Growth & Justice Blog

Taxes are a factor in retirement, but how much?

The headline said: "Taxes Seen As Key Factor in Choosing a Retirement Destination."

Hmmm, I thought, reaching for my open mind pills, this should be interesting...

That's because last year, we wrote that Minnesota state taxes don't appear to be a significant factor in the wealthy choosing a retirement state. Nor could we find credible evidence Minnesota taxes were driving away business. I am currently doing some work to further illuminate how tax policy may be affecting high net worth retirees' decisions to remain in Minnesota.

Was there a new study showing that taxes were indeed a "key factor" in contradiction of our findings? If so, I wanted to know about it, and in the spirit of honest inquiry, was prepared to tell you about it.

Turns out the headline writer got a bit ahead of the content, which was a press release placed on a PR news site promoting an online "retirement living information center."

The web site features a long article with a state-by-state summary of how various state taxes affect seniors, but you're still on your own if you want to do the more complex comparison the article suggests.

Many people planning to retire use the presence or absence of a state income tax as a litmus test for a retirement destination. This is a serious miscalculation since higher sales and property taxes can more than offset the lack of a state income tax. The lack of a state income tax doesn’t necessarily ensure a low total tax burden.

While it's possibly true — that "many people" apply a misleading test to help winnow potential retirement destinations — for our uses, the statement is also impossibly imprecise. It doesn't tell us taxes motivate people to move; it starts with the assumption these retirees have already decided to move.

This is as close as it comes to a definitive statement about taxes influencing state of residence choices:

If all other things are equal, a state with a lower tax burden is a more attractive place to retire than a state with a higher one.

But we know all other things are not equal, from weather and views, to senior-friendly services and culture, to proximity of friends and family. Those are the "key factors" for most retirees.

— Charlie Quimby

Falling behind Wisconsin and Peircing analysis on states' fiscal woes

For years I've worked this friendly Minnesota-centric shtick about how good ol' Wisconsin is our closest relative, a kind of sister state that has a very similar history, culture and progressive instincts.  But the punch line is that they are cheeseheads and Packer fans after all, and just a little behind us for the title of Paragon of Progressive States, and not quite as far above average as a result.

  It's time to drop that routine from the repertoire and to acknowledge that the Badger State is more progressive and far-sighted economically than the Gopher State.  Lori Sturdevant's excellent Star Tribune OpEx piece and Q&A with Wisconsin Gov. Jim Doyle Sunday provides more evidence that Wisconsin is moving ahead with aggressive efforts to ensure more access to affordable higher education and health-care coverage.   Higher taxes (on cigarettes) and an imaginative partnership with business helps pay for this "human capital investment surge'' to the east, Sturdevant writes. 

When I was doing research in the mid-1980s for the Star Tribune for a fiscal study of Minnesota and other states, Minnesota unquestionably was one of the biggest spending states (and our economy was doing fine).  We ranked significantly ahead of Wisconsin on the bottom line:  state-local taxes and state-local spending as a percent of income.   That hasn't been true for several years now.   Latest figures from the Minnesota Taxpayers Association (not to be confused with the anti-tax League) show that Wisconsin ranks 10th in state-local taxes as a percent of income and Minnesota is 23rd.   On state-local spending as a percent of income, Wisconsin is 23rd and Minnesota is 31st.   Watch for right-wing business interests in Wisconsin to start making exaggerated claims about employers and jobs fleeing to low-tax Minnesota.  Boy that's going to feel weird.

Meanwhile, Neal Peirce, one of the nation's foremost authorities on the states and their governments, has produced a strongly persuasive case for states to reinvest, focusing on nation-state California.   His latest nationally synicated column makes the case and these excerpts get right at it:

Many states have never fully recovered from the sharp cutbacks they made in education, health coverage and child care in response to the economic slump of 2001-2004 that was triggered by the technology stock slump and the 9/11 terrorist attacks. And inflation is driving up the cost of government services.

So should governments just slash their budgets willy-nilly, hoping for a better day?

No. That's the firm opinion of Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto. Levy focuses his argument on California, but it fits most of the country. We have strong growth sectors in Internet services, biotechnology, trade, finance and entertainment. But with a tidal wave of skilled baby boomers soon to retire, our work force will include fast-rising numbers of Latino and Asian immigrants, their children and grandchildren -- many of them lagging in the critical educational skills needed in a high-tech, intensely competitive global economy...

But look at what California has done instead (of investing in education). From 1984 to 2008, it let its per capita spending on prisons increase 126 percent while its per capita spending on its public universities -- once its claim to world fame -- declined 12 percent. "Prisons," the Sacramento Bee editorializes, "are sucking the life out of higher education in this state -- and thwarting the aims of economic advancement and social mobility."

So what's Schwarzenegger's solution? Shorten sentences of 28,000 prisoners, saving $1 billion by the next budget year -- but still go ahead with his program to build 53,000 new cells at a numbing cost of $15 billion for construction and debt service.

A sane California, Levy argues, would raise taxes $7 billion this year, (our italics) recession notwithstanding. The increase would be about one penny out of every $2 that Californians -- whose aggregate income is about $1.5 trillion -- actually earn. The collective family of California, he suggests, can take the one cent from eating out or buying a fancy car and put it into education -- a small enough sacrifice compared to the kinds of tough decisions our grandparents had to make during the Great Depression.

Dane Smith

Facts don't support the growing government story

While Rep. Marty Seifert's (R-Marshall) recent remarks about scary government encroachment were made at a relatively obscure event, this kind of framing in some version has been heard for years at the state capitol. And it appears to be in the wings for a re-run nationally. 

Rep. Seifert's "pulling the wagon" imagery (a favorite of conservative firebrand Sen. Phil Gramm in his short-lived 1996 presidential campaign) occurred just four days after it was presented in one of the "Big Three" messages advocated for 2008 by the conservative Heritage Foundation. He said:

Today three of the top five employers in the state are State of Minnesota, the University of Minnesota and federal government. 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 of more and more regulations and taxes.

You folks are pulling the wagon. And everyone else is riding on the wagon.

In a previous post, I explained why we should not be scared about who Minnesota's largest employers are now. Total public-sector employment as a percent of the total workforce Minnesota has actually dropped since the early 1990s.

Yes, the state is a large employer, but private sector jobs growth — while not as good as anyone would like — is growing at a much higher rate than in the government sector. The number of job creators is also growing, not "fewer and fewer."

But even so, it might be a legitimate concern if government employment in Minnesota were growing out of proportion with other states. So I looked at some other numbers to provide that context.

I'll use Census Bureau and Minnesota Taxpayers Association (MTA) data here, because they allow easy  state-by-state comparisons. (These will not align exactly with numbers I cited in the last post, because MTA rankings use FY 2005 and the Census Bureau data uses March 2006 employment. I've chosen full-time-equivalent (FTE) positions rather than number of jobs for better state-to-state comparisons.)

I looked at government employment in Minnesota and five other states similar in population.

According to the Census Bureau in 2006, Minnesota state government employed 76,795 FTE — half of which were in higher education (35,605) and police (3,300) work. I calculated a ratio between government employees and the state population so we could compare the relative proportion of state residents working in state jobs — since that seemed to be the main beef.

Here's how they compared:

• Wisconsin .0124
• Colorado .0149
• Minnesota .0153
• Missouri .0157
• Maryland .0166
• Alabama .0185

In other words, Minnesota's proportion of state and local employment is about in the middle for similarly sized states.

According to the MTA [Minnesota Compared.pdf], Minnesota ranked 31st among states and very slightly below average in state and local expenditures per $1,000 of personal income. This is the measure of our capacity to pay for services based on the wealth generated by the state's economy. On expenditures per capita, we ranked 12th. This is a measure of cost, but also services delivered per person.

We reject the Heritage Foundation talking point that public employees are "riders" and private-sector employees are "pullers." Both sectors do work of great value for our communities. Both groups pay taxes.

And the story — that more and more people are working for government and fewer and fewer for the business sector — is based on an attitude toward government, not on the facts.   

— Charlie Quimby

MNSCU officials at the pulpit, state and church together in a good way

Top officials from the Minnesota State Colleges and Universities system (MNSCU) will be going to 15 churches with predominantly African-American, Hispanic, or other racial minority congregations this weekend, to preach about the enormous value of higher education in achieving economic progress. This "Super Weekend" outreach, now in its second year, deserves enthusiastic applause.   

We think it's great because the Smart Investments in Minnesota's Students initiative at Growth & Justice has a goal of a 50 percent increase in higher-ed attainment. That can't be achieved without even more dramatic hikes, percentagewise, for students of color in the completion of  one-year, two-year or four-year degrees. And the current gap between whites and non-whites in high-school graduation is unacceptable. 

“Many parents find it challenging to guide their children through what can be a complicated process of preparing for and selecting a college,” said Whitney Harris, executive director of diversity and multiculturalism for the Minnesota State Colleges and Universities, in the MNSCU statement announcing the outreach effort. “We can provide specific assistance for parents in helping their children to succeed in college.”   

MNSCU has more students of color on its state, community and technical college campuses than any other private or public system in Minnesota.

There's another interesting and positive angle here. The frequent claim from the right that progressives and government officials leaders are "irreligious'' or anti-religious is mostly false, or at least grossly exaggerated.   

Human rights and economic reforms throughout American history have been led by progressive women and men who were also strongly religious and observant.  And even today most mainstream church leaders — Protestant, Catholic, Jewish, Muslim and otherwise — embrace progressive economic goals of tax fairness and ample and wise public investment for the common good.

But it's fair to say that concern about church-state separation has sometimes led to a reluctance by  government leaders to engage directly with the religious community, to simply talk, to visit.  Efforts like MNSCU's Super Weekend can help close this engagement gap. 

Here's the complete list of churches, times and speakers for Super Weekend.

— Dane Smith

 

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 has drawn 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.

Building the will to invest in our environment

As a relatively young and modest-sized organization that deals in depth with statewide issues, Growth & Justice tackles one big project at a time. That's so we can do each one ... justice.

Our mission says we are "committed to making Minnesota’s economy simultaneously more prosperous, fair and environmentally sustainable." Having started with workforce development, tax fairness, strategic investment and education, we haven't yet, with any comprehensive study, worked our way over to the crucial principle expressed at the end of that sentence.

But this year environmental sustainability will be on policy makers' minds — and possibly on the ballot — in more ways than one.

Gas tax discussions will be about both preserving the environment and sustainably funding transportation. Conservation interests will be back making their case for sustainable funding for clean water and habitat preservation. Ironically, boosting production of biofuels is one reason the state's wildlife habitat is in peril, as outdoors columnist Dennis Anderson points out, so throw farm policy and land use into the mix, too.

Environmental groups, represented by the Minnesota Environmental Partnership, favor a version of a constitutional amendment that dedicates a portion of state sales tax to fund clean energy and arts in addition to the wildlife, land preservation and clean water focus on the conservation agenda. Neither group got its way last session, so the competing amendments will be back for another hearing.

Sustainable funding isn't just one group's issue. Roads and bridges, clean water and energy, hunters and fishermen, and transit and cultural interests will all be making a case in the coming year.

Present levels of public funding can't sustain even one of these, and private initiatives can't pay the bills, either. So the discussion has to address how much more we can afford and who pays.

Constitutional amendments that dedicate funding can be problematical, especially as they lock up more of the budget and reduce flexibility to deal with change and the unforeseen. Before we tackle more amendments, the bigger issue in Minnesota right now is finding the will to invest more in our state.

We’re dedicated and working hard to helping build that political will.   

Then we can argue over where it goes.

— Charlie Quimby

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

One place high fliers get a nearly free ride

Aviation isn't the first area we think of when we talk about transportation infrastructure in the state, but it's on my radar now.

On MPR's Midmorning today, one of the guests threw out an interesting number. Private aviation accounts for 15 percent of the costs to control our airspace, but provides only 3 percent of the funding. That's because the revenue formula is driven by commercial passenger ticket taxes.

I was driving as I listened, so don't quote me on the details. But the principle is pretty clear. A private jet carrying four people through airspace must consume nearly as much air traffic control attention as a commercial airliner, but the users of the private craft don't pay in proportion to that use.

Remember this example next time someone tells you it's unfair to ask high earners to pay higher taxes because they consume less government service.

— Charlie Quimby