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

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

Who's hurt by transit funding cuts? The poor and smaller communities.

Transit for Livable Communities blog links to a report by Transportation for America that surveys the nationwide "Impact of the Financial Crisis on Public Transportation." 

The report notes that the price of a monthly bus pass for the public transit system serving the city of Marshall and Lyon, Redwood and Jackson counties has jumped from $25 to $80 per month. The price bump is just one consequence of the cascade of spending shifts as state funding for local services diminishes — through unallotment and budget cuts and, in the case of transit, through a decline in dedicated funding streams such as state sales taxes on motor vehicles.

Especially in urban areas, there are two types of transit riders — those who ride by choice and those who are transit-dependent. Bus service cuts and fare increases may drive the "choice" users back to their cars, but for the households without a vehicle (see chart) their options shrink. In rural areas, where transit may be their only link to employment, medical care or other services, the impact of underfunding goes far beyond "transportation."

 

The post by TLC's Katie Eukel underlines some of this local impact, quoting the director of the non-profit that runs the Marshall system.

“Transportation services are not a luxury for people living in rural areas — they are a necessity," says Jeanette Porter, Transit Director with Western Community Action. "When transit providers are forced to shift so much of the financial burden onto our passengers, or agencies helping their clients, it creates a devastating cycle that is already beginning to take effect... Often people must move to a larger area where more options are available. This not only affects those who depend on public transportation, but the economic and social vitality of their communities, as well.” 

It's a point we made in a recent editorial, but it bears repeating again and again as the state tries to set budget priorities. Transit service cuts and fare increases may make sense if you’re looking for ways to affect a budget line item. But they're a poor bargain if you’re looking at the actual people and communities affected.  

— Charlie Quimby

Highways investment gap highlights need for alternatives

The Minnesota Department of Transportation’s just-released statewide transportation plan on policies and highway investments flags a startlingly large $50 billion gap between dollars available for roads and bridges and the $65 billion required to meet state needs in those areas over the next 20 years.

Ouch.

No surprise that under our current policies and approaches, Minnesota’s transportation needs are rising.  Over the last 20 years, travel by car and truck in the state shot up at a rate nearly three times faster than population growth. 

It doesn’t help that we drive more in Minnesota than they do elsewhere — fully 10 percent more on a per capita basis when compared to national rates. 

And, like other states, Minnesota has an aging transportation infrastructure in need of significant renovation and rehabilitation. We face significant costs just to keep what we have.

Mn/DOT wisely plans to spend three-fourths of the projected $15 billion in highway dollars available over the next 20 years on a fix-it-first strategy, looking to preserve or replace existing roads and bridges. But the $50 billion gap is a wake up call for us to look beyond our present focus on more roads and more driving and pursue other strategies to address overall transportation challenges. 

To its credit, Mn/DOT’s transportation policy plan, released at the same time, acknowledges that “a more multimodal and multi-jurisdictional approach to transportation is needed to achieve major goals, including maintaining Minnesota's economic competitiveness, reducing greenhouse gas emissions and providing modal choices for consumers.” Other plans addressing transit, freight, metro highways and “complete streets” will be forthcoming.

As noted by Mn/DOT, region-wide transit stands out as part of the solution for urban areas in the state, with its potential for improving transportation access and mobility, as well as the quality of life for many Minnesotans.  Significant increases in transit use can reduce the need for more lane miles in the metropolitan area and yield the added benefits of reducing fuel consumption and air pollution.   

Traffic management strategies also have an impact on Minnesota’s roadways. The Texas Transportation Institute in Austin estimates that traffic delays for Twin Cities metro rush hour travelers is lower by 5.5 million hours than it would be if not for traffic management approaches, such as metered ramps on freeways, rapid response to accidents and incidents, and high-occupancy vehicle lanes.

But to slow the high demand for travel, state, regional and local governments also must consider land-use policies. As noted in the Mn/DOT plan, “Local governments can use their planning and zoning powers to guide land uses that make efficient use of the transportation system.”

We should discourage sprawl and encourage the concentration of jobs in downtowns and centralized employment centers.  We should link affordable housing to transit lines and stops.  And we should design complete streets that work well not only for cars but for all users, including transit vehicles, pedestrians and bicyclists.

Even with improvements and changes in these other areas, Minnesota will still need to spend billions to address bottlenecks and fund maintenance and overhauls on roads and bridges that need attention.  Billions of dollars, yes, but billions less, perhaps, than the $65 billion in needs identified.

Minnesota’s transportation system affects the economic outlook for the state and both the economic well-being and quality of life for Minnesota residents. Given the daunting needs we face for state spending on transportation, it’s past time for Minnesota to consider not just how much to build and repair highways but how best to both address and alter those needs with new investments, policies and choices.

— Matt Kane

State economist affirms: Cuts cost more jobs than income tax increase

State Economist Tom Stinson estimates the spending cuts Gov. Tim Pawlenty will start making today will cost Minnesota 3,300 to 4,700 jobs.

By contrast, Stinson told the Legislative Advisory Commission on Tuesday, the $1 billion income tax increase that the Democratic-controlled Legislature passed and Pawlenty vetoed in May would have cost the state an estimated 1,000 jobs over the next two years.

— Pioneer Press

In May, Growth & Justice estimated potential state job losses from a proposed new 4^th tier personal income tax rate of 8.5 percent. Our study [PDF] — of a somewhat different tax proposal than the one ultimately passed by the Legislature — put the potential impact of the revenue-raising tax increase at 1,000 to 5,000 fewer jobs (out of about 2.7 million).

Yesterday, Minnesota's own state economist came up with a job loss number at the low end of the range Growth & Justice estimated.

We're gratified to see our work validated by Tom Stinson's estimate. (And let the record show, we so-called "tax-loving liberals" were even more conservative in our portrayal of the potential downside of raising more revenue.)

Stinson affirmed the other side of our case, too.

We declared that "any harm from higher taxes should be weighed against the potentially greater negative effects of spending reductions" and noted that the governor's proposed spending cuts could cost even more jobs in local governments and government service providers. 

Stinson's analysis of Gov. Pawlenty's unallotments puts some solid numbers behind that conclusion as well. In his estimation, the impact of the specific cuts could be three to five times greater than the impact from tax-increase-related measures.

It could be worse. His estimate reportedly did not include indirect job losses, such as when a private contractor loses state business and is forced to lay off employees.

Our assessment, though based on evidence, was still theoretical. Unfortunately for Minnesota, we about to gather more evidence about job loss — from unallotment, starting today.

— Charlie Quimby

Hollowing out the public sector affects public safety

Our continuing and increasingly dubious experiment with starving the public sector in Minnesota is producing almost daily reports of questionable budget cuts.   A Star Tribune front-page story on disappearing lifeguards at public beaches is the latest manifestation of our increasingly penurious fiscal policy.    Anti-government conservatives like to claim that much or most of government investment is unnecesssary or superfluous, and that all we really need are military forces, courts and police to protect property.   But it turns out that a relentless ratcheting down of public investment affects public safety in myriad ways:  crumbling bridges, less attention to mesothelioma incidence in northern Minnesota miners, Local Government Aid cuts that force police and emergency service layoffs, hospital reimbursement cuts that hamper emergency rooms in the midst of an ongoing swine flu pandemic, and on and on.    Public safety is a primary responsibility of our entirely legitimate and mostly effective state-and-local government systems.    Most of the things those governments do eventually have something to do with public safety and providing for the "General Welfare," an often overlooked primary goal that is spelled out in the United States Constitution.    And these systems can't be funded without fair and ample tax revenues.

Dane Smith

Healthcare reform lessons from small town America

“Any plan that relies on the sheep to negotiate with the wolves is doomed to failure.”

— "The Cost Conundrum: What a Texas town can teach us about health care," The New Yorker

We know health care cost growth must be contained. It's hampering our competitiveness, bankrupting families and hamstringing state and federal budgets. But any hope for a systems solution gets tangled in the political struggle that pits free marketry against creeping socialism in every area of community life.

But what if the free market chose something that looked more like "socialized medicine" — and it worked?

That's one intriguing possibility found in surgeon Atul Gawande's New Yorker article, which looks at high-cost and low-cost health care systems around the country. In light of the evidence, none of the leading theories about why costs grow out of control account for dramatic health care cost and quality differences among otherwise similar communities.

Looking at McAllen, Texas, one of the most costly healthcare markets in the nation, Gawande found that "the primary cause of McAllen’s extreme costs was, very simply, the across-the-board overuse of medicine." What's more, overutilization was not producing better outcomes there or elsewhere.

Two economists working at Dartmouth, Katherine Baicker and Amitabh Chandra, found that the more money Medicare spent per person in a given state the lower that state’s quality ranking tended to be. In fact, the four states with the highest levels of spending—Louisiana, Texas, California, and Florida—were near the bottom of the national rankings on the quality of patient care.
[...]
In an odd way, this news is reassuring. Universal coverage won’t be feasible unless we can control costs. Policymakers have worried that doing so would require rationing, which the public would never go along with. So the idea that there’s plenty of fat in the system is proving deeply attractive. “Nearly thirty per cent of Medicare’s costs could be saved without negatively affecting health outcomes if spending in high- and medium-cost areas could be reduced to the level in low-cost areas,” Peter Orszag, the President’s budget director, has stated.

But what, exactly, accounts for the fat?

Gawande looks at, but finds little evidence to indict, the usual suspects: Government, consumers with little skin in the game, greedy hospitals and insurance companies, unhealthy habits and skewed provider incentives. Instead, he points to a culture shift in the culture of medical practice that mirrors a change in society.

A focus on money, not healthy communities.

The article suggests that physicians are not equipped — with training or data — to focus on the financial considerations of their decisions, while the business orientation of hospitals and insurance companies requires them to focus on

whether they are losing money or making money. They know that if their doctors bring in enough business—surgery, imaging, home-nursing referrals—they make money; and if they get the doctors to bring in more, they make more. But they have only the vaguest notion of whether the doctors are making their communities as healthy as they can, or whether they are more or less efficient than their counterparts elsewhere.

According to Gawande, Stanford sociologist Woody Powell — studying why certain regions became leaders in biotechnology while similar centers did not — has formulated a theory of economic development which holds that "anchor tenants" define the character of an economic community, just as anchor tenants in a mall do. By setting certain collaborative community norms, anchor tenants encouraged successful communities, while those aiming to dominate did not.

Powell suspects that anchor tenants play a similarly powerful community role in other areas of economics, too, and health care may be no exception. About fifteen years ago, it seems, something began to change in McAllen. A few leaders of local institutions took profit growth to be a legitimate ethic in the practice of medicine. Not all the doctors accepted this. But they failed to discourage those who did. So here, along the banks of the Rio Grande, in the Square Dance Capital of the World, a medical community came to treat patients the way subprime-mortgage lenders treated home buyers: as profit centers.

The difference between McAllen and Grand Junction, Colorado, one of the nation's lowest-cost markets with some of the highest quality-of-care scores, may be the difference between a culture focused on money versus one focused on a healthy community.

[Y]ears ago the doctors agreed among themselves to a system that paid them a similar fee whether they saw Medicare, Medicaid, or private-insurance patients, so that there would be little incentive to cherry-pick patients. They also agreed, at the behest of the main health plan in town, an H.M.O., to meet regularly on small peer-review committees to go over their patient charts together. They focussed on rooting out problems like poor prevention practices, unnecessary back operations, and unusual hospital-complication rates. Problems went down. Quality went up. Then, in 2004, the doctors’ group and the local H.M.O. jointly created a regional information network—a community-wide electronic-record system that shared office notes, test results, and hospital data for patients across the area. Again, problems went down. Quality went up. And costs ended up lower than just about anywhere else in the United States.

Grand Junction’s medical community was not following anyone else’s recipe. But, like Mayo, it created what Elliott Fisher, of Dartmouth, calls an accountable-care organization. The leading doctors and the hospital system adopted measures to blunt harmful financial incentives, and they took collective responsibility for improving the sum total of patient care.

It almost sounds like socialism, except Grand Junction is politically a very conservative community. Go figure.

— Charlie Quimby