Growth & Justice Blog

When Stimulus Worked for All.

From our Golden Valley yard, we can hear the thrum of traffic from Hwy. 100, once known as the Belt Line and Lilac Way.

Today, there's little evidence in this sound-wall-to-sound-wall carscape of a connection to the Great Depression and the Works Progress Administration (WPA). But a restored Lilac Park, dedicated this week near Highways 7 and 100, offers a modest reminder of what public investment can accomplish — and what may be lacking in today's attempts to stimulate an ailing economy.

This appeared in MinnPost today.

— Charlie Quimby

Funding transportation through "value capture"

After the bruising battle over the 2008 transportation bill, the Legislature requested a study of "value capture" as a potential way to raise revenue for future infrastructure investments in Minnesota. The University of Minnesota's Center for Transportation Studies has released its analysis of eight potential strategies for funding transportation based on the concept.

Currently, transportation improvements are funded by general revenue (based on the assumption that all benefit indirectly from the transportation network) and user fees, such as gas taxes and transit fares. The rationale for value capture is based on the relationship between transportation networks and urban land value. [See diagram.]

Investment in transportation infrastructure — ranging from new roads and freeway interchanges to light rail lines and transit stops — improves accessibility to desirable locations such as jobs, shopping and entertainment. Property thus made more accessible tends to become more valuable. Developers and landowners benefit from this higher land value.

Value capture mechanisms seek to harvest a payback from the value created by the public investment. The revenue is then directed to pay off the improvements or finance new ones.

The study is quite lucid in spelling out the pros and cons of eight potential value capture approaches based on four criteria — economic efficiency, equity, sustainability, and perhaps most important for the Legislature, feasibility.

It will come as no surprise to students of tax policy that the most feasible measures have relatively low visibility to general taxpayers.

Perhaps the most intriguing of the eight approaches is Transportation Utility Fees (TUFs). TUFs treat transportation networks like other utilities and can be based on factors related to transportation demand, such as parking, square footage or type of facility. They are simple to administer and generate a stable revenue stream. But, as with any new "fee," there are drawbacks to getting them authorized in the first place.

The 12-page policy summary, "Harnessing Value for Transportation Investment," is worth a look by anyone interested in finding new ways to raise money for transportation. [Download Policy Summary]

— Charlie Quimby

The public is the loser in "economic war between the states"

Via Clawback, we see a new study by the Public Policy Institute of California that finds that the state's enterprise zones have no overall effect on job growth. That's in line with findings in other states, including Minnesota, that offering tax credits and other incentives to businesses may raise employment in certain areas, but not within the region, because companies move from zone to zone to take advantage of the incentives.

The same might be said about what Federal Reserve economist Art Rolnick has called "the economic war between the states."

It is a war in which states are actively competing with one another for businesses by offering subsidies and preferential taxes. Economists find that there is a role for competition among states when it takes the form of a general tax-and-spend policy. Such competition leads states to provide a more efficient allocation of public and private goods. But when that competition takes the form of preferential treatment for specific businesses, not only is it not “admirable,” it interferes with interstate commerce and undermines the national economic union by misallocating resources and causing states to provide too few public goods.

Still, states hungry for jobs are willing to pay "front money" to untethered corporations, even while shortchanging other services that would make their states more attractive in the long term. In another post, Clawback provides recent examples of how states can shuffle federal stimulus money to pay these incentives.

Cynics might say: what should we expect? Federalism means it is okay for large, footloose corporations to play states and cities like a fiddle so that small businesses and working families get stuck with higher taxes and lousier public services. (And home rule means it is okay for companies to do the same thing to cities and suburbs, fueling sprawl and stretching local tax bases so thin they become unsustainable.)

Says Growth & Justice Policy Fellow for Infrastructure & Economic Development, Matt Kane:

The public sector should pursue economic development policies that result in broad benefits for residents and businesses in the region, especially benefits that will continue to have a positive impact even if specific businesses close or move. 

— Charlie Quimby

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