Growth & Justice Blog

Managing transit: A conversation with the Civic Caucus

In June I met with members of the Civic Caucus to discuss ongoing, major transportation issues in Minnesota. The non-partisan Civic Caucus, described as “a Minnesota e-group of senior policy wonks,” convenes once a week to engage in dialog on public issues and surface creative proposals for change.

This post is based on their report of our discussion. A second post will address congestion, suburbs vs.cities and other issues they raised.

The divided metro transit structure is a practical accommodation to reality.

Commenting on divided transit authority between the Metropolitan Council and county governments in the metro area, Kane said the arrangement is a practical accommodation to reality. A new quarter-cent sales tax for transit is, by law, being imposed by county governments, not the Metropolitan Council.  It is somewhat unrealistic to put the county commissioners on the hook for raising the funds and expect them to hand off decision-making authority to another government entity. 

Thus, the counties are empowered to decide how the new tax money will be distributed, consistent with the Metropolitan Council's policy plan. In the best of all worlds, you'd probably place more authority in the Council, but we have to be practical, he said. Moreover, many legislators consider the Council to be too closely tied to the Governor, because all Council members are appointed by the Governor to terms that are co-terminus with the Governor.

Growth & Justice is not a fan of the sales tax, Kane said, because it hits lower income persons disproportionately.   

Minnesota transportation funds have been distributed as “entitlements,” rather than according to need. Fairness and accountability are likely to improve.

It was noted that several weeks ago, Ken Orski, a national transportation consultant, was critical of the way transportation funds are distributed in Minnesota. Orski's concern was that the funds are largely distributed to different levels of government according to statutory or constitutional formulas that bear little relationship to need.  In effect, Orski said, the funds are "entitlements" for various levels of government.

Kane noted that the 2008 Legislature changed a formula for distribution of funds among counties to give greater account to transportation needs, not just an automatic distribution among counties, irrespective of needs. He also said that the Legislature has an interest in assuring that all parts of the state are treated equitably in distribution of revenue.

There are good reasons to place authority for transportation at the metro level as well as the state level.

A Civic Caucus member inquired whether more leadership and planning responsibility ought to exist at the state level, because of the critical role that transportation plays in the overall economy of the state.

Kane agreed that a statewide transportation system allows the safe and easy movement of people and goods.  It makes places accessible to people. And it lays the base for business activity that fosters economic prosperity. Commerce needs roads, and businesses incur costs from congestion delays and poor road conditions.  Wise investments in transportation infrastructure help put Minnesota’s households in a better position to benefit from economic growth. And a high-quality transportation system makes for faster commutes, reduced delays, fewer accidents, less fuel consumption and better air quality.

He noted, however, that it is useful to place some authority at the metro level, instead of with the state, because experience nationally has shown that metro-level decision makers are more likely to explore a variety of options for dealing with the much more complex transportation problem in the metro area, and more likely, too, to consider transit as a viable option. Because of the much larger number of trips and the accompanying congestion in the metro, investments in transit are important.

— Matt Kane

Hide the children, honey, here come the Progressives!

Oh, my. It’s always a treat to have Craig Westover tell me what I think and stand for as a progressive.

No matter what provokes him or how widely he wanders to gather his wooly proof points, he always gets around to the same rant: Progressives aggressively impose their values on others, using the police power of the state to extort from the hard-working class the costs of providing extensive and unearned benefits to every slacker, transit rider, unwed mother and drug addict in creation.

His latest (“The problem with progressives”) might be called a straw man argument, provided one could see past all the mud. In it, he manages to herd Growth & Justice, Mussolini and stalwart Minnesota governors Harold Stassen, Elmer Anderson, Al Quie and Arne Carlson — some of the leaders being honored by our Sept. 3rd  Celebrating Minnesota’s Progressive Republican Tradition event — into a single, muddled group of apostates.

The notion that we are all progressives now — or, if not, we should be — is a dangerous challenge to constitutionally limited government.

Well, that’s Westover’s notion, which he proceeds to pummel into incoherence. Our event has a less sweeping point to make — that a progressive orientation toward governing is an admirable Minnesota political trait historically exemplified in both parties. It has played a significant role in making our state a model for how to achieve honest elections, effective government, a vigorous, community-engaged  private sector and relative economic prosperity.

Minnesota’s progressive tradition is something worth recognizing and celebrating at a time when the political spotlight is on us during the Republican National Convention — and when our standing as a national role model is coming into question.

In fact, progress is a core American value, and progressives represent the optimism and assertiveness of our founding fathers.

A “progressive” is someone who acts on the belief that life can be improved. Progress, whether enjoyed by individuals, businesses, communities or nations, is achieved through change that benefits increasing numbers of our fellows. For example, Harold Stassen’s reform of civil service that cleaned up serious corruption in state employment; Al Quie’s ongoing quest to assure the quality of our judiciary; Arne Carlson’s fiscal discipline coupled with visionary planning and wise investment.

Progressives don’t believe mankind is perfectible, the market is evil, the government is infallible or taxes are mother’s milk. We do believe the world for our children — and other people's children — can be made better than the one we ourselves enjoyed.

To Westover, though, we're totalitarians.

“Progressivism is politics as religion” that strives to aggressively impose values on society. "’Growth’ and ‘justice’ are both desirable,” he lectures, “and the progressive believes this makes them compatible irrespective of the laws of economics.”

Thinking about how to treat others — with justice — ought to engage our moral sense, but that does not mean government must dedicate itself to erasing all differences among people or businesses. Nor that business must tiptoe through every transaction lest it give offense or be accused of exploitation.

Private interests and governments both have the capacity to improve life. Yes, there are ideologues at the extremes who think the world would run better if one or the other were more fully in charge, but that does not represent the Growth & Justice position. Nor does it accurately reflect the mainstream Minnesota view of a balance between limited government and unlimited free markets.

Westover also conflates progressive politics with progressive taxation. A progressive tax strives to achieve proportionality in the overall tax system by taxing income at a higher rate as income increases. A progressive tax is based on a model of justice and fairness — that people who earn less should not pay a higher proportion of their income for public services than people who earn the most, as is the case today in Minnesota. 

There's plenty of room for discussion on this point, but Westover dismisses it as “moral argument, dividing the world into the self-sacrificing good and the selfishly individual.”

It is difficult to know, however, who is on which side in Westover World, considering Westover himself recently wrote: "Taxes as charity rob the giver of the virtue of the freely given gift and the responsibility of judging a recipient worthy of the gift."

No moral argument going on there, surely.

In Westover’s immutable universe, no one who favors progress — Republican, Democrat or Lutheran — can retain claim to their own core principles. We hope — hoping is still allowed, isn't it? — Celebrating Minnesota’s Progressive Republican Tradition will remind people of all parties that it wasn’t always so.

— Charlie Quimby

Business doesn't need to move to have an impact on a community

A Minnesota business expands in its home turf — North Minneapolis.

[T]he 25-year-old direct-mail and promotion-fulfillment company will receive no development subsidies from the city. It is expanding to consolidate its business in a stable neighborhood that is close to freeways for its customers and which boasts good workers.
[...]

Anderson, whose brother is CEO, said they could have saved money by moving the company to their hometown of Cambridge, Minn., and qualified for tax abatements and incentives under Gov. Tim Pawlenty's "JOBZ" rural-economic development program.

"We've made a commitment to north Minneapolis and we have neighborhood people who walk to work," Anderson said. "We decided that if we could make something work, we'd stay. We think our plan will work."

Like we said... subsidies aren't necessary when other attributes businesses need to thrive are present in a community.

Business sometimes gets painted as being only about profits and making decisions based on narrow tax considerations. That doesn't describe most of the business people I know. The owners of Impact Mailing made a good business decision, but it wasn't only about them.

— Charlie Quimby

MnSCU accountability dashboard could be a model

Last October, I wrote about a mixed report card Minnesota received on its use of the web to disclose information about the state's business. Today, I'd like to award a Gold Star.

Minnesota State Colleges and Universities (MnSCU) today unveiled an accountability dashboard that provides increased public visibility of measures the MnSCU system uses to manage for continuous improvement.

Although the dashboard is primarily designed as a tool for the system's trustees, academic leaders and managers, it also provides citizens with a clear line of sight into the strategic priorities of MnSCU, its performance and the progress it needs to make.

Like other state information, this was previously available to the public — unfortunately, like too much public information, in forms not readily usable. The dashboard represents an important step toward transparency and accountability and could be a model for other public agencies.

Here's what the site does right.

Accessibility. Spend much time digging on most text-oriented state web sites, and you'll find that it's difficult to locate the information you seek.

The dashboard is accessible from a link on the homepage (Accountability). High-level information is portrayed graphically via dials arrayed on a single page. And drill downs to richer data and different breakdowns are available from the same place.

Focused measurement. The Trustees asked for tracking of a few key measures that indicate progress against the governing board's four strategic goals (the four gray dials are for measures still being developed). The dashboard concentrates on measures that matter, and links them both to the detail and the higher goal, so the tool can be used by leaders, analysts, managers and the public alike.

The good mix of measures reflects performance thresholds derived from leadership goals (how do we compare with where we want to be), external benchmarks or national comparisons (with others), and tracking of internal six-year trends (with our past performance).

A working tool. It's more costly to provide extra levels of reporting to satisfy different constituencies. Since this accountability tool is the same one being used to manage the system, there's little extra reporting or double entry needed for public reporting. Also important, the dashboard gives users access to actual data in spreadsheets so they can do their own analysis.

Although the main purpose of the dashboard is to support a "culture of continuous improvement," making its reporting more accessible through this web-based tool should have a positive impact on public, legislative and business support of MnSCU. This is where all government agencies should be heading.

[Technical Note: The site recommends disabling pop-up blockers in your browser. I use Firefox and had to do that to get the dashboard to run, but after that its functionality seemed to be fine.]

— Charlie Quimby

College senior appreciates tax cuts for the wealthy

Bob Collins picked up on this statement about a college senior in town working as an intern for the Republican National Convention and asked his readers to comment on it.

Ms. Rondeau is used to hard work: She's paying her way through college, something that makes her appreciate the Republican stance on issues such as tax cuts.

The original story in the Dallas Morning News fails to clarify whether the connection between college, working and taxpaying was drawn by the student or the reporter. It's unlikely that a college student paying her own tuition and taking advantage of all her deductions would earn enough to owe more than a few hundred dollars in income taxes. It is possible she is "paying her way" — about $30,000 a year in private college tuition, room and board — without any help from taxpayers. But more likely it's through a combination of funding sources that also include loans, grants and parental help that could be worth tax deductions to someone.

Anyway, good for her. My beef is the subtle anti-tax message stuck in a story where it doesn't belong and a conclusion that is actually off base. If a Republican president should be in office when Jessica Rondeau enters the full-time working world with an entry-level salary, her tax cut might be one-seventh what the Democratic candidate's plan calls for, according to a study of both candidate's tax plans.

UPDATE: King Banaian spent some time answering some of Collins' questions, too.

A Minnesota business expands out of state. Are taxes to blame?

A valued, long-time Minnesota business announces it's expanding across the border. Is this more fodder for those who claim corporate taxes are driving business to lower-tax neighbors? Or does it illustrate how business expansion plans respond to a complex mix of factors?

South Dakota is usually cited as the destination for migrating Minnesota businesses — typically without naming any specific companies. But in this case, it's North Dakota that will benefit from an expanding Minnesota company.

Marvin Windows, headquartered in Warroad, has announced plans to nearly double the size of its facility in Grafton, ND, adding up to 50 new jobs over the next five years. Marvin's Warroad location employs about 2,500.

But lo and behold, North Dakota isn't quite a low tax haven of the sort we're told is going to strip Minnesota of its economic growth. In fact, it ranks just above Minnesota in total state and local taxes as a percentage of income and two places higher in corporate income tax rankings percentage of income. The complete state rankings compiled from Census Bureau data by Growth & Justice and the Minnesota Budget Project are here [pdf].

It's true North Dakota is a comparatively low personal income tax state, but the company isn't moving to there to lower income taxes for the owners. The Marvin family is staying put in Minnesota, and most of the 475 jobs created at the Grafton plant, which opened in 1997, have been filled by local residents. 

(1)Total revenue includes federal government revenue and own-source general revenue — which together make up general revenue — combined with utility, liquor store, and insurance trust fund revenue.

Let's look at some of the likely factors figuring in Marvin's decision.

Labor. The labor supply has to be a concern for Marvin, with its major manufacturing facility located in remote Warroad. Polaris Industries has a large plant in Roseau, the next nearest town. With two large employers drawing workers from the thinly populated region, at some point as they grew, they'd likely look elsewhere for labor.

Grafton, with a population of 4,600, is roughly the size of those two cities combined and is located in farm country, where skills, work ethic and the lagging farm economy offer a ready source of workers. Labor costs were lower in 2003, with the average job in the county paying $22.2k vs. $27.9k in Roseau county.

Location and Infrastructure. Though like Warroad, Grafton is relatively isolated, it's near the major north-south freeway artery Interstate 29, which meets east-west I-94 at Fargo. Grafton also connected east-west to Warroad. Marvin undoubtedly saw that infrastructure as an advantage when it originally located there. And having a plant already in that location meant the company was more likely to expand there than in a new place. Also, as an energy producing state, North Dakota has lower industrial power costs than Minnesota or South Dakota.

Incentives. Rolling out the green carpet might have a modest attention-getting effect — if the financial incentives are coupled with other positives in a community. Grafton was not one of the locations originally considered back in 1996 when Marvin was looking to expand, but it did put together an incentives package that included a new industrial park and a spec building to help interest site selectors.

This time, Marvin already announced its plans to expand before the city votes on a possible 10-year tax exemption for the addition and sponsoring an interest buydown on a loan. As we've noted before on subsidies, they make the less sense when a company is already in the region. It's unlikely, given the current housing construction market, that Marvin would be very interested in breaking ground in an entirely new location.

Business Taxes. Lest anyone think I'm gaming the numbers, here's the low-tax-advocating Tax Foundation's ranking of the states. Although North Dakota generally scores better than Minnesota on the "business friendly" indexes, it's nowhere close to South Dakota.

 

Let's pause here to make our general disclaimers about all tax rankings. Numeric rankings can distort small differences; they're based on averages or rates that don't necessarily apply to actual taxes in individual cases; they may not measure what they claim or even measure the right things in the first place. And just about any state or advocacy group can find a ranking that either rankles or reinforces, as shown in Grading Places: What Do Business Rankings Really Tell Us? [pdf].

Thirty-four of the 50 states can claim that they are in the top 10 in terms of business climate or competitiveness; they just have to pick which of the five indexes they want to point to. Business interests in just about any state can find at least one ranking to support an argument for cutting business taxes to make the state more competitive. In all but eight states, one can find at least one index that puts the state in the bottom half of all states.

Bottom line? While tax considerations may be part of a business expansion equation, it's never as simple as the low-tax advocates would like you to believe.

— Charlie Quimby

It's hard to celebrate 150 years when we're 20 years behind

The U.S. Postal Service unveiled a special-issue stamp in May celebrating Minnesota’s 150th year of statehood with a stunning aerial photo of the Highway 43 bridge across the Mississippi at Winona.

The irony — which we see Minnesota Monitor also noted — the Minnesota Department of Transportation (MnDOT) closed the bridge in June for safety reasons. 

The bridge closing is yet another sign that Minnesota needs to step up the public sector investments that serve the state’s citizens and advance the state’s economy.

At age 150, Minnesota must invest in the future to keep the state strong and growing in the years to come.

MnDOT is reviewing conditions of the state’s truss bridges in light of the collapse last summer of the I-35W bridge in Minneapolis.

Bridge inspectors spotted corrosion on the gusset plates along the approach to the Winona bridge and wisely shut it down. One of the gusset plates shows signs of distortion.

For now the 12,000 vehicles that would normally cross the Winona bridge each day must trek up to 60 miles out of their way to get to the next nearest bridge and back, at least until MnDOT determines whether it needs to keep the bridge closed during repairs, or longer if MnDOT decides to replace the bridge.

The sudden bridge closings — in Winona, in St. Cloud with the Highway 23 DeSoto Bridge, in Minneapolis with the Lowry Ave. bridge, and in Duluth with the Blatnik bridge — tie back to concerns raised by the failure of the I-35W bridge, but they are signs, too, of lagging investment in the state’s critical infrastructure during recent years.

Winona City Council Member Tim Breza expressed shock at the bridge’s condition, telling Minnesota Public Radio, “"It's deplorable that the maintenance has not been kept up on the bridges in the state of Minnesota and our bridge in Winona."

Fortunately the state legislature passed measures in the 2008 session that provide additional funding for transportation improvements. Those new dollars will pay for the bridge work and other improvements. 

Gov. Tim Pawlenty vetoed the 2008 transportation package, calling it too costly. The legislature overrode the veto, concluding that continued inaction on transportation in light of growing needs would be far more costly in the long run to the state and its well-being. The package helps address the backlog but falls short of what’s necessary to move Minnesota significantly ahead on transportation issues.

Adjusted for inflation and increases in travel, state government expenditures by 2006 on highways alone lagged behind the 1986 level over a 20-year period by a cumulative $13.9 billion. And the state is expected to add about 1 million more residents by 2030; with them will come increased demands for travel and transportation improvements. 

As we celebrate the state’s past, it’s important to invest in its future.

— Matt Kane

Tax enforcement is up, but are results?

A recent article in Forbes Small Business suggests pressure to speed up the resolution of IRS audits may be reducing the amount of money recovered — while increasing the stresses on compliant small businesses.

The IRS recently made an inexplicable decision to increase audits of small companies while easing up on large firms. In fact, the smallest companies saw the taxman 41% more often in 2007 than in 2005, and companies with $10 million to $50 million in assets were 29% more likely to be investigated, according to a new study from the Transactional Records Access Clearinghouse at Syracuse University.

Meanwhile, companies with more than $250 million in assets were almost 40% less likely to be audited than in previous years - even though an average audit hour of large firms earned the IRS about $7,500, the Syracuse study found, while a similar hour directed at smaller companies turned up $474.

Going after more small companies didn't produce that much more revenue, but it did enable the Bush Administration to tell the public it was going after more companies. In fact, the number of non-productive audits of small companies — meaning no change in tax liability was recommended after the audit — is growing. And now the administration is seeking a court order to bar future access to agency statistics that are essential for the Syracuse report that exposed this shift.

In Minnesota, the Department of Revenue compliance initiatives include identifying non-filers and collecting delinquent sales taxes as well as individual and corporate income tax audits, so it's hard to compare directly with the IRS. However, in the report the Department makes to the Legislature, it is clear that Minnesota taxpayers see a pretty good return on the money spent.

Here's a table from the Department's report [pdf] showing the revenue realized from compliance and enforcement. Dollars spent on corporate tax matters show a much higher rate of return, and recovering sales and use taxes produces the most revenue dollars.

Lately, the Department has published a monthly list of businesses that are delinquent in paying sales taxes they've collected. Of the 64 entities listed for June, all appear to be small companies (including one that owned several truck stop-related businesses). Smaller towns outstate accounted for 24 of the companies, with the remainder split between metro/larger outstate cities and suburban addresses.

It's wrong to use tax money to prop up a business's cash flow, of course, but if small businesses around the state do account for the bulk of tax collection problems, it also could be a sign that they need help. Perhaps in the form of simplified tax laws and reporting requirements, but also in developing the management skills that can head off problems that lead a small business down the slippery slope of using tax money to keep a business afloat.

— Charlie Quimby

The anti-government theme and the (alleged) "fall of conservatism''

There’s a temptation in the punditry business to attach too much meaning to the present, to excitedly say "never before,'' and to declare the  "fall of'' and "death of''  this or that.   And in my time I've seen too many premature pronouncements  _ of the death of God, of the decline and fall of liberalism, and even the end of history _ to get too excited.   But George Packer in the latest New Yorker has written an eminently readable treatise  about “The Fall of Conservatism.’’   It was referenced in a Star Tribune editorial Saturday about the Minnesota Republican Party’s state convention, and the Packer piece promises to be prime grist for the mill this summer. 

Packer quotes conservatives themselves who fear that the movement is out of ideas and intellectually fatigued and he draws some amazing admissions  out of Patrick Buchanan about how Republicans consciously and aggressively exploited southern white fury over the civil rights movements to build their counter-attack in the late 1960s.   Packer also does a good job sketching out broader and more defensible non-economic motivations for the rise of conservatism:  concerns about “the chaos of the cities, the moral heedlessness of the young and the insults to national pride.’’ I've always maintained that "liberalism'' got to be a dirty word because of "free love'' and drugs and flag-burning and goofy dalliances with Marxism, not because of its efforts to alleviate poverty and social problems and gross inequalities in wealth and income.

And Packer gets closest to explaining the conservatives' strategic mistake when he cites David Brooks’ analysis about how conservatives overreached with their hostility to government.  “An anti-government philosophy turned out to be politically unpopular and fundamentally un-American…People want something melioristic, they want government to do things.’’  And in the end, because of a very contradictory conservative view of government as limitless when it comes to security and national defense, conservatives after almost 30 years of dominance  “hadn’t made much of a dent in the bureaucracy, and they had done nothing to provide universal health-care coverage or arrest growing economic inequality.’’   Packer goes on to quote conservative David Frum as saying that “smaller government is no longer a basis for conservative dominance.’’   And he points to young conservatives like Ross Douthat and Reihan Salam who are pushing progressive ideas like wage subsidies for low-income workers and tax credits for children with families.    

I don’t want conservatism to fall or die, anymore than I want yin to wipe out yang or night to eclipse day.      And it doesn’t matter what I think because conservatism and the great ideas it stands for _ individual and market freedoms, personal responsibility,  family values, respect for the past, and religious convictions _ will and should always be with us as we try to build a better world.   I just think conservatism needs to return to the healthy accommodation its adherents used to have for other principles _ equality of opportunity, social justice, and a respectful faith that community and the “we” are at least as important as the individual and the “I”. 

Dane Smith

Mall of America deal highlights subsidy issues

A last-minute change  in the tax bill agreed to over the weekend raises anew the issue of public subsidies for private business development. The change was made to a subsidy proposal for the Mall of America's $2 billion expansion — from a provision apparently crafted specifically to include Chanhassen Dinner Theatre in the project, to language that excludes a dinner theater.

Chanhassen Dinner Theatres have operated for 40 years in downtown Chanhassen on the western fringe of the Twin Cities metro. A move to the Mall of America would provide a more centralized location and better access to tourist audiences. The Mall says the dinner theater provided a key part of the project's viability.

The private benefits are clear; the public payoff is less so.

The Mall subsidy was being sold on the basis that it would create thousands of jobs throughout the region and would eventually produce state tax revenues that would be shared with other cities. That much may be true, but it would also be true with a privately financed project.

The Mall's owners have already identified this region as the place where they want to do business.  If lenders don't want to finance the project, it's not as if Mall of America can expand in Sioux Falls. A Mall expansion, by definition, can occur only at its present location and it must make economic sense in that location.

Under the approved tax bill provision, Bloomington could levy local sales taxes on its hotels and business. Some local officials complain that the financing the public costs fall unfairly only on Bloomington. That's not technically correct, since half the Mall's sales are to out of state visitors and a large portion of the remainder are to consumers from outside the city. By taxing only Mall businesses, hotels and car rentals, the city would effectively export much of the tax burden. It's debatable whether an additional sales tax would cause many consumers and visitors to take their business outside the city.

In short, it's a bad idea to subsidize a project that has no chance of happening in any other location and needs 17 percent of the total project cost underwritten by public money to attract private capital.

The dinner theater deal raises the advisability of providing public incentives to relocate businesses within a region — the same issue that has dogged the JOBZ program. Chanhassen loses; Bloomington wins and says its victory will benefit its neighbors, too. But by what measure will we know?

Matt Kane, policy fellow for Infrastructure & Economic Development at Growth & Justice, has written extensively on the effects of tax breaks and subsidies on business location. He urges taking a broader view when considering such proposals.

From an economic standpoint, growth at one location within a regional economy drives growth for the regional economy as a whole, so tax incentives designed to draw businesses to one location in a region instead of another have little or limited impacts on overall regional growth. That being the case, tax incentives for economic development work best where they are least justified by swinging decisions from one site to another within the same region — the region the firm already has identified as the one they want for their new location.

The public sector should pursue economic development policies that result in broad benefits for residents and businesses in the region, especially benefits that will continue to have a positive impact even if specific businesses close or move. 

Reps. Joe Hoppe, R-Chaska, and Paul Kohls, R-Victoria, represent the Chanhassen area and played some role in changing the language that blocked a move by the theater. They say they acted on principle, not parochialism.

And though we might not often find ourselves siding with Hoppe and Kohls on tax matters, this is one where we agree.

— Charlie Quimby