The case that lay offs now save jobs later

To be perfectly clear, this is my argument. I believe it follows the President's argument closely but I don't want to misrepresent my words as being hers. I found the summary President Edna presented at the April 9 Meet&Confer very helpful.

Stimulus money lasts only one biennium...use it for one-time costs or for ongoing costs?

The stimulus money is definitely only around for FY2010 and 2011. The Governor, Senate and House all plan to cut state money for higher ed this biennium, in part because the stimulus bill says they only need to provide state funds at the FY2006 level.

So, spend stimulus on one-time costs or for ongoing costs?

The answer depends on what the state will do in two years.

If, two years from now, state higher ed funding is going to go back up to the FY2009 level, use the stimulus to pay for operating expenses likes salaries and lay off few people now, because the dip in state funding is a temporary drop caused by a bad recession.

If, two years from now, state higher ed funding stays at the dismal FY2006 level, then use the stimulus only for one-time costs, because after the stimulus runs out the budget drops to the 2006 level.

The 2006 level would require layoffs, and layoffs have one-time costs, so laying off now cuts fewer jobs than laying off in two years.

Deciding which course of action is reasonable depends on estimating what the state budget will be like in two years, so...

What will the state budget be in two years?

The short answer is nobody knows with 100% certainty. Nobody knows what river levels will do either, but we still pay attention to flood forecasts; what we need here is the Minnesota budget forecast.

It is bad. The gap between tax revenue and spending is projected at roughly $5B for the FY2012-13 biennium, even after an improving economy is taken into account.

I wrote a longer a post about just how bad it is.

The choice to be made

I think the choices boil down to:

1. Use the stimulus money to minimize the number of layoffs now, but at the risk of having to make many more layoffs in two years if state higher ed funding is still bad.
2. Use stimulus money to reduce the number of layoffs by paying for one-time costs of those layoffs, at the risk of finding in two years that the state higher ed budget isn't so bad and some of the layoffs were unnecessary.
3. Do some combination of 1 and 2.
   

What would I do? Honestly, I am not sure.

The other bit of useful info is that the forecast seems to indicate an 80% chance that revenue is as bad or worse than the forecast and only 20% chance it is better. That makes option 1 risky.

Ideally I would wait until the Legislature passes a budget that the Governor signs, but I fully understand the President does not have that luxury because if layoffs are necessary the planning has to start now given the notification deadlines in the IFO contract.