Growth & Justice Blog

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

Minnesota Poll's progressive majority on health care

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

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

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

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

Dane Smith

After Labor Day, keep working on economic justice

I had the great privilege of delivering the Labor Day Sunday sermon at my church (Unity Church, Unitarian Universalist, in St. Paul). I offered the best I could find from Abraham Lincoln, the Bible, Catholic and Lutheran teachings on social justice, and recent economic studies to make the case that we have an inequality problem in Minnesota and the nation. And it was a treat to get Donna Summer's great song, "She Works Hard for the Money'' into the liturgy as the postlude.  

Here's one point I made about labor and fairness, and democratic and religious traditions.

As Americans we mark our progress by looking back at forms of liberation from exploitation of labor. In our western hemisphere, we look back in horror at the forced conversion and attempted enslavement of aboriginal people to Christendom and efforts to bring them under the English and Spanish or French yoke. We are proud of the American Revolution and our fight against the illegitimate seizure, without representation, of our labor. We are proud of the great fight led by liberal religious founders of our own Unitarian Universalist denomination against the enslavement of African people. Interestingly, southern defenders of slavery used the Bible’s apparent approval or neutrality on the subject to advance their secessionist cause.

In the last century, we’ve made enormous progress against the much more subtle forms of semi-slavery that come with unbridled capitalism and the slanted bargaining table set up between employers and employees: the simple and basic right to organize, child labor laws, the 40-hour work week and overtime compensation, the minimum wage, the civil rights movement and ongoing efforts to finish the Emancipation Proclamation and end the de facto slavery imposed on people of color, the migrant workers’ reforms, and in more recent years but throughout history, hugely important, the oppression of women in the workforce.

I urged the congregation to consider the mountains of evidence that show economic inequality growing once again, after we reached a high-water level of overall economic equality in the 1970s. And I urged folks to do whatever they possibly could to change policies and laws to bring about more equal outcomes, chiefly through more and better investment in human capital.   

The full text of the sermon is available here [PDF]. 

— 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

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

Shauxing what we knaux from Caux, on the value of "Social Capital''

The Caux (pronounced "ko") Round Table is an intriguing non-profit group  — based in St. Paul  but with a strong international presence — that advances the principles of enlightened and ethical capitalism.   It recently released its country rankings for Social Capital Achievement.  Like many such comprehensive measures of overall quality-of-life AND competitiveness, the Caux ranking places the U.S at an unimpressive 15th place, and  below other prosperous democracies with more and smarter public investments in education, health-care and other forms of human capital.  

At Growth & Justice, we often make the same case at the national and state level, arguing for Minnesota's need to invest in human capital and infrastructure, pointing out that it has been the secret to our business success.

Even more useful than the ranking itself is the articulation Caux provides for the idea of a progressive business climate.  Here are excerpts from the 2009 ranking report.  

Economic development does not occur independently from social,  cultural and political institutions. Wealth creation is not an isolated, autonomous, self-referential process within communities; it is a dependent variable, subordinate to the dictates of prior conditions.   Markets are organic phenomena; they grow strong and vibrant only in facilitating environments [...] Countries with high levels of social capital achievement are more economically prosperous and provide a higher quality of life for those who live in them.

The report is co-authored by Stephen B. Young, global executive director of Caux, a former dean of the Hamline University Law School and a significant figure in MInnesota public policy circles for three decades. Young frequently draws on the classics and Cicero for inspiration, and for this report he cited the Second Vatican Council's definition of the "common good'' as "the sum of those conditions of social life which enable groups and (italics mine) individuals to achieve their fulfillment more completely and readily.''

Good stuff.

— Dane Smith

Let the free market do it, not decide it

Tony Wikrent of Nation Builder Books spoke at Drinking Liberally in Minneapolis last week, and The Cucking Stool produced this video from the conversation that ensued.

His comments — on the respective roles of the free market, financial and industrial sectors and the political system — provide a critique of what happens when national goals are determined by theoretical economics and the free market, without enlightened guidance from the political system.

For example, he says, allowing the free market to set industrial policy — say, reducing national petroleum consumption — doesn't necessarily result in the best asset allocation to benefit society. The question, he says, is how do you re-regulate a financial system so that doing the important, productive work that needs to be done is what's profitable?

— Charlie Quimby

Tobacco bonds: The Mother of All Shifts

Progressives sometimes support good government fiscal ideals even when they happen to work against our best interests. When it comes to the state budget roller coaster, we gravitate toward endorsing the idea that “accounting shifts” are a fiscal devil — a vile short-term solution. On goo-goo principle, perhaps, we advocate stable sources of state revenues as the remedy.

Neo-cons should celebrate.

In the real world, such thinking about shifts and revenue stability is 100 percent wrong. Accounting shifts from one biennium to the next are the ultimate cushion against budget devastation, nothing short of salvation for the fiscal troubles inherent in progressive taxation.

As we all know, tax fairness is based on ability to pay. Unfortunately, our collective ability to pay inherently stoops to swings in the economy. On the other hand, stable tax sources on consumption (sales and use) or property tend to be regressive because they are assessed without regard to fairness or ability to pay. If we want to achieve a progressive tax system in Minnesota, we must accept – and even embrace – a system of accounting shifts as our protective release valve.

As such, I was grudgingly prepared to accept the inevitable shifts that come with the huge state budget shortfall projected in FY 2010-11. Then came the Mother of All Shifts – the ultimate in fiscal irresponsibility — the so-called Tobacco Appropriation Bonds.  In the all-time understatement, even the Minnesota Department of Management and Budget (MMB) officially admits [PDF], “One-time funds such as these are not a long-term solution to the state’s current budget deficit.”

It is one thing to shift general fund dollars back and forth from one biennium to the next. It is quite another to take anticipated money every year for the next two decades.

Keep in mind, the full faith and credit of our state will back these bonds. Otherwise they almost certainly would not even be remotely marketable in the current economy. If this sounds like something that the State Constitution might prohibit, it is, in fact, a very close call. Even MMB admits, “To meet state constitutional requirements and federal regulations for tax exempt bonds, all proceeds from these bonds will be used directly for one-time, non-operating costs.”

The money conveniently goes to retire next-biennium borrowing costs. Perhaps we can rename the new U of M stadium “TCF & Tobacco Field.” Nice try skirting the rules. In reality, the plan simply ties the hands of the next 10 legislatures.

Right now, the state general fund pulls in around $200 million a year from the ongoing tobacco proceeds. The proposal would sell off about half of the slowly declining revenue stream for 20 years with a paltry projected one-time payoff of $983 million.

At just about any other time, this ill-conceived sell-off would pay out far-more handsomely. Not only is it a stupendously bad deal, but this unprecedented move surely will be poorly received by the bond-raters. We could easily see higher borrowing costs for decades to come. To be concise, this is the ultimate plan for huge long-term tax obligations in the not-too-distant future — with nothing tangible to show for it.

So if garden-variety accounting shifts give you bad dreams, the tobacco revenue sell-off qualifies as nothing short of “A Nightmare on Rev. Dr. Martin Luther King Jr. Boulevard.”

— Guest poster 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.

[Ed. Note: Growth & Justice will occasionally run guest posts that challenge orthodoxies on the left and right, including our own.]