Former finance commissioners blast tobacco appropriations bond proposal

The Legislative Commission on Planning and Fiscal Policy met this afternoon to hear updates on the federal stimulus bill that Barack Obama signed yesterday. But there was little new information on that front, and the most memorable moments came later in the meeting when three former Minnesota finance commissioners teed off on the tobacco appropriations bond that Gov. Tim Pawlenty is touting as a source of nearly $1 billion in one-time revenues.

John Gunyou (pictured), who helmed the finance department under Gov. Arne Carlson, termed the bonding idea "truly loony." "I can’t believe the business community is not sitting at this table condemning that, because it’s just a terrible idea. It’s like taking out a second mortgage to make a couple of monthly payments on your first mortgage. It’s worse than putting off the problem; it’s leaving yourself worse off in the next year." Jay Kiedrowski, who led the department under DFL Gov. Rudy Perpich, sounded a similar note: "I’ve been at this 25 years," he said. "I don’t think i’ve seen a worse proposal from a governor than the proposal on tobacco bonds. It would solve our problem today by borrowing from the future…. It’s a terrible idea and I hope the Legislature will flat-out reject it." Added Pam Wheelock, IP Gov. Jesse Ventura’s finance commissioner: "The idea of bonding tobacco proceeds is not just a bad policy idea. It might be hard to do in the [bond] marketplace."

A quick review of other highlights from the recently concluded LCPFP meeting:

• The meeting opened with a long and circuitous exchange between Sen. Linda Berglin and Management & Budget commissioner Tom Hanson over the federal Medicaid dollars included in the final stimulus bill. At issue was whether the state will be able to claim the entire $1.80-$2.03 billion of the bill’s available Medicaid dollars for Minnesota. Hanson and state budget director Jim Schowalter said the governor’s revised budget would reinstate as much spending as necessary to claim the full amount, a figure the administration puts in the vicinity of $90-$200 million. Schowalter also claimed that the conditions attached to that money only required the state to keep its eligibility standards–and not present-day spending levels–intact.
• At one point, LCPFP chair Margaret Anderson Kelliher observed that the provisions of the federal stimulus package will force a wholesale "do-over" of Gov. Tim Pawlenty’s proposed budget. Hanson objected to that characterization, claiming that only the health care and education budgets would need reworking–prompting Kelliher to point out that those two categories make up about 80 percent of general fund spending.
• Hanson conceded that some of the spending reinstatements necessary to take advantage of available stimulus dollars will make the projected 2012-13 deficit grow larger. It currently stands at $2.5 billion. (And since state spending projections do not include an inflation factor, that likely means closer to $3.5 billion.)
• Kelliher asked whether Minnesota would follow the lead of states that are appointing one designated official to coordinate applications for competitive funding grants in areas ranging from health care information technology to green jobs. Hanson indicated that the Pawlenty administration will instead designate coordinators in separate departments.
• The former finance commissioners were generally sympathetic to proposals to raise sales tax revenues by extending the base to include more goods and/or services, but added that they had not included it among their January recommendations because–to their surprise–it did little to diminish the cyclical volatility of Minnesota’s present tax system.