Ramstad: Legislators should focus on existing spending, not the next small budget increase

Two years ago, our state government showed a significant revenue surplus. Today, it’s wrestling with a prospective deficit.

It didn’t — and more importantly doesn’t — have to be this way.

Republicans complain that DFLers spend too much and expose the state to fraud. DFLers portray President Donald Trump’s ax-swinging at the federal government as big trouble for Minnesota. Both sides have a point.

Neither, however, talks about whether they are delivering value for Minnesotans’ money.

This week, DFL and Republican leaders reveal budget targets for the two years beginning July 1. I will be surprised if either side proposes spending below the $64 billion in revenue expected for the period.

And I will be shocked if they acknowledge the vexing outcomes from their handling of Minnesotans’ money in recent years.

One outcome is that they made Minnesota far more generous than any other state in Medicaid distributions to the disabled and elderly. That seems wonderful, but it became way too much. Minnesota pays nearly $10,000 per recipient, or around 25%, more than the next most generous state. This is the runaway element in future state budgets. I’m sorry to sound Scrooge-like, but it can’t go on.

A second is undeniable decline in public education. Students test poorly compared to the past, most charter schools are disasters and schools in the Twin Cities are racially segregated from parental choice and bad policy. Meanwhile, fewer college-age Minnesotans are studying teaching and, crazily, legislators two years ago made it harder for career-changers to become teachers.

I could return to my oft-repeated concerns about slow economic and population growth as a third outcome. Instead, I’ll note the difference in growth of the state’s budget and its residents’ budgets. Over the last decade, spending in the general fund grew 100%, while Minnesotans’ per capita income grew 47%.

For all this, I blame a budget process that doesn’t examine outcomes but emphasizes whether the state will have a surplus or a deficit for a specific two-year period.

“What they think about is how to spend the increment‚” said Peter Hutchinson, state finance commissioner in 1989-90, referring to policymakers. “Nobody thinks about the other billions. Tens of billions. What they’re thinking about is, ‘Hey, we have $600 million more. What can we spend that on?’ Not, ‘What results are we getting today?‘”

Hutchinson earlier this year proposed the state create a budget with a bottom-up process that essentially forms a set of performance contracts “linking outcomes to resources with accountability for results.” He helped develop such a process for the state of Washington in 2002 under then-Gov. Gary Locke, a Democrat.

“He was asking the right questions: What results do we want? How much do we want to spend to get those results? What’s the best way to deliver those results for that amount of money?” Hutchinson said.

Now, I acknowledge it may seem unfair to pick on Minnesota’s policymakers when budget-making in Washington is even more chaotic. Federal agency functions and jobs are being cut indiscriminately right now under Trump and Elon Musk. The new Republican-led Congress so far has provided no clarity about future tax and spending policies.

Former Gov. Arne Carlson told me that once legislators and Gov. Tim Walz get the new two-year budget done, they should appoint a special commission to meet monthly to study how federal-level changes will affect Minnesota. He suggested the panel include the state’s economist and demographer, the budget and finance commissioners, the leaders of the House and Senate, a business executive, labor leader and two former finance commissioners.

“Trump is fierce about these tariffs, and the ripple effect of them is going to be enormous,” Carlson said. “I don’t think anybody can gauge the impact. A commission every month could go through and make sure you’re on target.”

When the latest budget update was released earlier this month, Walz acknowledged some new economic monitoring process may be needed because of the fluidity in Washington.

Two years ago, the governor said he wanted to make Minnesota the nation’s best state for families and children. His 2026-27 budget proposal shows elderly Minnesotans are becoming top priority.

Health and human services, which include aid to the elderly, are 57% larger under Walz’s 2026-27 budget proposal compared to 2022-23. He proposes spending on early education through high school that’s 25% larger than in 2022-23. In absolute numbers, health and human services will surpass education in the 2028-29 budget.

Politicians don’t know how long their power will last, so they do the most they can when they’ve got it. That’s why the DFL-controlled Legislature in 2023 consumed an $18 billion surplus.

They gave some back to lower-income Minnesotans and kept about $3 billion to cover future budget shortfalls. To be sure, had Republicans been in power, they probably would have used all the surplus too, with more going to tax rebates than spending.

Let’s imagine that Minnesota was a place where policy outcomes and fiscal responsibility mattered more than power dynamics.

In that Minnesota, even with a big surplus in hand, legislators in 2023 would have decided to raise spending 10%, the average for biennial periods over the previous decade.

From the 2022-23 base of $51 billion, that would have meant spending around $57 billion in 2024-25, not the $71 billion they actually spent.

Most of the $18 billion surplus would still be around. Indeed, it would have grown, because revenue in the 2024-25 biennium was $61 billion.

This spring, legislators could go up another 10% for the 2026-27 biennium to nearly $63 billion. Once again, the surplus would grow since anticipated revenue for 2026-27 is $64 billion.

That $63 billion would have been 95% of the $66 billion in spending Walz proposes for 2026-27.

In other words, Minnesota would be nearly at today’s level of spending while carrying a huge reserve. There would be arguments about what to do with the surplus rather than what spending to cut.

And there would be considerably less worry about whatever Trump does to the economy and the money the federal government sends to Minnesota.