Without public investment, Minnesota will continue its slide toward mediocrity

By Dane Smith, president, Growth & Justice

Recently, representatives from the Invest in Minnesota Campaign, a coalition of faith, nonprofit, and labor groups, visited communities across the state to talk about how the inadequate level of investment, both in terms of human capital and infrastructure, is threatening our state’s economic future and our quality of life.

We heard stories about how residents in one community complained about the poor condition of their city street, but it was not fixed until the city’s emergency vehicles could not longer use it, young people graduating from Minnesota’s four-year colleges and universities with enormous amounts of debt, and, in every community, worries about the cost of and access to quality health care. And we’ve all heard about the cuts to the state’s district courts and public defenders and most likely stories will soon surface about delays in our justice system.

As investment in the public sector declines, we’re starting to see Minnesota drop in its national standing on livability measures and underperform the nation’s economy for the first time in 30 years. Traveling to communities helped us to hear first-hand what this means to Minnesotans and to talk about how we got here.

From 1997 to 2001, state policy makers made decisions about state budget surpluses. In that time $13 billion was spent on permanent tax cuts (including income, property and auto tab taxes) and rebates. But in the 2002 through 2005 legislative sessions, partly because of those huge and unsustainable cuts, the state faced deficits. The economic downturn meant things were tough for all states, but Minnesota’s deficit was made larger because of the permanent income tax cuts during the surplus years.

In response to these deficits, legislators and governor relied on reserves, fund balances, budget gimmicks, and deep cuts to services. A no-new-taxes mentality held sway from 2003 on. There were no broad-based revenue increases to address the crisis, and the revenues that were raised through increases in tobacco and property taxes, as well as fees, were regressive. These short-term fixes continue to leave long-term problems unresolved.

In 2006 and 2007 there was a little turn around that allowed policymakers to restore some of the 2003 cuts. In the 2008 session the Legislature faced yet another budget deficit, the primary response to which was one-time measures and $268 million more in cuts.

And while early reports are that Minnesota will face another $1 billion budget deficit in 2009, some are now predicating that the figure may be as high as the 2003 deficit of $4 billion.
Regardless of the size of the deficit our state leaders will have tough decisions to make in 2009. And if recent history teaches us anything, unless we speak up and join a movement to change the state’s course and put more revenue on the table (yes, this means tax increases for those who can afford it), the disinvestment for the common good will continue in our state. With more cuts to education, health care, infrastructure, and economic development, Minnesota will not be competitive in this global economy, families will lack financial security, and the state will continue its slide to mediocrity.

Minnesota some day might no longer be known for the qualities Garrison Keillor celebrates, as the place were women are strong, the men are good looking, and all the children are above average. Imagine, instead, a Minnesota where young couples cannot afford a home because of college debt, where more people are tapping out food shelves, waiting for economic opportunity and justice, and the children cannot compete in a global economy.
We don’t have to let this happen. Our distinctive Minnesota formula of investing for the common good has worked for decades and we know it will lead to a brighter future.

The column was written by Growth & Justice President Dane Smith on behalf of the Invest in Minnesota Campaign. The other leaders of the Invest in Minnesota Campaign are: Marcia Avner, public policy director, Minnesota Council of Nonprofits; Brian Rusche, executive director, Joint Religious Legislative Coalition; and Ray Waldron, president, AFL-CIO. They have combined efforts to form the Invest in Minnesota Campaign because they believe that Minnesota’s fiscal course in recent years is diminishing the quality of life in our state and that we need more revenue, we need to raise it fairly and we need to invest in Minnesota.

For information:
Dane Smith, Growth & Justice
651-251-0728 – work
651-675-6360 - cell

Minnesota slipping toward mediocrity report finds

The think tank Minnesota 2020 has published a report documenting that Minnesota's national ranking on key performance indicators has declined in recent years at the same time that our state has decreased its public investment relative to other states. Click here to read "Minnesota's Slip Toward Mediocrity: Less Investment, Less Return,", by Minnesota 2020 Fellow Jeff Van Wychen.

'We're in kind of a fragile position'

Read Lori Sturdevant's interview with state economist Tom Stinson, published in the May 20th Star Tribune.

Time to return to healthier fiscal diet; more vegetables (yes, taxes) fairly raised

By Marcia Avner, public policy director,
Minnesota Council of Nonprofits
Brian Rusche, executive director, Joint Religious Legislative Coalition
Dane Smith, president, Growth & Justice
Ray Waldron, president, Minnesota AFL-CIO

Think of Minnesota as suffering from a vitamin deficiency, growing weaker and unhealthy, and still resisting a balanced diet. And think of taxes as spinach, broccoli and peas, not exactly everybody’s first choice on the buffet table, but the stuff we need to reinvigorate our state.

One month from legislative adjournment, all indications are that election-year pressures will deny Minnesota the state revenue “vegetables” and the responsible, long-term budget solutions it needs.

Time is running out in the face of projected chronic shortfalls – as much as $1.7 billion in the red a year from now – and so are the accounting gimmicks and the reserves. So voters choosing leaders this fall for 2009 and beyond need to ask them to face up to a glaring fiscal reality: We can’t go on like this. Our experiment with tax cuts and short-changing vital public-sector investment is not working.

More than a decade of tax rebates and tax cuts during good times, and the no-new-(state)-taxes straitjacket of the last six years, have left our communities and our economy in worse shape than they have been in decades. (The 2008 Legislature deserves credit for overriding a veto and pushing through a modest gas-tax increase, but that’s a dedicated tax that only begins to address two decades of deterioration in our transportation infrastructure.)

Cumulative cuts to our public schools, transportation and other public works, early childhood programs, job training and higher education, and health care have diminished Minnesota’s standing in the nation and caused real pain to all but the most affluent of our citizens. And their enterprises are beginning to suffer, too.

That’s because this disinvestment has been accomplished by a gradual slide into economic mediocrity in the private sector. The scrimping and corner-cutting, the idea that draining our common pool of resources will benefit everybody, is most assuredly NOT producing the general prosperity that was promised when tax cuts were enacted. For the first time in decades, Minnesota’s key economic indicators – on job growth, long-term unemployment, and average income – are trending toward or below the national average.

Minnesota’s distinctive place as a high-quality place to live was achieved through innovation and private enterprise, to be sure. But it also came through investment in human capital, education at the forefront, but also in essentials ranging from public works infrastructure, to care for the elderly and poor, and amenities such as park systems and libraries.

Respected non-partisan state experts such as State Economist Tom Stinson and Federal Reserve Senior Vice-President Art Rolnick have pinpointed investment, particularly in education, as crucial ingredients for Minnesota’s past success and as a strategy for recovery. And by the way, every living former governor of Minnesota has expressed public disapproval in some way of the cuts-only course for achieving fiscal balance.

The notions that revenue sources are nowhere to be found or that the state is tapped out are simply not true. A welter of statistics show that Minnesota’s overall effective tax rate is down significantly from a decade ago, that high-income earners benefited the most from deep income-tax cuts, and that the same top-enders have a greater share of wealth and income than at any time in recent history. The bottom-line effective tax rate for those at the top is considerably smaller than for those in the middle, and this disparity is projected to worsen.

Moreover, prestigious national experts have made the case for protecting states’ public sector investment and targeting tax increases to those who can most afford it.

Nobel Prize-winning economist Joseph Stiglitz and Congressional Budget Office Director Peter Orzsag wrote recently that if the goal during a recession is to keep money flowing in the economy, protecting state spending is a pretty sure bet. And they argue that a better option is to raise taxes, particularly on higher-income households. They conclude that, “reductions in government spending on goods and services, or reductions in transfer payments to lower-income families, are likely to be more damaging to the economy in the short-run than tax increases focused on higher-income families.”

We can begin addressing our revenue problem by reversing the income tax reductions that were afforded to those at the top earlier in the decade. We can consider reforming the sales taxes to reflect the reality that we have a service economy. We can look more broadly for ways to expand revenues progressively, so that those at the top at least pay a more equal percentage.

As citizens, we need to make room for elected leaders to do what many of them know to be right for Minnesota. We need to declare the “no new taxes” strategy (that’s state taxes; see your tuition or property tax bill) a failure.

We need to invest smartly in education, job training, transportation, and human capital. To do this we need to think again, as the generation before us did, as well-rounded citizens willing to invest in and nourish the common good.

The authors of this column have combined efforts to form the Invest in Minnesota Campaign because they believe that Minnesota’s fiscal course in recent years is diminishing the quality of life in our state and that we need more revenue, we need to raise it fairly and we need to invest in Minnesota.

For information:
Dane Smith, Growth & Justice
651-251-0728 – work
651-675-6360 - cell

Revenue shortfalls mean long-term budget deficits Minnesota Budget Project finds.

See analysis by the Minnesota Budget Project.