Employers and local governments aren't immune from state budget ills

fedgazette Editorial

Connie Levi

Published December 1, 1990  | December 1990 issue

At a time when businesses large and small find that they must focus their strategies and markets globally, it is interesting that the relationship of business to state and local governments is becoming more important. The impact of state and local government fiscal policies to employers is perhaps the best example of this relationship.

In Minnesota, state and local government spending in recent years has been increasing at about double the rate of the cost of living. In our regional economy, Minnesota employers are eyeing a recession which has already visited some of our important industries and threatens to spread to other companies in the near future. Worse, many businesses have had to reduce employment, and more layoffs are likely in large and small companies throughout the state.

These events are not welcome news to Minnesota state legislators and local government officials who have enjoyed robust tax revenues fed by a robust economy. However, in a state with a tax system which is highly sensitive to changes in the economy, Minnesota state and local governments will be facing some difficult tax and spending decisions in 1991.

To paraphrase a common saying, "as the economy goes, so goes Minnesota's tax collections." When people don't receive raises, lose their job, hold back on consumer spending, or when companies aren't making profits and adding jobs, Minnesota's tax collections slowdown. Common sense tells us that there is a very direct link between the prosperity of the family budget and the prosperity of the government budget.

Minnesota finance officials recently announced a state budget problem of $1.2 to $1.8 billion in the next two-year budget cycle. Unlike the federal government, Minnesota must balance its budget.

This budget deficit will require some tough choices of legislators and the governor when they begin the legislative session in January. It will also require some tough choices for Minnesotans. Simply, do we want our state lawmakers to increase taxes in 1991 or do we want them to hold the line on spending increases?

There just are no easy choices left for lawmakers. Over the last several decades we seem to have developed an appetite for government services that exceed what we are willing to pay in taxes. In the past, lawmakers have been able to balance this dilemma by relying on growth in the economy, budget shifts, hidden taxes and sending the problem to another level of government.

Lawmakers have just about exhausted all of these old options. As we face the next budget cycle in Minnesota, we are left with the simple choice of either raising taxes broadly or slowing the growth of government spending.

The first step should be to take tax increases off the table as a viable option. The combined state and local tax burden in Minnesota is already 17 percent higher than the national average. To make up Minnesota's budget deficit by raising taxes would require a tax increase of more than $250 for every man, woman and child in the state. For a family of four, that's a tax increase of over $1,000.

Many people and businesses won't pay that tax premium in a healthy economy much less in an economy which is sliding into recession. Some jobs will be relocated out of Minnesota. Other employers will be forced to lay off more people simply to pay the increases in taxes.

In these uncertain economic times, it is important for people to realize that higher Minnesota taxes will mean fewer Minnesota jobs.

As Minnesota's budget problem demonstrates, business must take a more active role in the development of state and local government policies. As the federal government shifts some program responsibility to the states and state governments shift other programs to local officials, it seems clear that state and local governments will be the place for action in this next decade.

Employers will be challenged in the 1990s to provide input and constructive alternatives as the policy debate moves ever so frequently from congressional halls to city halls. State and local governmental policy will have a greater role in the health of our regional economy, and employers must be prepared to meet the challenge. If we are not prepared for the challenge, we better prepare for the consequences.

Connie Levi has been president of the Greater Minneapolis Chamber of Commerce since August 1988. She was recently named to Minnesota Gov.-elect Arnie Carlson's budget crisis management team to help find solutions to the state's budget shortfall.

Ms. Levi is no stranger to state government, having served in the Minnesota House of Representatives from 1978 to 1986. In her final term she was elected majority leader, the first woman to serve in that position.