Growth & Justice Blog

Put Federal stimulus dollars to work for our students

The American Recovery and Reinvestment Act (ARRA) has a lot to say about the value of education. Now the question is how Minnesota will get the most value from its share of the money.

Nearly 13 percent of the overall federal stimulus package — about $100 billion — is directed to education. That amount is nearly double the U.S. Department of Education’s annual budget.

The newly-minted secretary of education, Arne Duncan, appears ready to be a prudent steward of these unprecedented dollars. Secretary Duncan has built in several methods for establishing transparency, accountability and results. When applying for ARRA funds, state governors must specify how they will address key reforms, provide baseline data, demonstrate record-keeping and transparency, plan for improvement and provide evidence of progress.

Around half the stimulus money ($53.6 billion) is in State Fiscal Stabilization Funds (SFSF) directed at keeping and restoring education-related jobs. This is a wise move. Adding unemployed public sector employees on top of unemployed private sector employees is no help to our current economic situation. These stabilization dollars will first be used to back fill any cuts in K-12 and higher education that states have had to implement. 

About $25 billion is directed at increasing special education/IDEA ($12 billion) and Title I ($13 billion), which will be allocated over the next two years. These additional funds nearly double the federal government’s current allocation to these programs. The remaining $36 billion or so will be distributed through federal government formulas and higher education tax credits and Pell Grants.

The Pawlenty budget: what it doesn’t do that federal stimulus does

What this means for Minnesota, according to the latest release of figures on state allocation [Download PDF], is that our state stands to see $1.135 billion dollars in federal aid — about three times what we received in 2008. The bulk of this will be $816 million in new money for state stabilization — which will go through the governor’s office. Another $200 million will go to special education, and about $95 million will be distributed to local districts in the form of Title I aid.

U.S. governors are increasingly driving their state education agendas. The ARRA money creates a new tension between the governor’s office and the federal role, since the state fiscal stabilization funds are received based on a governor’s application — which would likely reflect the governor’s agenda. 

Gov. Pawlenty has already spelled out his education agenda in his budget proposal, “Transforming Minnesota’s System of Education” [PDF]. He calls for: transforming the system of education; recruiting, retaining and retraining effective teachers; and utilizing innovations for improving student achievement. And, he has asked for $188 million in additional dollars from the legislature to advance his agenda.

While we welcome his affirmation that our economy will increasingly be dependent on skilled workers and his move to invest more in our state’s education systems, there is not much of this modest amount directed at Minnesota's students.

Instead, the governor will assign the majority of his “transformative” dollars to testing and professional development for teachers and principals.

So, what about our students? Less than $10 million (about 5 percent) would go directly to students — in the form of a summer school program for 8th graders struggling in math.

Some important areas of investment are missing from Gov. Pawlenty's new budget:

• Readying young children for school success — even though we know we get the greatest return on our investment by starting early, and by starting early we increase the likelihood of students reading well by the end of 3rd grade.
• Providing rich learning environments in and outside school that challenge student thinking, promote learning by doing, provide higher-order thinking skills and develop engaged learners and engaged citizens.
• Encouraging best practices in curriculum that have proven to move students from below proficiency in math, reading and science to above average and college-ready.

Minnesota should be thankful that the federal government is providing crucial supplementary aid to support the governor’s agenda with funds for teacher effectiveness, funds for data systems that track student progress over time, and funds for raising standards that are aligned with higher quality and meaningful assessments.

But those investments don't very directly address these realities. One fourth of Minnesota’s students are not proficient on the MCA –II in 3rd grade reading. Almost half (46 percent) are not proficient in 8th grade math — even though No Child Left Behind requires that all students take and pass Algebra I in 8th grade by the year 2013. And what of the 34 percent of Minnesota’s students who need remedial instruction in their first year of post-secondary education — costing the student an additional year of high-rate tuition, plus moderate state aid to fund the classes?

It is clear that the governor’s budget aims at holding the education system accountable for outcomes. But where is the investment in Minnesota’s students that will have a strong impact on those outcomes?

What districts can do

Local education agencies and districts can make the most of unbudgeted ARRA stimulus dollars by making discretionary use of Title I monies to invest in best practices shown to improve student outcomes.

Growth & Justice has worked with state and national scholars and economists to develop a list of proven and promising practices that "work best at the best price.” (See the table below with links to more information.) These will move the needle by addressing the whole student — in- and out-of-school, from 3 years old to the end of high school, and encompassing social and financial as well as academic needs.

In this list, educators may see practices they have already established in their districts and would like to expand, or practices they have wanted to implement but have not had the funding to do so. We hope educators will act swiftly, judiciously and with student improvement in mind as they move to take advantage of this historic opportunity to “reinvest” in our students.

— Angie Eilers, Research & Policy Director

Cost Effective Interventions to Increase Student Achievement

Prenatal to Age 4
Nurse Home Visits
Financial Assistance to broaden access to quality childcare 

Age 4 to Grade 3
Chicago Parent-Child Center

Elementary School
Success for All

Middle to High School
Advancement Via Individual Determination (AVID)
Achievement for Latinos through Academic Success (ALAS)

High School
Talent Development High School
First Things First

Out-of-School Time
Big Brother/Big Sisters
Check and Connect

Transition to Higher Education
Admission Possible
Talent Search
Financial Access/need-based aid

Consumer demand isn't the only reason to put public records online

The Sunshine Week 2009 Survey of State Government Information found that for 20 types of records it deemed of broad interest to the public, Minnesota made 13 available for free online [Download list by type], putting the state slightly above average. Texas was the only state that provided all 20 types of information and Mississippi ranked last, with four.

The Star Tribune's headline on a story about the survey — "Survey: 65 percent of Minnesota government records online" — is misleading, since the sponsors certainly did not measure all types of records, and 100 percent of all records would hardly be a desirable goal. As Doug Neville, a spokesman for the Minnesota Department of Public Safety, said, "If we were to take everything we do and put it online, it would be harder to find that information."

Most Minnesota consumers might not feel left in the dark by the state's failure to post gas pump overcharge records or by the lack of a state database of consumer complaints. Availability of child care center inspection reports may be of intense interest to a few taxpayers and of no value to many others.

But taxpayers should care that we can't yet access an online database of state expenditures — or, as a previous study by Good Jobs First found, that Minnesota ranked “dead last” on public disclosure of state contracts. Since we have to make choices about where to invest public resources and staff time, it should be in the comprehensive systems that make government more accountable overall. 

We're getting there, but as I wrote when the Good Jobs First study came out:

Making information more accessible to the public is only a small aspect of developing a culture of fiscal discipline and accountability. The really hard work, which no state does very well, is ensuring that public dollars are spent to achieve specific outcomes and holding government bodies accountable for what we expect them to achieve.

Sunshine Week is not the end of sunshine activities in Minnesota. The Minnesota Coalition on Government Information will be the host for the 2009 Freedom of Information Summit in Minneapolis June 5 and 6.

— Charlie Quimby

Minnesota tax system is at its regressive worst

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's relatively progressive personal income tax masks the fact that the state is not a leader in progressive taxation, and the trend shows we are gradually getting more regressive over time.

Those are the unfortunate major conclusions we can draw from the 2009 Minnesota Tax Incidence Study. While we are not yet sure about the reasons, we know all major taxes are sliding toward greater regressivity (i.e. the poor and middle class paying a greater share of their income, the rich paying less). Addressing this worsening situation should be a high priority as we also look at tax policy to encourage business growth and replace declining revenues.  

With some drama, we can say the Minnesota system has arrived at its regressive worst in the two decades since we started studying tax incidence. In fact, we saw an unprecedented doubling in regressivity from 2004 to 2006 — the years represented in the 2007 and 2009 studies.

Those who dismiss disproportionate taxation as a concern will claim this widening unfairness is just a matter of business cycles. However, the falling trend lines clearly indicate that major tax policy shifts may be needed to nudge the tax system back toward proportionality.

An unexpected addition to the Tax Incidence Study was the use of an aging 50-state report by the Institute on Taxation and Economic Policy (ITEP) for comparison purposes. Based on 2002 ITEP data (when Minnesota regressivity was at a low point), the state's tax system ranked as 11^th most progressive in the nation. Low-tax Delaware has a progressive tax structure, and ranked first; high-tax Washington ranked 50^th, or most regressive.

The Revenue Department cautions against comparing the Suits numbers in the January 2003 ITEP study to the Suits numbers calculated in the 2009 Tax Incidence Study, and we don’t know what has happened in other states since 2002. The ITEP methodology is somewhat different, and we are left wondering if it is not entirely possible Minnesota has dropped to the middle of the pack. Almost certainly our dramatic four-year slide in regressivity — from -.018 to -.053 — would have us heading in the wrong direction in those rankings.

Unfortunately, it may be even worse than the indicated -.053 regressivity.

The 2009 study should have included in its 2006 data the highly regressive 75-cent cigarette and tobacco “Health Impact Fee” passed in 2005. Keep in mind, the HIF was declared by the Minnesota Supreme Court as a tax burden on users, not a health impact charge on tobacco companies and distributors.

Minnesota Revenue researchers, headed by Dr. Paul Wilson, have always conducted the study using the highest social scientific standards. So, it was not surprising at all to see the straight-shooting Wilson supply a House committee with testimony indicating that including the HIF bumps our regressivity factor even more steeply to -.059. We look forward to the day when the HIF is formally considered as tax revenue in the study.

Regardless where we might rank today, Minnesota's overall regressivity has tripled in the four years between 2002 and 2006, more than 25 percent worse than at any time previously measured. We have a lot of work to be done if we hope to achieve a proportional tax system — let alone the loftier goal of progressivity.

Take care in reading the Tax Incidence Report findings

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.

Every two years, one of the most-impressive bureaucratic endeavors undertaken in Minnesota is carried out. This week we eagerly anticipate receiving the 2009 Tax Incidence Study. [The report will be available here this week.] This report has a sterling national reputation and should be celebrated by everyone who treasures the use of empirical data in developing fair and progressive tax policy.

However, it is a challenging document for the casual reader, and the potential is great for abusing one or two statistical estimates out of the tens of thousands reported. Take note that the Tax Incidence Study necessarily contains a four-year black hole between measured historical data and forecasting estimates. For 2009, that means we have no data reported for 2007-2011 — an important time frame considering the huge economic swing Minnesota and the nation are currently experiencing.

Although mine is only an educated guess, you can safely assume that the Minnesota tax system is more regressive (taxing the poor at a higher rate than the rich) right now than it will show in the boom-time 2006 results, or the 2011 estimates when at least some level of economic recovery is anticipated. In down times, the tax system is most regressive.

The volatility of progressive tax sources, particularly revenue from the income tax, is the key factor in determining changes in the Suits index — used as a summary measure of overall progressivity or  regressivity. Suits measures from +1 (100 percent progressive) to -1 (100 percent regressive). Minnesota had an essentially neutral system in 1990, but has trended somewhat more regressive ever since. 

We headed in the wrong direction throughout the 1990s, dipping to a hefty 4 percent overall regressivity in 1998. Boom times at the start of the current decade partially masked regressivity, but we have been heading downward again in recent years (1). It is particularly important to keep in mind these extended trend lines over many years rather than focus on just one or two new Suits index numbers unveiled in the 2009 study.

Finally, we should think about the Tax Incidence Study findings in the context of the current political discussions. We have the opportunity to enact substantial overall tax reform this year, and it appears that business taxes will be a key factor in debate. Although we intuitively assume state business taxes are progressive, the 2007 measurement (based on 2004 data) indicated that they are 16 percent regressive (2).

However, the much-maligned corporation franchise tax is 47 percent exported out of Minnesota as measured in both the 2007 and 2005 reports (3), and that means we would be giving nearly half the tax relief to non-residents. Perhaps we can find better ways to provide business tax breaks without sending so much of the relief to people who don’t live in Minnesota. As I have documented in a past posting, our state has done particularly poor job of generating outside revenue compared to other states. We shouldn’t make things even worse.

[According to a 2002 report by the Center on Budget and Policy Priorities, "only a handful of states systematically assess the impact of tax changes on families at different income levels [and] only three states (Maine, Minnesota, and Texas) now require such analyses of major state tax legislation by either the legislative or executive branch."]

Without sounding too wonkish, it will be exciting to get our hands on this year’s Tax Incidence Study. Let’s hope our state policy makers make the most of the data, and put together the kind of proposals that will result in tax fairness at a time when we need it most.

1) 2007 Minnesota Tax Incidence Study, p. 3 Download PDF

2) 2007 Minnesota Tax Incidence Study, p. 13

3) 2007 Minnesota Tax Incidence Study, p. 83; 2005 Minnesota Tax Incidence Study, p. 85 Download PDF