Growth & Justice Blog

Been there, dumped that: Colorado's lessons lost on Pawlenty

As both a Minnesota and Colorado taxpayer, I've watched in dismay as my adopted state slouches closer to my home state in matters of budgets and taxation. So far, I've kept my residence and income taxes here, but if the gap closes further, I'll have less reason to resist the tug of family, mountains and milder weather in the west.

Only this week, voters in two states looked at the carnage wrought by constitutional budgetary handcuffs and rejected a ballot measure similar to Colorado's TABOR.

But that didn't dissuade Gov. Pawlenty. Today, he made official his aspirations to turn out the lights after he leaves the governor's office.

His proposed a constitutional amendment to limit future biennium spending to the past biennium's revenues is TABOR in spirit, if not in structure. (Minnesota Budget Project's Christina Wessel says it's actually more restrictive.)

As I wrote earlier this year about the allure of limits:

Colorado went furthest in imposing what the state’s Bell Policy Center calls “the most restrictive tax and spending limitation in the country” — TABOR, the Taxpayer's Bill of Rights. Designed to hold down taxes and shrink government, TABOR requires voters to approve tax increases that exceed a certain formula of growth. About 90 percent of revenues are dedicated, leaving little room to deal with changing conditions. Fed up with how the state was shortchanging education and transportation, Coloradoans have twice voted to loosen TABOR’s revenue straightjacket.

Among those Coloradoans calling for TABOR's suspension was then-Gov. Bill Owens (R), who had helped push through the amendment and then was forced to run the state under the limits it imposed.

Our governor, however, conveniently offers his amendment as he heads out the door. As Senate DFLers have already pointed out [PDF], it's a "do as I say, not as I did" moment.

And the proposed amendment does nothing to address the shift of spending from state government to local governments, which has been one hallmark of Gov. Pawlenty's purported fiscal discipline.

House Majority Leader and candidate for governor Rep. Margaret Kelliher Anderson also saw the parallels with the Colorado experience. She cited a report [PDF] from the Center on Budget and Policy Priorities that charts the state's decline under TABOR.

It's breathtaking how a state that is one of the most well-educated and prosperous has raced to the bottom in so many measures. Colorado has fallen:

• from 35th to 49th in the nation in K-12 spending as a percentage of personal income.
• from 30th to 50th in average teacher salary compared to average pay in other occupations
• from 35th to 48th in college and university funding as a share of personal income 
• from 20th to 48th for the percentage of low-income non-elderly adults covered under health insurance
• to 49th in the percentage of both low-income non-elderly adults and low-income children covered by Medicaid
• to dead last in share of low-income children lacking health insurance.

Mark Dayton, another candidate who'd be stuck with Pawlenty's measure if elected, calls it the "Destroy Minnesota Amendment" and challenges him to prove he truly believes it would work — by limiting his presidential campaign spending for the next two years to what he has raised during the previous biennium.

History is instructive and ridicule is tempting. But the best response to this amendment will come from legislators doing their job each session — and not wasting their time on stunts.

— Charlie Quimby

Voters again reject anti-government TABOR formulas

Overlooked  in much of the analysis in this off-year election results were the latest defeats of anti-government "TABOR" (an acronym derived from "Taxpayers Bill of Rights,'' a frequently used title for such efforts) initiatives in two states, Washington and Maine. TABOR formulas are designed to impose arbitrary limits on growth of taxes and appropriations, and most mainstream policy experts dismiss them as unwise and inflexible.    

As the national Center for Budget and Policy Priorities noted :    

Yesterday’s votes in Maine and Washington show clearly that TABOR’s crippling and arbitrary spending limits remain unpopular around the country. Anti-government groups have made serious efforts to enact TABORs in 20 states since 2004 — and they have failed every time. While these groups will likely target other states in 2010, there is little reason to believe they will have more success.

Minnesota has escaped these TABOR initiatives, although efforts to get them on the ballot as constitutional questions have been mounted. Unfortuneately, too many of our elected officials, including Gov. Tim Pawlenty, unwisely got themselves cornered  into signing "no new taxes'' pledges earlier in the decade and Minnesota has been in a state of fiscal  paralysis every since. 

It's reassuring to see that ordinary voters in most states do not fall for the enticing promises of simplistic and arbitrary limits on public resources.  

— Dane Smith

Jousting with the King

(This is a response to the right honorable King Banaian, of SCSU Scholars blog, who has the coolest name in the Minnesota blogosphere, and who also is a fairly responsible adversary.)

Dear King,

You raise some fair points in your critique of our recent post, in which we demonstrate that Minnesota state and local governments actually are taking a smaller share of our income throughout this decade, and in which we further posit that this smaller government and lower tax rates have not delivered the economic boom that anti-tax conservatives promised. (More on this point today in the latest Capitol Report/Legal Ledger.)

As you point out, we do have a more volatile revenue system (bigger surpluses in expansions, bigger deficits in contractions) than most states, and this certainly is a factor in creating more severe budget shortages than in other states. And there is some random evidence, as you point out, that Minnesota's economy very recently is again doing better than the national average. (Big news this week was the #1 Twin Cities ranking in home value appreciation.)

Nevertheless, we don't see how you demonstrate that this volatility can be the main factor that permanently shrunk our revenues as a share of our income.

Revenues as a percentage of income are largely a function of tax rates. The shrinkage came from major and permanent income tax rate cuts, then a refusal to significantly raise state tax rates or impose new state taxes during the immediately ensuing shortfalls. Contrary to your argument, tax policies did make a major difference and Gov. Pawlenty himself takes credit for his policies shrinking government when he preaches to his conservative base. 

But we would also acknowledge that we would have had shortfalls even if we hadn't cut taxes, because the spending base would have been larger, and downturns always create shortages. That's a point you could have raised, but didn't. So give us points for fairness and good faith. 

Second, we think  there is a broad consensus that Minnesota's economic performance this decade, overall and relative to other states and the national averages, is not as impressive as it was in the three previous decades.  In the very same Budget Trends Commission document that you cite in making the point on volatility, this is the second main bullet point: "Despite continuing to rank high among many key social and economic indicators, Minnesota’s economy has underperformed recently relative to the nation."  

That's exactly what we said too, and there's a wealth of statistics in the commission report to back up that assertion.

Third, let me point our readers to G&J fellow Charlie Quimby's answer to your question: "Where has G&J been in the debate to reduce cyclicality of tax receipts?"

We specifically testified [before the governor's tax commission] in favor of reducing or eliminating the corporate franchise tax, of which the legislative report you quote said in the very next paragraph:

"Minnesota’s corporate franchise tax base, which constitutes 7 percent of general fund tax revenue and boasts the highest trend growth rate, is the most volatile of the three major revenue sources, extremely sensitive to economic cycles and thus subject to substantial uncertainty. In fact, the volatility of Minnesota’s corporate franchise tax base is almost four times greater than the volatility of the individual income tax base and nearly six times greater than the volatility of the general sales tax base."

This support was conditioned upon replacing revenue from other sources, including income and sales taxes, that would make the system less regressive as well as less volatile.

The other source you link to says that there are two ways to reduce fiscal distress from recessions. One is to reduce volatility, and the other is to "build savings during booms... (create and properly use a rainy day fund)."

Another measure we have supported.

Finally, the very funny promotional blurb on your blog that condemns your team as "self-absorbed moral cretins'' is really outrageous and unfair. You are among lots of very fine people who are just plain wrong about things once in awhile. 

— Dane Smith

Less Government? We Tried That. It's Not Working.

The Star Tribune's front-page story today finds that "less government'' is the overwhelming consensus "vision'' for Republican gubernatorial candidates. Peggy Lee and most Minnesotans want to know: Is that all there is?   

Leaving aside that this mantra sounds more like hard-right, activist-energizing radio talk than inclusive vision casting — and has to be extremely disappointing to hundreds of thousands of moderate and progressive Republican voters — we need some context here.   

The Price of Government, an official state Minnesota Management and Budget measure, shows that we DO have less government over the last decade, ever since the no-new-taxes religion, like some southern invasive species, got a hold on the North Star State. (See page 13 of the PowerPoint presented at the capitol last week by State Economist Tom Stinson and State Demographer Tom Gillaspy).

The bar graphs clearly show that our governments are using about two percentage points less (15.5 percent in 2008 compared to about 17.5 percent through the 1990s) of our personal income share than those governments were spending when the economy was actually doing better. Huge income tax cuts in 1999 and 2000 left us with chronic  budget crises, and the promised payoff in sustained, tide-rising economic growth didn't materialize, either.  

Wealth concentration at the top got worse, bridge and road conditions deteriorated, public school course offerings were cut, and thousands of working low-income folks lost their health care. And our economy is slumping and beginning to underperform the national average on some key indicators.  

We surely could use some more judicious restructuring and redesign of how we do our government work. But the basic things government provides are essential for our shared prosperity and quality of life.  

NOTE: The Price of Government measure is one of the most comprehensive of all the measures we have to describe the size and role of government. It counts state and local government revenues as a percentage of total income and therefore accounts for inflation, population growth and economic growth. It was instituted at the behest and with the approval of business groups in the late 1980s.

— Dane Smith

Funders Collaborative seeks benefits "beyond the rail"

Today I took a ride along the future Central Corridor Light Rail Line. (Can we get a new, Hiawatha-like and less colonic-sounding name, stat?)

The guided bus tour was sponsored by the Central Corridor Funders Collaborative to highlight some of the big picture issues associated with the new line, scheduled for completion in 2014. Fittingly, it began in St. Paul's Frogtown and ended at Prospect Park in Minneapolis, the neglected middle of the route linking the two downtowns.

In many ways, it's the stretch with the most to gain or lose — where small businesses will thrive by reaching more customers or go under because their current customers get diverted by the construction; where residents will find it easier to get to jobs and other opportunities in the metro area or be driven out of their homes by higher rents; where the ethnic character of the area gets enhanced or scattered, just as happened when I-94 was built.

The Funders Collaborative is a group of local and national funders exploring ways to promote planning and collaboration to ensure that adjoining neighborhoods, residents and businesses broadly share in the benefits of public and private investment along the Central Corridor Light Rail Line.

The Collaborative supports the building of the light rail line, but it recognizes these big public infrastructure projects get planned, funded and built with a focus on ridership and construction and operating costs. How the investment benefits the local businesses, surrounding neighborhoods, and the people who live, work and access opportunity along the line is a secondary consideration.

It's not that small business success, affordable housing, and the quality of the places that grow up around transit lines are overlooked entirely. But the federal funding formulas that decide where transportation dollars go don't weigh these issues with the same gravity — even though they are arguably far more important for the community over the long run. It also means the parties responsible for getting the line built — in this case, the Met Council — can't get sidetracked by niceties or they risk losing the funding because a competing and more spartan project shows better numbers.

What happens next is predictable. Big institutions (MPR and U of M) get comparatively more attention to their needs, while poor neighborhoods are told to wait. Less powerful groups file lawsuits. Various advocates feel shut out of the process and compete with each other for scarce resources. And public officials who have tried to enlist broad participation tear their hair out.

Turning the Central Corridor into a place of opportunity — especially for the people who already live and work there — is a far more noble goal than getting more people to use transit. And most of the businesses, neighborhoods and public officials connected to the line would agree that's the goal most worth pursuing.

But no single government entity is in charge of the big picture for the whole line. Coalition-building is not the way most residents want to spend their spare time. Community-led planning doesn't rate many news stories. And nascent efforts by barely established groups don't fit the way foundations traditionally give out grants.

Until the Funders Collaborative came along, no one had accepted the role of helping the promise of transit-oriented development happen on a comprehensive, corridor-wide scale. 

The rail line has yet to be built, and the efforts of the Funders Collaborative and its community partners have yet to spread the benefits "beyond the rail." We won't see the results for a decade or more, so today's tour was hardly stop-the-presses news. But it's a good start.

— Charlie Quimby has done some consulting with the Central Corridor Funders Collaborative

Business leaders focus on success in schools, community priorities

Times are tough in the world of commerce these days but the Minnesota Business Partnership put on an uplifting and clever show Tuesday night, highlighted by a very funny Twitterfest orchestrated by partnership director Charlie Weaver. The fictitious tweets that flashed up on the big screen were inspired, including the one ascribed to Gov. Tim Pawlenty, under the name "veer2right'', in a reference to his presidential prospecting.  

Our favorite part, though, was the recognition afforded to two outstanding public schools, King Elementary in Deer River, and Dayton's Bluff Achievement Plus Elementary in St. Paul, for their progress on student achievement. The videos celebrating and explaining their success should be up soon on the partnership website. (The Partnership is comprised of the CEOs of Minnesota's 100 largest companies and obviously is a major player in policy matters.)

Qwest CEO John Stanoch, a valued member of the Growth & Justice Board of Advisers, and a leader of the partnership's education policy team, pointed out in his presentations of $10,000 awards that both schools have high percentages of poor and minority students and that those conditions "do not have to be synonymous" with low test scores. The principals at each school talked about setting goals and focusing constructive and energetic attention on the students and parents who need help.   

The evening's speakers were focused on community building, with relatively little of the dissing of the public sector or tax rates that sometimes occurs in business gatherings. Even Gov. Tim Pawlenty's keynote address was notable for its rather harsh denunciation of private-sector irresponsibility and arrogance, epitomized by General Motors.  

Doug Baker, CEO of Ecolab, Inc., current chairman of the partnership, took aim at Minnesota's corporate income taxes as a problem, and we agree that those rates could come down as part of an overall revenue-positive tax system reform. But Baker's speech also accurately summarized Minnesota's great tradition of community-minded rather than self-interested business leadership, going back to the Dayton's department store decision a half-century ago to donate 5 percent of its profits to the community. Corporate foundations currently invest about a billion dollars a year in Minnesota, Baker said, "and there's a culture here of stewardship.''  

— Dane Smith

The subsidy game: Slouching toward Wisconsin

The Star Tribune's Thomas Lee reports that "Another Minnesota company leaves for Wisconsin."

Dr. Joseph Ward, vice president of Marketing, said: “RJA Dispersions chose John Wold’s River Bluffs Business Center not only for its attractive location and economics, but also for the availability of industrial level power. Bill Rubin, director of the St Croix Economic Development Corporation coordinated key resources including availability of financial support from Char Gurney and the West Central Wisconsin Regional Planning Commission which is making our expansion plans possible in this difficult financing climate.”

Emphasis mine.

Hey, I get why a manufacturer might covet "availability of industrial level power," even though it's a mystery to me why the company could find better power in Hudson, Wisconsin, than is available in 3M's backyard. Just a hunch, but I think the "availability of financial support" probably played a bigger role.

Hudson is also home of the long-vacant St. Croix Meadows dog track, which promised big crowds, fancy restaurants and an influx of high-rolling tourism when it opened in 1991. You'd think communities would learn, but maybe the weeds growing up in the cracks in the parking lot aren't enough of a reminder.

This move is hardly on the same scale, but it brought to mind that only last week, Dell Inc. announced that it will shut down its state-of-the-art desktop computer manufacturing plant in Winston-Salem, N.C. facility by January, with the loss of 905 jobs.

Dell was promised more than $300 million in state and local incentives to open the [$130 million] plant. But it was required to invest $100 million, create 1,700 jobs by September 2010 and maintain those jobs for 10 more years. If those terms weren't met, the company would forfeit the incentive package.

Dell owed the state another 800 jobs in less than a year. Folding the state-of-the-art tent seems almost honorable.

Dell says it "will absolutely continue to comply with and honor all agreements with various governmental entities," which means it will pay back at least some of the help it received to locate there. As required.

[Winston-Salem Mayor Allen] Joines said he was assured by Kip Thompson, vice president for facilities, that Dell will honor its commitment to repay the $15.56 million the city has provided since Dell agreed to build the plant.

But millions of dollars won't be returned. Public agencies paid to prepare the Dell site for construction, widen roads leading to the plant, and equip community colleges to train company workers before the plant opened.

Our friends at Good Jobs First remind us that Dell was more aggressor than suitor. Greg Leroy's chapter on corporate tax dodges [PDF] details how Thompson ran the negotiations:

“Here’s what it’ll take,” Dell vice president Kip Thompson told Commerce Secretary Jim Fain in May 2004, according to Fain’s notes. “1) free land; 2) free bldg.; 3) no taxes; 4) training at $5m; 5) participation in creation of future value in the community.” The
following month, Thompson said to Fain: “[I am] not wowed here—not sure the state’s stepping up here ...If a state like N.C. can’t get after this, I’m worried for our country — there’s a certain amount of patriotism here.”

Meanwhile, Dell has announced that it would move its Irish operations to Poland in exchange for a 54 million Euro ($80 million) subsidy. The Poles are grateful, but say they are undeluded about the way the subsidy game works.

[W]ith wage costs rising, people here know they may have just a decade to make the most of the “Dell Effect” before the company vanishes again.

Although there's no specific talk of tax concessions in the brief story about the Minnesota company leaving for Wisconsin, the "another" in the headline implies it is part of a trend, and it may be tempting for readers to assume that our supposed unfriendly business tax climate is to blame.

But Wisconsin's total taxes as percent of income is now about 12.2 percent, ranking 13th, compared to 11.8 percent and a 19th ranking for Minnesota.

Let's hope Wisconsin doesn't decide to become Minnesota's Poland. Then, who will be Wisconsin's China?

— Charlie Quimby

TWINS WIN! YANKEES DEAD LAST! (in cost-effective performance)

(The Rich and the Weary: Twins piranha Nick Punto being tagged out by the highest paid player in baseball)

Forget the actual scores of this weekend’s ALDS playoff games between the Minnesota Twins and the New York Yankees - especially now that we’ve lost - and consider instead the economics competition involved here.

On that score, we won!

By the cost-effective Smart Investments model favored by this think tank, our beloved and humble, self-effacing, team-oriented Twins are first, and those dadblasted, individualistic, egotistical, rich and overbearing Yankees are dead last.

From a payroll-per-wins measure, the Twins rank #1, slightly ahead of the Colorado Rockies as the most cost-effective of the eight teams in the playoffs this year. Hats off to owner Jim Pohlad and coach Ron Gardenhire for getting the most bang for the baseball buck.

Finishing last, notably, are those arrogant and presumptuous and extravagant (do I sound bitter?) New York Yankees, who stand for much of what is wrong with the economic aristocracy in America. It truly was galling to watch them celebrate like Little Leaguers, knowing their “daddy’’ had lavished almost twice as much as the next closest team on the best talent money can buy. And let’s remember that all that Wall Street greed that wrecked our economy occurred just a few miles from their brand new billion-dollar ballpark. (We’ll have a new park too next spring, much more reasonable in total cost, publicly owned.)

Here are the stats for the playoff teams, drawn from Massachusetts blogger Matt Sly’s up-to-date analysis of Major League Baseball statistics. Here’s the link to data on all the teams: http://mattsly.dreamhosters.com/mlb/

SMART INVESTMENTS IN BASEBALL: RANKING THE 2009 PLAYOFF TEAMS

Rank	Team	Salary Cost Per Win	Team Payroll	Wins	Losses
1	Minnesota Twins	$750,566	$65,299,266	87	76
2	Colorado Rockies	$817,402	$75,201,000	92	70
3	St. Louis Cardinals	$852,803	$77,605,109	91	71
4	Los Angeles Dodgers	$1,056,996	$100,414,592	95	67
5	Los Angeles Angels	$1,172,258	$113,709,000	97	65
6	Philadelphia Phillies	$1,215,097	$113,004,046	93	69
7	Boston Red Sox	$1,281,537	$121,745,999	95	67
8	New York Yankees	$1,955,817	$201,449,189	103	59

I’ve been a Yankees hater since about 1958, when the overpaid overlords of baseball beat my heroic Milwaukee Braves in the World Series. (Braves won the series the previous year, however.)

Of course thousands of us progressive, egalitarian Minnesotans have resented the Yankees for decades. We’ve always been rankled by their hollow claim to dominance. They thrive in a phony meritocracy where the field really is not level at all. They hit all those home runs, but as the numbers show, they were born on third base.

On the other hand, the Yankees perennially do get a measure of success by investing huge amounts of money toward their goal, a fact which undercuts the classic conservative canard that we can't reach our goals or solve our problems by throwing money at them.

Jim Pohlad, by the way, is one far-sighted community leader who has helped Growth & Justice carry the message that top-income Minnesotans can afford to pay more in taxes so that we can invest more in the education and infrastructure that can make winners out of all Minnesotans. Revenue-sharing works for other sports, and it can work in real life too, and should be expanded in baseball.

Dane Smith

Government Investment in Norman Borlaug and its Bountiful Return

While some fear that government programs are nothing but boondoggles of bureaucracy, it’s instructive to consider the case of Dr. Norman Borlaug and the vital role our governments played in his world-changing work.

Millions upon millions of people owe their lives to this man, who passed away quietly on September 12^th and yet this winner of the Nobel Peace Prize (1970) remains unknown to the vast majority of the American people.

The prelude to his earth-shaking work was an education at a public university, made financially possible by our federal government’s New Deal programs. Dr. Borlaug received his Bachelor’s of Science in Forestry and his Master’s and Ph. D. in Plant Pathology from the University of Minnesota. It was at Minnesota where he cultivated his passion for defeating "wheat rust," the disease most responsible for decimating wheat crops. He paid for his education via federal work programs like the National Youth Administration and the Civilian Conservation Corps, culminating in a job with U.S. Forest Service.

After a brief stint with Du Pont during the last years of World War Two, the Rockefeller Foundation chose this Iowa native to head-up their agricultural research project in Mexico. There Borlaug developed a high-yield, disease resistant strain of dwarf wheat.  He then traveled the countryside in Mexico, India, Pakistan, and other starving nations, teaching local farmers how to grow his innovative strains and working with governments on the adequate distribution of food and supplies.

 His efforts allowed countries simultaneously experiencing famine and population explosions to become net grain exporters and prevent starvation on a catastrophic scale. As a result, Borlaug (1914-2009) has been credited by many in the scientific community and elsewhere for saving more lives than anyone in history. His work continued until his death as an advocate in Africa and a professor at Texas A&M.

The Borlaug story demonstrates how fantastic achievements become possible when the public, non-profit and private sector combine their efforts. Without support from the Rockefeller Foundation, Du Pont, and many other organizations, the research and activities of Dr. Borlaug may never have come to fruition. But without the lessons learned at the public University of Minnesota, an education supported by government programs, “The Man Who Fed the World” may never have succeeded.

(Image courtesy of the University of Minnesota: http://www1.umn.edu/umnnews/Feature_Stories/Alumnus_Norman_Borlaug_receives_National_Medal_of_Science.html)  

-- Drew Henry, Research and Communications Intern

Read more about Norman Borlaug:  

New York Times Obituary  

Full biography and list of honors   

1970 Nobel Prize Presentation Speech

Hesser, Leon. The Man Who Fed the World: Nobel Peace Prize Laureate Norman Borlaug and his battle to end world hunger. Durban House Publishing Company. Dallas, Texas: 2006.

Minnesota Poll's progressive majority on health care

As a former reporter for the Star Tribune who wrote scores of news stories based on the Minnesota Poll, I am very familiar with the science of polling and its limitations,  and the crucial importance of context.    Here's some important context for the poll results and the headline that declared "Obama's support declines sharply.''   

 A drop in 10 percentage points on job approval, after the "honeymoon" and late in a president's first year,  is typical, but especially if he's mounting the most sweeping social and economic reforms in decades during the most serious recession in a century.    The coroporate bailouts and continuing war in the Middle East have  angered the left, the bailouts and the expansion of a public role in health-care have infuriated the right, everybody's still worried about their personal finances, and still the president's approval rating is about 20 points higher than his predecessor's.

The concerns about health-care transformation undoubtedly are an overriding factor but it appears that the dissatisfaction with Obama's plan comes from many liberal folks who wish he'd gone further.   Although Minnesotans disapprove of his overall "handling" of health care (45 percent to 39 percent),  there is clear approval of the  "public option'' despised by the right-wing critics (51 percent to 37 percent).   Most in the poll  approve a law requiring coverage (54 percent to 37 percent) and a slight plurality (43 percent to 40 percent) actually favor the overall changes being supported by Obama and his congressional allies.   Most important,  perhaps, the poll showed that about 40 percent of Minnesotans are either worried about losing coverage or are currently uninsured.

We've often made the case that there is a sustained majority in Minnesota who favor the moderate-to-progressive position on key economic and tax-budget issues.   These key issues include support for public education, transportation, public health-care, environmental protection and most of the worthwhile vital investments that our governments provide.    This majority also favors  a fairer and reasonably larger tax burden on those at the top of the income scale,  and polls show it opooses an  inflexible "no new taxes'' orthodoxy.

Dane Smith