Tuesday, February 17, 2009

Get ready for impact of state budget cuts

By David C. Olson

Death, taxes and budget cuts. When asked about the things in life that are certain, the first two are the most common response. It’s time to add “budget cuts” to the list at least for 2009.

By this June, Minnesota will have a new biennial budget. The ledger must be balanced as required by our State Constitution. Right now the shortfall between expected revenues and spending in current law is $4.8 billion. After the February forecast, the gap will likely grow to at least $6 billion or almost 20 percent of the state’s general fund.

Budget cuts are as certain as the sunrise. Even if the state’s big-spenders have their way and we require our state’s job-producers to pay higher taxes, it won’t close a $6 billion hole. Reductions in expected state spending are inevitable.

Let me make it very clear that this will be painful. It is a lot more fun to increase spending than it is to make cuts. Given this reality, what should business leaders and chamber of commerce executives do? It is time to tell the public sector, including and especially its “vendors,” to start immediately to figure out how to get the job done with reduced resources.

This is not a license to tell government to “run like a business.” Its responsibilities are too broad. But some common-sense practices do apply. And, the sooner we share them, the better.

First, protect the customers. When a business faces trouble, its last resorts are reducing services and raising prices. Governments and their vendors apparently don’t understand. How many times do we have to hear that the first cuts will be police and fire protection, classroom teachers and plowing our streets? Far too often public officials go right to areas they know will scare their constituents. What are these officials thinking about? Politics, not their customers.

Second, protect your workforce. More often than not, layoffs mean good workers are permanently lost to the enterprise, and the affected workers and their dependents face chaotic, desperate times. When business improves – and it will – firms have to recruit and train all over again. A better route for all is for employers and employees to agree on reduced wages and benefits, sufficient to make it through “the night.” The enterprise keeps and continues to serve its customers. The trauma of job loss is minimized. And the organization is ready to rebound with the economy. There is still plenty of pain, but it need not be fatal.

Third, start now. The new budget in June and the accompanying cuts are around the corner. Every organization that receives a state check – whether it is school aid, local government aid or Medicaid reimbursement – should act immediately to reduce personnel costs, and, if possible, other overhead expenses. The negotiations won’t be easy. Those who represent workers will predict dire consequences to customer service and offer tax increases as the only solution. Everyone should resist this public drumbeat and instead follow the example at thousands of businesses competing for private-sector business by protecting customers and keeping their employees even though it means lower wages and benefits

Budget cuts are inevitable. But, this time, government customers and the customers of organizations supported by state and local governments need not be victims.

Local chambers and their private for-profit members can make this happen. We should gather our elected officials and the executives who manage tax-supported institutions. We should make our expectations clear: Maintain services by retaining workers at reduced expenses. The old way that holds customers hostage to tax increases is history. Period. No excuses. No exceptions.

David Olson is president of the Minnesota Chamber of Commerce. For more information, visit the Web at www.mnchamber.com

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