: on the same day the state announced its projected surplus, they also estimated that property taxes would rise 8.2 percent in 2007, for a three-year average of 7 percent per year.

So tone down the patting yourselves on the backs, guys. There was no magic here. The state technically held spending flat by cutting local aid -- but property taxes went up as a result. That had the effect of making taxes more regressive, since property taxes are essentially a flat tax, mitigated somewhat by the homestead exemption.

At least the governor has enough shame to suggest that part of the surplus should be used for property tax relief, as a way to undo some of the damage. But he suggested doing so through a one-time rebate. That's a bad idea: "Jesse checks", as Gov. Jesse Ventura's rebates were known, helped contribute to the huge deficit Pawlenty confronted when he took office, because the rebates drained state reserves.

DFL leaders, more sensibly, are pushing permanent tax relief instead. That would be more just, and have a more predictable effect on state and individual finances.

Finally, heed the caveats on that big number. Half of it is essentially a one-time deal, and the other half would be needed to cover inflation if state spending remains at current levels. Given that, the most prudent use might be to stick it into state rainy-day funds, to help avoid the surplus/deficit/surplus roller-coaster we've been on in recent years.

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