Philosophically and otherwise, change is in order for Minnesota finances

David Fettig | Managing Editor

Published December 1, 1990  | December 1990 issue

Although he held the position of finance commissioner for just one year, Peter Hutchinson will likely leave a philosophical legacy behind at the Minnesota State Finance Department.

(Hutchinson, who succeeded Tom Triplett in December 1989, was replaced when his boss, Rudy Perpich, was defeated in a reelection bid for governor by Arne Carlson.)

At a time when the state was headed toward a $1.2 billion deficit for the coming biennium (of a nearly $15 billion budget), Hutchinson gained attention for his non-traditional approach to state budgeting. Rather than simply expanding an agency's base by a certain percentage each year, for example, Hutchinson says expansion should come from within the pre-existing base through production gains.

Traditionally, Hutchinson says—and the way most states operate—agencies determine their budgets by taking their existing base and adding increases to cover inflation and the cost of new programs. "You can think of that as a cost-plus culture," Hutchinson says, designed to "preserve purchasing power."

In contrast, this year Minnesota agencies—even before the state's budget shortfall was announced—were told to plan their budgets without any increases. The proposal brought some criticism to Hutchinson, especially in light of the Kuwait crisis and the rising price of fuel.

"Some have said, 'You're pretending there won't be cost increases.' No we're not," Hutchinson says. "What we are saying is that the agencies will be responsible for managing all their cost increases." Inflation will have to be absorbed and offset by greater efficiencies within each agency. Additionally, if agencies request a new program or an expansion of service, they will have to reallocate their base sources to fund the expansion, Hutchinson says.

Hutchinson's goal is to place greater emphasis on every existing dollar, he says, rather than on the need for more dollars, for two reasons: he believes that's the best way to run a government, and the current economic conditions demand such action. In other words, he says, "Since we can't do business as usual, let's not. Let's focus on reality."

Reality, for Hutchinson, is an anticipated 4 percent annual increase in production from each agency. In effect, those productivity gains would neutralize most inflationary pressure. Such productivity would also help to turn attention toward state government's outputs instead of inputs, according to Hutchinson. He says that often the Legislature can become so focused on the cost of governmental business, that it forgets to evaluate governmental agencies on what is produced.

Hutchinson has been criticized by some who saw the department's new budgeting philosophy as so much election-year posturing, but the finance commissioner denies the charge. Also, he thinks that the negative responses from various state agencies is typical when a major shift in policy occurs, adding that many agency heads were enthusiastic about the change.

Enthusiasm for change may be an important quality for government workers during the coming biennium. The state's $1.2 billion shortfall (in addition to about $200 million this biennium) is greater than the entire biannual budget of both North and South Dakota. While Minnesota does have one of the nation's largest budget reserves ($550 million), the upcoming state Legislature will still face tough choices on spending cuts and taxes.

But Hutchinson is hopeful. In a comment he made before the election, he downplayed the likely political fallout: "I think we'll have some fights; they'll be all over the newspapers. But when it's all done we'll have a good budget ... Two sessions from now I think our budget will look a lot different."