Growth & Justice Blog

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

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

Forced choices about government services

Some recent stories illustrate some of the consequences of the pay for services model of government.

In Tonka Bay, the city has decided to charge fees to defray the costs of opening City Hall for public meetings that are not city-run. The council declined to waive the fee for a Republican Party caucus, and then decided it was consistent to also charge the League of Women Voters to stage its non-partisan candidate forum. The League objected.

In Medina, residents who thought taking over a county road would give them more control over traffic decided it was not such a good idea when they saw how taxes and assessments would climb in order to cover maintenance, repair and plowing. The traffic became more tolerable when more people were paying for the road.

A Minnetonka elementary school has envisioned adding a $550,000 "eco-lab" to enourage math and science learning.

The eco-lab committee has spent a year envisioning this hands-on science lab where teachers and students can study the environmental impact of the daily choices they make and methods for a more sustainable lifestyle.

What's needed to turn the blueprints into a reality is $550,000.

The committee is taking on the challenge of raising the money through grants and private donations.

It's a beautiful idea, and the community may very well have the capacity to fund it. But it raises the question — what about all the kids in the state's schools, where by fourth grade about half are not proficient in math when measured against national standards? And kids in less prosperous districts do even worse.

Do we know the lab will make a difference? In Minnetonka, perhaps parents can afford to give it a shot. But in other districts, it's a no-fly frill.

Bringing government costs down to a local level and to particular users does increase transparency and forces citizens to judge the value of government services. But are we liking the choices?

Thoughts on the last session

We didn't have any major explosions. Everyone thought we would.
— House Minority Leader Marty Seifert

At the end of the day everyone has to walk away from the table with something they care about. It can't be a winner-take-all philosophy.
— Revenue Commissioner Ward Einess

It's the end product that matters, and I think the end product is very good.
— Gov. Tim Pawlenty

It was the most successful legislative session in the last decade.
— House Majority Leader Tony Sertich

The most productive Legislature in a very, very long time.
— House Speaker Margaret Anderson Kelliher

As history looks back on this session, it will look back very kindly. We did a lot of good things. We've got a lot of challenges ahead of us.
— Senate Minority Leader Dave Senjem

We're not there yet, Minnesota on universal access, we're not there yet, but we're on the path.
—  Senate Majority Leader Larry Pogemiller

Take it from whichever political slant you prefer, the participants in the last legislative session are putting a positive spin on their work. By and large, congratulations are deserved all around.

Our job, though, is to look at the end product from an economic policy and social justice standpoint. A couple points stand out.

1. The budget solution is only temporary. The Legislature was not able to repeal a slowing economy, rising energy prices, growing unemployment and a health care system that is unaffordable for a growing number of Minnesotans. In the next biennium, the Governor and Legislature will still have to face the need to increase revenue. Cutting expenses sounds good until it gets down to specifics.
2. We need long-term strategies, not short-term fixes. Because they are of such high value, the building blocks of prosperity — education, infrastructure and affordable health care — have become the objects of budgetary brinksmanship. Instead, we ought to to be developing long-term strategies to invest in the assets that fuel our economic growth and prosperity.
3. Subsidies still need better scrutiny. JOBZ was a standoff, and the Mall of America expansion will be funded in part by exporting the costs through a tax on shoppers. Now, can anyone tell us what would've happened if there were no taxpayer subsidy of MOA parking? Were they going to relocate to South Dakota?
4. Property tax caps are about state politics, not helping local governments manage their budgets. While mayors are being diplomatic, the associations that represent cities and counties tell it like it is. "We think that in this first year, it's bad," said Jim Mulder, who heads the Association of Minnesota Counties. "We're really concerned about the second and third year is that it could be horrendous."

— Charlie Quimby

Rybak gets it. Are other leaders listening?

You don't build a recession-resistant economy that creates lasting prosperity with a one-time rebate check or tax cuts for only the very wealthy. The sad state of the economy today is living proof that a tax cut to the wealthy without investments in people has been a failure.

Minneapolis has shown that you build common ground for a recession-resistant economy by investing in people and investing in an environment where opportunity and innovation is fostered.

— Minneapolis Mayor R.T. Rybak

The Star Tribune devoted more column inches editorially praising Mayor Rybak's State of the City address than it gave to reporting on it.

So much for the paper's focus on local news.

Or maybe, in Minneapolis at least, wise investment in economic growth and opportunity for its citizens is no longer considered news.

While the last seven years at the state and national levels have been characterized by trickle-down tax cuts, revenue shifts and disinvestment in the common good, Mayor Rybak's tenure has been guided by the knowledge that a city's business climate can't thrive without patient investment in its people and infrastructure. And city residents need education and a thriving business climate to achieve their own dreams of prosperity.

His annual report on the state of the city nicely makes the case. [Minnesota Monitor has the full transcript.]

But cities can't do it on their own. The state still has a major obligation to fund education, and infrastructure linking cities with the rest of Minnesota is an important part of keeping the regional economy competitive.

More and more, we're seeing other local government executives and leaders around the state speaking out against short-sighted public investment policies — most recently, from Bloomington council member Steve Elkins. 

We couldn't have said these things better ourselves.

— Charlie Quimby

JOBZ report: Some value, but is it enough?

Score one for accountability. Effectiveness of public investment? Well...

Even though a new report on JOBZ likely provoked some heartburn for supporters and raised serious questions about its cost-effectiveness, the report provides a useful look into the pitfalls that can afflict well-meaning economic development programs.

Last month, we outlined some concerns about the state's JOBZ program designed to aid distressed areas of Minnesota by providing state and local tax breaks to selected businesses. Today, the Office of the Legislative Auditor released its report. An online summary is available here, and a PDF of the full 129-page report is here.

The report says the JOBZ program has some value as an economic development tool and has attracted or kept some businesses in the state, but it has not been adequately focused or administered.

The amount of value is difficult to isolate precisely, the report says.

Weighing the effectiveness

JOBZ businesses received an estimated $46 million in tax reductions over the first three years of the program, averaging about $75,000 annually per business during the 2004-06 period. The actual size of tax reductions varies widely. About 4 percent of the JOBZ businesses accounted for 49 percent of the total reported tax reductions, while about 44 percent accounted for less than 2 percent of the total.

Although state reports have put the cost per job created at $5,000, or about $2,400 in recurring annual costs, the Legislative Auditor calculated the average annual cost per new job created by JOBZ at about $26,900 to $30,800. Under more generous assumptions, the average annual cost per job would be about $11,300 to $12,900. The average annual wage paid to JOBZ employees is $30,700. 

Among the shortcomings highlighted:

• Subsidies have not been targeted at areas most in need of assistance; counties with greater economic needs have actually experienced lower job growth since JOBZ was introduced
• The value and number of jobs created have been overstated by as much as 20 percent
• Follow up on whether companies have met their obligations has been slow, and some have continued to receive benefits they did not qualify for
• There's no statewide review or budgetary constraints exercised over the local deals
• Businesses that have received tax breaks might otherwise have expanded without incentives
• The program has helped some businesses that compete with existing Minnesota businesses for the same Minnesota customers.

Accepting responsibility

Dan McElroy, commissioner of the Department of Employment and Economic Development (DEED) that administers JOBZ, acknowledged shortcomings and agreed with "the findings that significant changes need to be made to increase state oversight and accountability for program performance." For its part, the Department of Revenue expects to address many of the report's recommendations in its forthcoming tax bill.

While better oversight is a state agency responsibility, the report also makes clear that local government administration plays a major role in the program's lack of focus. Basically any community in Greater Minnesota can apply, and "local governments, not state agencies, determine what job growth and capital investment obligations companies must meet to participate in the program."

Local officials evaluate potential JOBZ companies primarily on their likely effect on the local economy and not on the broader impact on Greater Minnesota. Furthermore, local officials do not consider the full cost of providing JOBZ subsidies, since most of the tax breaks are funded by state government. Some cities find it hard to turn down requests from local businesses for JOBZ assistance and sometimes feel obligated to offer it in order to compete with other Minnesota communities.

[...]

JOBZ is not focused on those businesses likely to contribute to substantial economic growth in Greater Minnesota. In addition, nearly half of the businesses participating in JOBZ are obligated to hire 5 or fewer new full-time equivalent employees.

The audit found some agreements between the localities and participating companies obscure job creation obligations. "A few agreements set no deadlines for companies to meet their hiring commitments. Over 60 agreements do not require businesses to maintain the jobs they promise to create for as long as they are receiving tax breaks."

Now what?

There's plenty of ammunition to be found for partisan sniping, but it's important to note the report does not call JOBZ a total failure. JOBZ started with a decent intent; now we have solid information with which to judge it — and to improve it.

But if tax reductions delivered such sketchy results in better times, how much will they accomplish when  Minnesota's economy is looking increasingly troubled? Lawmakers will have to weigh JOBZ's relative effectiveness in stimulating economic growth in the targeted regions — and decide whether tightening program criteria and holding businesses to their side of the bargain can reduce the cost per job to something less than an outright subsidy.

Finally, thanks to the Legislative Auditor's office for a tough and timely report, and to Gov. Pawlenty's administration for accepting criticism of a favorite program in the right spirit. The public benefits when government focuses on ensuring the accountability and effectiveness of public investment. And it makes us more willing to consider prosperity-creating ideas the next time we're asked.

— Charlie Quimby

Rep. Seifert tells some scary stories

According to the Redwood Falls Gazette, Rep. Marty Seifert received the Minnesota Licensed Beverage Association's Legislator of the Year Award Monday. In his remarks, the House Minority Leader made some comments that we may be hearing again during the legislative seasons.

Seifert said in 1972 the top three job providers in the state of Minnesota were 3M, Honeywell and Dayton-Hudson.

They were big companies that provide good benefits to their employees and families.

"Today three of the top five employers in the state are State of Minnesota, the University of Minnesota and federal government," Seifert said. "I don't know about you, but that is getting to be a little bit scary in terms of fewer and fewer job providers because o[f] more and more regulations and taxes."

"You folks are pulling the wagon," Seifert added. "And everyone else is riding on the wagon."

We're certain Rep. Seifert did not mean public sector jobs do not provide good benefits to employees. After all, he himself draws two paychecks from the taxpayers — one as a legislator and one as an admissions officer for Southwest Minnesota State University.

Instead, he repeats a different and even less supportable horror story: Big Bad Government is bumping off private enterprise.

Here's his story line: Private employment is giving way to public employment in the state; growing regulation and taxes are responsible; and small businesses like bar owners and liquor distributors are pulling the wagon for a bunch of freeloaders.

Picking 1972 for his comparison puts solid data a bit out of reach, but some of the beverage sellers in his audience might recall that a lot of things were different then.

Bars were selling Hamm's and Grain Belt, and two of the nation's biggest brewers were Pabst and Schlitz. Honeywell was in the computer business and weapons business then. Dayton-Hudson was opening its 100th B. Dalton, Bookseller store and was considering selling off its Target discount chain, which had started well but was sputtering.

There's no question Minnesota's corporate employment has shifted from those old guard companies. (Even 3M, which was 57th on the Fortune 500 list in 1972, has dropped to 97th today.) And if the decline of those big, patriarchal employers is your point of reference, these structural shifts in employment may indeed be troubling.

It's plain misleading to imply with the example that big private employers have been displaced by big government. Or that government is the cause of the real pain being felt today by low- and middle-income families.

The Minnesota Department of Employment and Economic Development publishes comprehensive employment statistics going back to 1990. In that year, government employment was 16.2 percent of the total. In 2007, it was 15.5 percent. I examined the 17-year trends line for private jobs growth vs. growth for federal, state and local jobs in Minnesota.

Here's a chart showing growth rates for total employment and government employment [click to enlarge]. You can see the steeper blue growth line for total employment. The growing divergence of the lines is similar for jobs broken out at federal, state and local levels.

Back to Rep. Seifert's statement, it would make sense that as large companies move, restructure and go out of business, the more stable government sector would become relatively "bigger." After all, we don't outsource road maintenance to India, New Jersey hasn't launched a takeover of Dakota County, and the state colleges don't move to South Dakota because the taxes are lower!

Seifert's claim of "fewer and fewer job providers" is simply wrong. If total employment grows and large companies account for fewer jobs, we should actually have more private job providers in the state. And that's the case — from 148,715 in 2000 to 161,300 in 2006.

In another post, I'll show other reasons this "big government riding the wagon" story is — dare I say it? — a fairy tale.

— Charlie Quimby

What we hear from around the state

State Chamber backs a gas tax

The West Central Tribune reports the Minnesota Chamber of Commerce's support for a 7½-cent gas tax:

[President of the public policy committee for the Willmar Lakes Area Chamber of Commerce Russ] Bennett said one St. Cloud businessman estimated that a 7½-cent gas tax increase would increase his business cost by $350,000.

Yet that businessman gave his support for the increase, Bennett said, because he was tired of having his employees stuck in traffic gridlock.

He said many businesses appear willing to back the tax, “if that’s what it takes to get something done.”

Local budgets haven't recovered from loss of LGA

Jim Miller, executive director of the League of Minnesota Cities, spells out in the Bemidji Pioneer why loss of Local Government Aid is a factor in Minnesota cities having to raise property taxes — and why they have not, in the governor's words, "made up for it a long time ago."

He also disputes the implication that local officials are out to mislead taxpayers because they haven't been able to hold down their spending:

Those officials are not professional politicians harboring aspirations for higher office — they are retirees, business owners, educators, farmers and others serving on city councils for minimal pay, or for no compensation at all. Their goal is not to “mislead” constituents, but to contribute to the quality of life in Minnesota communities.

The Pioneer also has a story on the State Auditor's report on lobbying at the state level by local governments. They spent $7 million in 2006, down 9 percent from 2005, when the Legislature was working on the state's two-year budget.

Transportation needs long-term solution, not a credit card

In an editorial, Ely's Timberjay comes out for a gas tax increase and a broader, more long-term approach to  funding infrastructure:

At best, [the governor's bonding] plan offers a short burst of bridge construction, paid for over the next 20 years. It doesn’t provide an ongoing source of funds for roads, bridges and transit needs that require yearly attention nor does it help the state supply matching funds for federal dollars already earmarked for Minnesota highway projects. [...]

By dedicating so much of the bonding bill to transportation, he reduces investment in other areas of the state’s infrastructure, including higher education. It also means less money for regional building projects. [...]

While the transportation projects included in Pawlenty’s plan would create jobs, it may not be as many as expected. It’s questionable if local governments will be able to come up with the matching dollars for many of the bridge projects included in Pawlenty’s proposal; they requested only a third of the dollars that he has allocated.

Courts feel the funding pinch

Physical infrastructures aren't the only systems hurting for lack of funding. The Rochester Post-Bulletin reports that the state judicial system also finds itself in a bind.

The budget appropriation for the judicial branch was $22 million less than requested for the biennium. At the same time, there has been a dramatic increase in costs for mandated services, such as interpreters and psychological examinations in sex offender civil commitment proceedings.

Mower County says roads need sustainable funding

The $30 million allocated to local road improvement in Gov. Pawlenty's $1 billion bonding proposal doesn't have some officials in Mower County very excited, according to the Austin Daily Herald:

“There’s no sustainable source of income to pay for transportation,” said [Mower] county engineer Mike Hanson, who “absolutely” supports a gas tax on behalf of transportation. “There’s no effort by the governor to pay for repayment of the bonding.”

“We need more funding,” he said.

Austin city engineer Jon Erichson also supports a gas tax. Hanson said local construction projects have fallen short by $2 million annually for about 20 years.

“So, if we get a couple thousand dollars, big deal,” he said. “We could easily spend $2 to $3 million.”

At a statewide level, transportation underfunding runs $1 billion annually, says Rep. Jeanne Poppe, DFL-Austin. “The money we are using right now is property taxes,” she said. “We have to come up with another way.”

Remember this next time you hear that roads pay for themselves: Property taxes pay about one-third of Minnesota's road and bridge costs. And as I've written before, my street doesn't pay for itself, either.

— Charlie Quimby

Dakota County: Taking the long view pays

When local governments are under pressure to do more with less, it's tempting to focus on service cuts or fight over taxes, rather than tackle the long-term job of self-assessment and continuous improvement. Dakota County is one local government making sure it's looking at the big picture.

Last week, according to an article in ThisWeek, Dakota County commissioners reviewed the county's report card from the Minnesota Council for Quality. The evaluation will be used by the county to improve its operations.

Taking a strategic and systematic approach to improvement is a mark of good leadership. Dakota County should be congratulated for showing its commitment to delivering value to its constituents.

According to the county, its net price of government — measured as property tax levy as a percent of personal income — has decreased over the past decade [Download ReportCard.pdf]. Over the last four years, it has had the lowest county property tax rate in the state, supported in large part by growth of the county's tax base.

But part of that performance must also be due to good management practices.

In 2006, Dakota County became the first county in Minnesota to participate in the Minnesota Quality Award process established in 1991 and based on the Malcolm Baldrige Performance Excellence assessment. Early state winners were manufacturers and service companies, but in recent years emphasis shifted to helping organizations progress, and now schools and health care centers make up most of the participants.

The Malcolm Baldrige National Quality Improvement Act was passed in 1987 as a response to foreign competition and to inspire American businesses to adopt practices to improve productivity. Applying business practices in the public sector sometimes gets a bad rap, especially when "privatization" initiatives reinforce the customer model of government

in which the relationship between government and citizens is characterized as arms-length transactions rather than shared governance. This relationship undermines the legitimacy of public goods, makes long-term investments more challenging, and raises expectations that any new revenues will have immediate, direct benefit to the individual.

But the Baldrige program reflects good government principles, such as planning with a long-term view, understanding expectations, defining outcomes, measuring effectiveness, adopting best practices and being accountable for results.

Whether or not they follow the Baldrige approach, local governments can certainly benefit by following Dakota County's lead.

— Charlie Quimby