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The whole picture: Should inflation be included on both sides of the budget forecast ledger?

Based on the latest fiscal forecast, Minnesota has a projected $7.7 billion surplus for the current biennium.

Or does it?

That number is missing one key ingredient.

Inflation is currently provided on the revenue side of a budget forecast, but not all expenditures. Sponsored by Rep. Jennifer Schultz (DFL-Duluth), HF2577 would require inflation be included for all expenses when a budget forecast is calculated.

“The public desperately wants honesty and truthfulness from their elected officials, and when we do not consider inflation in the spending side we’re misrepresenting what a surplus or potential deficit really is,” she told the House State Government Finance and Elections Committee Tuesday.

Without this distortion, she said the current projected surplus would be reduced by more than $1 billion.

Approved on a party-line vote, the bill was sent to the House Ways and Means Committee. Its companion, SF2362, sponsored by Sen. John Marty (DFL-Roseville), awaits action by the Senate Taxes Committee.

Schultz said the Minnesota Council of Economic Advisors recommends the change.

“To me, this is just being deliberately dishonest or making it really difficult for us to do a good job,” said Rep. Sandra Masin (DFL-Eagan).

No matter how a budget forecast is presented, Rep. Anne Neu Brindley (R-North Branch) said it is legislator’s job to best determine how dollars are spent. “That is perfectly accounted for in the current system and will be accounted for moving forward.”

A 2002 law repealed the inclusion of inflation when projecting expenses. Schultz believes Minnesota is the only state to account for inflation in projected revenue, but not expenses.

“This policy decision has had disastrous implications for Minnesota’s schools,” wrote Scott Croonquist executive director of the Association of Metropolitan School Districts. “… The general education formula allowance, the most important funding stream for our public schools, would be $798 per pupil higher in FY23 if it had simply kept pace with inflation since 2003. As a result, school districts have been forced to rely on voter-approved operating referendums to make up the difference.”

The bill does not specify if the inflationary increase would be based on the Consumer Price Index or another factor. State budget officials would need to consult with chairs and ranking minority party members of specific committees and legislative fiscal staff to determine the inflation rate and how it is to be included in expenditure estimates.

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