Our view: Don't expect specifics on state reserve fund
Building a healthy reserve should be a top priority when it comes to deciding what to do with the state of Minnesota's $1.2 billion budget surplus. The News Tribune said so on this page on Sunday.
Encouragingly, Gov. Mark Dayton and his administration agree. Discouragingly, the agreement seems to be on a philosophical level only. Don't expect specifics from them about how we'll get to a healthy reserve of cash that we can fall back on during days of economic gloom or times of emergency. And don't look for details about precisely what the reserve's dollar amount should be, how long we can expect it to take to save enough to get to that sure indicator of financial health or how we can then make sure to stay there.
"Ultimately, it's got to be something we all keep in the front of our attention," was all Minnesota Management and Budget Commissioner James Schowalter would say Monday during an exclusive interview with the News Tribune Opinion page. "The bottom line is we all have to recognize that we have to keep chipping in and putting (money) in. It has to be part of our culture."
As frustratingly adrift and as free of details as that may sound, the governor has proposed putting $455 million of the $1.2 billion surplus this year into the state's reserve. That's about 38 percent of the surplus with the balance going to tax cuts ($616 million, or 51.3 percent of the surplus) and spending deemed essential ($162 million, or 13.5 percent). Final numbers are being negotiated this legislative session.
The reserve's balance is now about $661 million, Schowalter said, correcting Minnesota Revenue Commissioner Myron Frans, who provided an erroneous figure that was in Sunday's editorial.
But what should it be?
"The appropriate level of reserves really depends on how much risk you want," Schowalter said. "I think the Council of Economic Advisers has talked for a long time about 5 percent being about what would be expected, 5 percent of biennial revenues. It happens to be about the same level that rating agencies look to a triple-A state to have on hand. Some states even have more than that."
Five percent of Minnesota's biennial revenue equals about $1.9 billion to $2 billion. So Minnesota's reserve should have about that in it. That means that even with the governor's proposed $455 million deposit, "We've got a long way to go," Schowalter said. "We're not going to get there all in one step. But I think part of it is recognizing that we've had probably a small reserve historically."
Not that that's a good thing. Rather, it seems risky.
A rare time of surplus like now (Minnesota's last surplus was in 1999, according to Frans) is a prime opportunity to change that, to put as big a dent into the problem as possible. It's an opportunity we'd regret squandering.
Legislation being considered this year in St. Paul would stipulate that whenever the state has a surplus, a certain percentage of it has to go to the reserve until a healthy reserve is reached. Something like that does seem a good idea, but even if lawmakers pass it, don't expect the governor to sign it.
"I'm for keeping flexibility. I don't disagree with the notion that when we have a (surplus) in the future that some part of that ought to go into the reserve, but ... I have a philosophical difficulty with current legislators setting parameters on future legislators," Dayton told the Opinion page Monday by phone. Even without such a statute, "My support for increasing the reserve is evident. You can occasionally teach an old dog some new tricks."
The governor's support can be welcomed and appreciated by all Minnesotans. The state has been neglecting its reserve for too long. No money has been added to the reserve since 2001. And, "Given that state budgets have been going up, on a percentage basis, (our reserve has) been getting worse, not better," Dayton said. "At least we're heading in the right direction."
Yes, there is at least that. But that's only as long as Minnesota remains committed to a healthy budget reserve as a top priority.