Growth & Justice Blog

Accountability is essential to a government that works

In his inaugural address, President Barack Obama said: “The question we ask today is not whether our government is too big or too small, but whether it works.”

It’s question state and local leaders in Minnesota must ask, too.

Minnesota citizens hold state government accountable for many of the public outcomes they care most about — quality education, good jobs, clean air and water, safe and reliable infrastructure, affordable healthcare and accessible public spaces.

But the truth is, we don’t have comprehensive ways to answer whether policies in those areas are working as well as we expected or are delivering sufficient bang for the buck.

More than ever, the public demands better performance and more accountability for results. Yet the realities of funding and delivering a wide range of services — through a complex, multi-layered web of providers to diverse constituencies — almost defy effective management, oversight and comprehension.

So we citizens tend to judge government’s performance by anecdote, cherry-picked statistics and isolated example — all seen through a veil of ideology, special interests and changing events. And when people can’t easily understand or trust information about how government is performing, the political climate encourages them to assume the worst.

An example of this distrust — or more positively, the cry for long-term accountability — can be seen in passage of constitutional amendments that dedicated state sales taxes to transportation, environment and the arts. Ballot measures to allocate or limit spending are a weak substitute for effective management of public assets. But absent a fiscal framework that inspires confidence and delivers the outcomes taxpayers want, voters will go with what they can get.

Budget review should look at more than dollars

With the state facing a massive budget shortfall, the discussion will inevitably focus on size — whether revenues are sufficient and which expenditures have priority. We can see the governor is heading toward tax cuts and program cuts. But lawmakers should not only look at program dollars. They should also ask whether budgets provide the ingredients to succeed, to reliably assess performance and to hold the right players accountable for future results.

Earlier this month, the state Budget Trends Study Commission offered recommendations supporting more informed budget and policy decisions. It was striking how much of its advice echoed eight prior fiscal advisory groups going back to 1984, and how much had been inconsistently implemented or ignored since then. 

Eleven months ago, a group of  state legislators outlined a set of principles and proposals aimed at better linking connecting policy goals, funding and results. The ideas were drawn in part from work on “governing with accountability” in progress at Growth & Justice. [Here's the report we produced in March.] The response from the news media and the public was somewhere between a yawn and silence.

But let’s assume that the current crisis finally has refocused  our attention on making governments work better. What would be required to tackle this?   How about these guiding principles, for starters?

Principles for governing with accountability

1. Leadership Commitment. It’s motherhood and apple pie to say accountability starts at the top of an organization. The challenge is establishing it long term in an environment where power is distributed between parties, policy goals compete and legislative and executive leadership roles can shift with political winds. However leaders may differ on specific programs, they should reach consensus on governing with accountability as an enduring commitment. Now would be a good time to start.

2. Long-term outlook and clear priorities. Partisan concerns are best transcended by raising our sights to agree upon a long-term vision for the state and the key indicators of success. Each year, we should report on our progress and set annual priorities for closing the gap.  Follow-through on innovations and cost-saving opportunities too often fails when improvement efforts are not part of a larger, ongoing accountability framework.

3. Straight talk and open books. As anyone who has navigated the state’s financial reporting can attest, budget transparency isn’t the same as clarity. Bottom line, the public wants to know total cost of government, coupled with an honest assessment of how it is performing. A useful accounting must be fact-based, avoid gimmicks and include both direct expenditures and tax expenditures (which lower revenues through exemptions, deductions and incentives).

4. Fiscal responsibility. Consistent budget practices, asset stewardship, accurate cost projections and broad, fair taxation foster the revenue stability needed to provide effective and reliable services. As the Budget Trends Study Commission said, this is harder than it looks. The place to start is agreement on a strategic management framework and maintaining consistent practices over time.

5. Efficiency and effectiveness. No one, inside government or out, loves bureaucracy, red tape, duplication and waste. The governor has championed a “Drive for Excellence” initiative that adopts ideas of business enterprise transformation to streamline operations, and all levels of government have been chipping away at costs and becoming more customer focused for years. But there’s still plenty of room for improvement, especially in the area of increased empowerment, flexibility and incentives that encourage performance and accountability of public employees. 

6. Accountability for results. We like to talk about elected officials being accountable, but day-to-day, public services and other policy outcomes are delivered by a network of agencies, private service providers, non-profit program operators and various beneficiaries of subsidies and incentives. Governing with accountability makes all of these players accountable for delivering the results for which they received public funds.

By more rigorously defining policy intent, specifying expected outcomes and public benefit, and linking results to fact-based indicators, legislators and administrators have better ways to judge whether initiatives are working — and whether they should be revised or eliminated.

That’s a lot to take on in the midst of a budget typhoon. Probably the best we can ask this year is that lawmakers keep these principles in front of them as they make tough decisions.

But until the state better addresses the gaps between intent, implementation and outcomes, we can look forward to repeating this unpleasant cycle again and again.

— Charlie Quimby

Cut my taxes, or I'll kill this job!

Despite many years of running and growing a company as a bleeding-heart liberal, I can't ever remember getting up in the morning and saying: "Today, I'm going to go forth and create a new job!"

Now, maybe State Senator Geoff Michel (R - Edina) — a logical legislator who must've absorbed a few sound fiscal concepts as an aide to Gov. Arne Carlson — knows some people like that. But more likely here, his thinking is shaped by people who say high taxes prevent them from creating jobs, when they really mean they wish they made more money and cutting their tax rate is the easiest way they know how.

The idea that investment helps create jobs has some truth in it, and so does the notion that if investors can make more money by growing a company than by manipulating the stock market, they will do it. Long term, I might even agree with conservative economists on the main point.

But whether you are a state senator or President of the United States, you lose sight of the following truth at your peril. Investors are interested in making money, not creating jobs. And entrepreneurs are just a crazier version of investors. If they have to create jobs to realize their vision, they will do it. But if they could accomplish the same thing all by their lonesome, they would do that in a heartbeat.

So even though I don't automatically get palpitations when some politician proposes cutting corporate tax rates, I just shake my head when I see them claiming that cutting business taxes will "kick start the economy" and "grow jobs."

Still, when Sen. Michel (R - Edina) issued the tax-cut altar call this week — "Let's send a message today that Minnesota is open for business" — True North's Chief said Halleluiah:

Revenue can not possibly increase if businesses are cutting employees, shutting their doors and moving to Nevada, South Dakota and Texas.

True enough, but a big "if." And he failed to draw the connection between what anti-tax dogma says will happen and what is really going on.

A new analysis from the Center on Budget and Policy Priorities lays out why a corporate tax cut is unlikely to provide an economic stimulus any time soon:

“Increasing the after-tax income of businesses typically does not create an incentive for them to spend more on labor or to produce more, because production depends on the ability to sell output."

There's a fair amount of cutting and door shutting happening in the low-tax states the Chief cites, too. But we've been told they, along with Florida, have been absconding with Minnesota's business wealth. This is largely based on business tax state rankings ginned up by the Tax Foundation — not on actual studies that show an exodus is occurring. (Matt Kane offers a counter-view here.)

In fact, the indicators for those states are doing no better than Minnesota's.

Nevada leads the nation in foreclosures, followed by Florida, and ranked 45th (that's bad) in unemployment rate (Florida is 39th). Texas (27th) and Minnesota (25th) are about even on foreclosures; Minnesota's unemployment rate (31st) is 0.7 points higher than Texas's (19th). Fresh business bankruptcy data is not easily accessible, but Texas had been showing a much worse rate compared to ours.

South Dakota is the outlier, but as far as substantial Minnesota industry shutting down here and moving across the border to create jobs, Brad Pitt is more likely to start making babies with Kathy Bates.

— Charlie Quimby

Cross-posted in an edited version from Across the Great Divide

Transportation Dollars in the Economic Stimulus Package

The economic stimulus package forthcoming from Congress will include funds for transportation investments, but the proposal on that front from U.S. Rep. Dave Obey unfortunately differs from suggestions made by Minnesota Congressman Jim Oberstar.

Oberstar -- chair of the House Transportation and Infrastructure Committee and the House wise man on all things transportation -- had pushed for more balance between dollars for roadways and dollars for transit, suggesting about one-third of the transportation funding in the economic stimulus package go to transit and rail investments.  Obey, chair of the House Appropriations Committee, sliced that down to one-quarter.

The Oberstar proposal makes sense given strong interest in transit and rail, particularly in light of auto congestion problems and environmental concerns.  But Obey's Appropriations Committee, not Oberstar's Transportation and Infrastructure Committee, has the final say before action by the full house. 

As it stands, transportation spending on roads, transit and rail would account for just more than $40 billion in the Obey plan.  The full economic stimulus package from Congress is expected -- at least right now -- to include about $550 billion in federal spending and $275 billion in tax cuts.

National and state groups interested in transit have called upon the House to more closely balance economic stimulus spending on transit and roads.  Here's hoping that House members consider Obertar's original recommendations and heed the call for adjustments in the transportation part of the stimulus bill.

-- Matt Kane

Overlooked: Minnesota must better maximize federal dollars

Jim Robins is a former Minnesota Senate Majority researcher assigned to taxes, metropolitan and local government, and transportation issues. He currently operates www.ScooterMaxi.com.


Minnesota has a long tradition of under-utilizing state revenue opportunities available from beyond its borders. Nowhere is this more evident than when it comes to return on federal taxes paid. So, it wasn’t surprising that the recent Minnesota Budget Trends Study Commission report didn’t address this deficiency.

No doubt, we have a long-term budget problem that must be resolved by matching revenues with expenditures, but realistically we’ll need to go beyond the report’s recommendations to get there. Generating more federal help might be more politically feasible than some of the painful fiscal recommendations, such as avoiding anticipated accounting shifts.

We used to say prosperous Minnesota should pay more than it gets back because we can afford it, but we just aren’t that darn special anymore. While our economy today now looks a lot more like most others, our federal payback certainly does not.

Based on Tax Foundation data [PDF](compiled from the annual Consolidated Federal Funds Report), Minnesota’s federal tax dollar return “deficit” is sliding deeper. In FY-1985, this deficit was just less than $600 million / $504 per capita / with a 90-cent return per $1 sent in. By FY-1995, the deficit was $5.5 billion / $1,175 per capita / with a 78-cent return. By FY-2005 (the most recent data available), the deficit had climbed to $9.5 billion / $1,513 per capita / and a meager 72-cent return. Minnesota’s return ranks fifth worst in the nation.

By any measure, a recurring $9.5 billion return gap is hurting this state’s economy and triggers long-term hurdles to balancing the state budget.

Soon we will see the second coming of WPA out of Washington, D.C. Our state leaders should press harder for our share of one-time federal revenues to trigger an employment spark and improve our bottom line.

Our smartest return in Minnesota could come from energy conservation grants for federal, state and local government buildings, as well as low-income residences. That strategy can spark recovery while lowering our fixed costs and wasted energy use in the long run. As the new stimulus plan takes shape in Congress our representatives should push to expand on this form of investment not only for its economic efficiency, but because it will garner disproportionate benefit to our extreme-weather state.

— Jim Robins

Click on "10000strong.org" for Martin Luther King Day

This is about here and now.   At Growth & Justice, we try to focus relentlessly on the long-term and the strategic, on the thinking and research and advocacy that will expand and improve our public investments for a more shared prosperity.   And we don't focus so much on the immediate, the obligation to take care of more urgent injustices.   Few human needs are as immediate and pressing as hunger, and by all accounts this problem is spreading in Minnesota during a time of deep economic travail.    Here's something I'm doing right now, and I urge you to do so also.   Click on 10000strong.org, watch the powerful and compelling video,  and do what the good people tell you to do, or as much as you can.   It's an effort, led by Second Harvest Heartland, one of Minnesota's premier non-profits, to enlist at least 10,000 people  in the Land of 10,000 Lakes to alleviate hunger now and, eventually to end it in our state.  It's a most appropriate thing to do on Martin Luther King Day and Inauguration Day. 

Dane Smith

Minnesota’s Business Taxes, Climate – Not So Bad

Governor Tim Pawlenty in his 2009 state of the state address called for reduced corporate income taxes as a way to help Minnesota recover from the national economic crisis.  According to the governor, Minnesota’s business taxes are out of line.

For the high tax claim, the Pawlenty hangs his hat on a short Tax Foundation write-up that adds U.S. and corporate income tax rates together and compares the rates to those of foreign nations. While this has set off alarm bells in the Pawlenty administration, it’s not a very useful exercise because corporate income tax rates are but a one part of the total picture for business taxes.

The range of taxes on business certainly includes the corporate income tax — for corporations, anyway — but also includes property taxes, sales taxes, individual income taxes for small businesses, license fees, workers compensation taxes and unemployment insurance charges. 

Minnesota is competitive when it comes to business costs and taxes, says the website for Minnesota's Department of Employment and Economic Development. As noted there, a 2004 study by the Federal Reserve Bank of Boston ranked Minnesota 41st for taxes as a share of business profits.

And the private-sector consulting firm Anderson Economic Group, in its latest annual report [download pdf] identified Minnesota as the fourth lowest state for business tax burden using a broad range of business taxes measured against profits earned in the state. Clearly Minnesota's rank would change if other measures of taxes or business earnings were applied, but the AEG report demonstrates the difficulties with blanket statements about high business taxes in the state.

For businesses, of course, it’s more than just taxes that shape the environment. Forbes Magazine recognizes as much in its annual ratings of the best states for business. Of the 50 states, Minnesota ranks 11th. Not bad.

Over the years, Minnesota has been a great place to do business in part because of ample but smart public investments in quality education, transportation and other infrastructure, and quality of life concerns, such as health and the environment.

Corporate income taxes may be an issue — or maybe not, given a total accounting for all of the state’s business taxes. Either way, corporate income tax cuts do not jump out as a key issue for the state to tackle in the midst of a sagging national economy and a massive budget deficit.

— Matt Kane

Fixing Minnesota's Budget: Don't take more income off the "kitchen table"

As it became clear the state was facing a profound budget shortfall, I braced myself for a hoary scene to be propped before us repeatedly in the coming months. Right on cue, its first official appearance for 2009 came in Gov. Pawlenty’s state of the state address.

Yes, it’s ma and pa at the kitchen table, back for another go at the family budget.

On the table are bills, notices and a notepad with a budget that's tighter than it's ever been. Hope and fear are also at the table.

If the kids weren’t already put to bed, I’d half expect Tiny Tim to enter, lay his crutch across the table and deliver the governor’s lines:

Please don't add to their burden by increasing their bill from government.
 
Please don't take more of their hard earned money.
 
Please don't raise their taxes.

I don’t mean to make light of real families facing real financial challenges, but this beloved GOP set piece is calculated to appeal to our emotions. It does not illustrate the common sense of the “typical Minnesota family” or realistically portray their approach to financial management.

Most Minnesotans understand that a budget is composed of income as well as expense. A real family facing a real budget squeeze would not just cut the frills, darn the socks, eat more ramen noodles and turn down the thermostat.

Most people would also consider trying to find more money.

I happen to know members of struggling households who have gone out and found temporary and part-time work, even in this economy. They’ve become more resourceful in using coupons; they’ve taken in roommates, shared rides and baby sitting; they have each other over for dinner; they hock some non-essential possessions. They sell plasma. And yes, they visit food shelves and make use of government assistance.

Most of these measures are not much more fun than the cost cutting, but their effect is to put more dollars on the table to keep life going at a reasonable level.

There are some other cracks in this rhetorical diorama.

For example, the mom and dad are always alone — unless you count the spectral revenuers gathering outside their door. I’m all for self-reliance and plucky independence, but Minnesota didn’t get to be a great state simply by everyone solving tough problems on their own. Some challenges take a village, and some require the involvement of a whole nation.

Also note in the scene how we’re encouraged to envision a mismatched dinette set piled with overdue bills, and not a polished granite counter top set with a gourmet meal. Who is advocating “increasing the bill from the government” for families on the edge of solvency? But not everyone in Minnesota is hurting, and those of us feeling the least pain also happen to be paying a lower effective tax rate than the folks being portrayed.

And finally, if we transport the kitchen table to the capitol as the governor suggests, his metaphor becomes nonsensical, because he proposes cutting taxes as part of his solution. In ma and pa terms, that means one of their first priorities would be asking their employer for a pay cut!

Let’s agree with the governor that solving our budget imbalance will require resetting priorities and doing some things differently. The next two years will be no picnic. But let’s not buy the version of kitchen table “common sense” that only takes money off the table.

— Charlie Quimby

Reaching across the river... and the aisle

"Government has got to change," Minnesota Gov. Tim Pawlenty said, standing next to Wisconsin Gov. Jim Doyle at a news conference in St. Paul. "We can't sustain what is going on."
— Star Tribune

Shared services across governmental boundaries is an idea whose time is past due. Congratulations to the governors for taking the initiative to explore joint commodity purchasing, sharing expensive assets and combining service operations like licensing.

Here's another idea. Share some of the common functions of state health departments.

We praised Minnesota's Department of Health the last time it solved a national salmonella outbreak, and they've done it again. If other states want a model center of excellence, they'd find one here. But such excellence isn't easily replicated. It takes the support of a strong, research-oriented University system, a culture of public service and a history of investment.

Counties, school districts and municipalities are also taking a closer look. In my personal blog, I wrote about a proposal to merge federal land agencies.

And I couldn't help noticing that those governors didn't just represent two neighboring states — they represented an [R] and a [D].

— Charlie Quimby

Financial transactions tax is a new idea for a country that needs them

Although our focus is on Minnesota, balancing public budgets is a universal issue right now, and truly fresh thinking about solutions is in short supply.

Writing about the federal budget, New York Times columnist Bob Herbert could be describing the befogged mania of anyone who believes we can spend without taxing or fill gaping budget holes without more revenue.

Budget deficits and the national debt are streaking toward the moon. And the only remedy anyone has come up with for fending off Great Depression II has been deficit spending on a scale reminiscent of World War II.

However, Herbert notes, there's one new idea that just might raise needed tax dollars progressively, while dampening some of the speculation that has helped contribute to the world financial crisis. It's a financial transactions tax proposed by economist Dean Baker of the Center for Economic and Policy Research [Download pdf].

A small transaction fee of up to 0.25 percent on the sale or transfer of stocks, bonds and other financial instruments could raise in the vicinity of $100 billion annually, according to Baker. The expense would be minor for the average investor or buy-and hold-retiree, but it would levy a higher cost on speculators who treat the markets "like a casino."

“It raises money in a way that comes primarily at the expense of speculation,” said Mr. Baker. “The fees would be a considerable expense for someone who is buying futures, or a stock, or any asset at 2 o’clock and then selling it at 3. The more you trade, the more you pay.

I haven't read the detailed proposal or any critiques from the financial industry. Of course, such a tax would probably "kill jobs" and might shift trading to other international exchanges. But it's at least an idea that recognizes deficit spending is not infinitely sustainable.

— Charlie Quimby

State budget trends: Unsustainable but not insurmountable

As if we haven't already had enough sobering reading material about the state of the state, the Budget Trends Study Commission released its report [Download pdf] to the Minnesota Legislature today.

The report contains a fair amount of the familiar if you've been following the drumbeat of the Two Toms (Stinson and Gillaspy):

• A major, long-range demographic shift will include greater diversity and an aging population. 
• A growing economically dependent population will rely more heavily on fewer wage earners.
• Long term expenditures —health costs in particular — are growing at a faster rate than state revenues.
• The state economy has begun under-performing relative to the nation.

The litany of issues is followed in the executive summary by the slightly softening statement, "The challenges of the future are not insurmountable but they are real." Even if we knew it already, it's painful to read the unvarnished analysis that "Minnesota is on an unsustainable course in terms of revenue and expenditure growth." And, "If Minnesota wishes to have the prosperity it had in past decades, the solutions will need to be robust, effective, and immediate."

Couple the disturbing trends with the current budget shortfall and near-term economic picture, and it's clear no unilateral cost cutting or tax raising will be sufficient to change the present course. (And doing both is hardly going to be popular. For example, the black humor suggestion: Raise taxes on the elderly and poor until they move to Texas.)

Rather than presenting groundbreaking approaches, the report identifies gaps, suggests tools and advises taking the long view in managing toward a better balance of state revenues and expenditures. But reaching this balance, the report says, will be much more difficult than it sounds.

The Commission offers recommendations in three broad areas: Providing better information to make informed budget and policy decisions; achieving a long-term balance of state revenues and expenditures; and managing state budget volatility. The ideas advanced are best viewed as a framework for gradual improvement, not a menu of fixes.

One theme worth raising here is the public's complicity in creating the budgetary imbalance. Our twin appetites for low taxes and high services have helped sustain our quality of life. 

Until there are significant changes in public expectations, state officials will repeatedly scramble to balance the budget but will not have the time or resources to address the state’s competitive position and seek opportunities for future prosperity.

The scramble is now under way.

 — Charlie Quimby