Gov. Pawlenty announced his short-term budget cuts yesterday (MPR). Local impact? Nlfd News says: Northfield to lose $356,000
Figures released today by Gov. Tim Pawlenty show Northfield’s anticipated Dec. 26 aid payment will be $356,000 short of what city leaders expected… The governor’s decision reduces the amount Northfield will receive next week by a little more than 4 percent — from $1.56 million to $1.21 million. It’s unclear how the city will deal with the unallotment. The city is required by law to balance its annual budget.
Today’s editorial in the Nfld News: Gov. Pawlenty, give back our money
Taxpayers are not legally allowed to tell the state that they didn’t make enough money this year to pay their taxes, so why should the governor be allowed to use essentially the same argument? … And while they’re at it, perhaps legislators should consider ending the governor’s authority to unilaterally take money away from our communities through unallotment.
Sen. Kevin Dahle blogged about the impending LGA cuts earlier this week:
If the Governor is set on using LGA to fill that gap, I hope he makes proportional cuts that will allow cities and counties to still receive badly needed checks this December instead of a blindsided approach that leaves our local governments reeling.
Seems to me that Pawlenty handled it reasonably well, especially in his sparing small towns and small counties from the short-term LGA axe… as well as military, veterans, K-12 education, and public safety (press release). I saw Northfield resident and Minnesota Association of School Administrators (MASA) Executive Director (and blogger) Charlie Kyte at GBM this morning and he agreed.
Besides, we’re not in such bad shape here in Northfield. City Finance Director Kathleen McBride commented here on Locally Grown back in early Dec when I asked her about City’s vulnerability to further cuts:
We have already received notice of our 2009 state aid amounts. The dilemma is what the potential cuts could be and when they would be made. It is possible that the governor – and the legislature could “un-allot” 2009 aid in 2009. This would cause local governments to have to make mid-year budget reductions.
The City does have a $722,000 “revenue stabilization” reserve for this very purpose. This at least allows us some wiggle room should the cuts occur suddenly.
Rep. David Bly blogged about the State’s BIG budget problem earlier this month. He alerted me to it via email:
In my most recent post I talked a bit about the budget crunch we are facing at the State level, I encourage constituents to weigh in on suggestions for the resolving the budget problem. It occurred to me that Locally Grown might be a place to generate some discussion. I do genuinely want to hear ideas from those who are interested in offering them. The $5.2 billion short fall will not be made up by using one approach or by a simplistic solution and the more ideas we have to work with the better.
Sen. Dahle makes a similar plea in his Thursday blog post.
We’re planning to have both Rep. Bly and Sen. Dahle on our radio show/podcast in the next two weeks, so now’s a good time to start the discussion.
How would you balance the State’s short- and long term budget problem?
Ray Cox had a guest column in the Nfld News last week titled: Time for some creative plans to solve deficit.
Former Sen. Mark Dayton had a commentary in the Strib last week titled: Fixing Minnesota (miracle not required) .
Center for the American Experiment Executive Director Mitch Pearlstein had a commentary in the Strib last week titled A bit of context for the state budget crisis:
Dane Smith is the president of Growth & Justice, had a commentary in the Strib in early Dec. titled: Three fundamental facts for Minnesota.
I don’t know, Griff … it looks like since the only (4) comments on this thread are yours … there is either no interest or, probably, not a clue as to how the state budget can be balanced , especially with this governor.
But I noticed that K.McBride says in the original post above that the city has a $722,ooo “revenue stabilization” reserve to be used for this sort of cut; but Saturday’s NFNews quotes Joel Walinski as saying there is about half the $350K in reserves set aside for such cuts.
I would imagine McBride has the right figure since she is the city’s Finance Director. I hope she is correct.
Sen. Kevin Dahle and Rep. David Bly are our podcast/radio show guests this week, talking about the state budget from hell. We’re recording it today (a day early) and I hope to have the audio/podcast posted by tonight. It’ll air on KYMN at the usual time, Wed. at 5:30pm.
One of the things that has always frosted me about the state / local government structure here is the wording on the property tax bills. The total tax bill for your property is shown and then followed by offsets / reductions by the state (i.e., aid provided to local governments). Well, where did the state get the money that reduced your property tax bill?! (Stand up and pull money out of your other pocket!)
Our system is too complex, too difficult to explain to residents and business owners. I honestly wonder what the cost is for the bureaucracy that has to support it. I’ve worked in NC and MI -- and while there were some state aid, the local levy authority was just that -- local decisions made by the Council, School Board and County Commissioners. In NC there was a maximum property tax rate established by state law; in MI, the property tax couldn’t increase more than the rate of inflation (debt and other exceptions). The states’ financial status did not impact local governments as dramatically as in MN.
This month’s aid cut will be a drop in the bucket to what we can expect next year. And the city will have to dramatically alter the 2009 budget (just so recently adopted).
But Mac, now I’m confused …. on another thread you said there was a $722,000 reserve fund for situations like this. ?So, won’t that fund be used for this last minute adjustment for this year?
Another confusing comment was in the NFNews, crediting Joel Walinski with saying there was a ‘slush’ fund for about half of the LGA cut (356K), so only half would have to be adjusted before Dec 31…
What’s the right answer?
A couple ‘blue sky’ (and probably unworkable) ideas.
Collect sales tax (or an equivilant fee) on all internet transactions for goods and services sold out of state but delivered to MN residents. Or on any internet transactions originating in Minnesota. (This may require a federal solution…in any case, emerchants have had this no sales tax advantage long enough.)
Install toll bridges/toll roads on the nearest non-reservation land adjacent to casinos. Or allow open casino gambling (taxed) that would compete with the existing facilities.
Legalize marijuana. Tax it and control it. Release anyone from prison who is incarcerated for a non-violent marijuana related conviction. Legalization will also allow for a reduction in law enforcement personell currently employed in this ridiculous aspect of ‘the war on drugs’. This will also require coordination with federal law…but hey…let’s not let this crisis ‘go to waste’.
[...] I’ve turned off comments on this post. Join the ongoing discussion on the blog post How would you balance the State’s short- and long-term budget problem? [...]
Mark Dayton’s quote above could only be made by someone born with a Silver Spoon in his mouth. I think very few Minnesotans would hearken back to the Perpich administration days as a period when their “lives were better.” The thing is most of what is better about our lives (including blogging) were the result of private initiatives (investment funded from those saved tax dollars). Coerced choices via taxation simply cannot produce the dynamic economic results of private voluntary decisions. Dayton’s statement that schools, highways and government have not improved is not a strong argument for supplying more tax dollars.
The magnitude of the problem is difficult to grasp. $5.0 billion divided by 5 million residents is $1,000 per resident in MN. This means $20,000,000 just for the City of Northfield.
Kiffi,
The City will amend the 2008 budget on Monday at a special meeting of the City Council to address this month’s aid cut of $355,263. The amendment reduces intergovernmental revenue by that amount and increases the use of fund balance (reserves). Within the City’s General Fund fund balance -- there is a specific designation for revenue stabilization that totaled $722,000 at the close of 2007. Look for the staff report on the web on Friday -- it goes into a bit more detail.
Mac
David L I have read the state is going to collect 32 billion in taxes (5 short I guess) but following your logic Northfield is then contributing $120,000,000 in taxes to the state. That is a staggering number when one thinks what could be accomplished in Northfield with those dollars were they kept local even for one year. If you draw a circle around Northfield then do the citizens of Northfield (understanding there is benefit of state expenditures) getting anywhere near $120,000,000 in value from the system ? I would think a constitutional convention or some means of restructuring government from the ground up would really benefit MN.
Kiffi, I hope few comments does not translate into apathy by residents. I will admit that the state budget is a huge animal to wrestle with, but it has to be done. Thankfully, our state constitution requires the state to have a balanced budget every two years. Without that requirement who knows where we would be.
Griff is correct that I had a column in the News about this issue. I gave two suggestions for reducing spending: repeal lawmaker raises and reduce House committees back to 2006 levels. These are tiny, tiny cost savings in the big budget picture, but in my mind, they will send a huge signal to taxpayers. When the legislature is willing to reduce their own unncecessary spending, then one hopes that they will treat others fairly also. If they are not ready to do their own reductions, then they most likely will treat others harsher than necessary.
William, good thoughts. That is what we need. The US Supreme Court ruled that states cannot collect sales taxes on internet sales outside of their states….unless the 50 states implement a uniform system of sales tax. If that is done, then all internet sales would be subject to a uniform sales tax. There have been many proposals to create Racino gambling at Canterbury Park….but all have been rejected. This is a tough sell because conservative Republicans generally don’t support expansion of gambling, and most Demorcrats don’t support it due to the huge financial contributions they receive from Tribal political committees.
David Henson, I couldn’t agree more with your comments. Mark Dayton was born with a silver spoon in his mouth and he continues to promote the supposed tax inequities between the ‘rich’ and the ‘not rich’. However, the huge majority of the taxes paid differential between these two groups is related to personal choices of spending. And Mark seems to always forget that the top 5 percent of Minnesotans pay about 70 percent of our taxes. We need to do everything we can to keep them here, encourage them to operate their businesses, stay here when they sell their business, etc. My comments to Mark are that he is free to donate any portion of his inherited wealth to Minnesota at any time. The Revenue Department will be happy to accept checks.
The big issue the state is dealing with centers on the fact that state government has been expanding at slightly more than 5 percent a year. That is unsustainable regardless of the level of taxes you think you can collect. If they raise taxes by $5 billion this year, that will go into the mix for the following biennium as the ‘base amount required’…..plus expanded by another 10-11 percent for the biennium at a minimum. Minnesotas demographics do not support this level of growth. Maybe someone can come up with a brilliant plan to attract young, high earning professionals by the boat load and our population will start to grow again, but I would not hold my breath for that to happen. Absent this type of growth we are going to have to learn to deal with living within our taxing means. Can we do it?
Ray, the top 5 percent of Minnesotans (by income) pay 70 percent of taxes. What percentage of income do they control?
According to the Wall Street Journal in 2007, the richest one percent of Americans earned a postwar record of 21.2 percent of all income in 2005, up from 19 percent a year earlier, reflecting a widening income disparity among different classes in the nation.
Using Internal Revenue Service data, the paper noted that the fortunes of the bottom 50 percent of Americans are worsening, with that group earning 12.8 percent of all income in 2005, down from 13.4 percent the year before.”
The rich pay a disproportionate percentage of taxes because they control disproportionate amount of wealth. Sounds more like they’re just paying their fair share or less.
a couple more ideas for raising revenue:
Sales tax on food and clothing. While sales tax is regressive for the poor and working poor, it is not necessarily regressive for others. (No sales tax on lobster tails, filet mignon, Brooks Brothers suits, Mink coats, etc.???) Give protection akin to an earned income credit for sales tax paid on food and clothing to the most at risk, but charge the tax on every item sold.
Personal Property Tax: Boats, cars, furniture, appliances, art, jewelry, cellars full of vintage wine, non interest bearing cash accounts, etc., constitute untaxed wealth and could be taxed yearly at a nominal amount.
I’m pretty much a lefty, but I see few add’l opportunities for revenue growth. I would not be opposed to legalized gaming (or marijuana), but I think the revenue options there are limited.
As for cuts, I’ve worked in state govt (public safety), and I recognize there is waste that could be trimmed. Unfortunately, that means layoffs, which is not good for those workers and their families.
It’s going to be difficult for MN to address the budget shortfall without addressing the major expenditure of health care. Even though MN has done better than some states in minimizing the growth in the cost of Medicaid over the past few years, it has still been growing at a much faster rate than inflation. As long as health care is treated as a state issue, we’ll continue to see states like MN, with progressive ideas about health care, struggle under the costs of providing coverage to low-income families and children. I expect we’ll see some of health care coverage rolled back in the upcoming session.
With a lot of people losing their jobs how could anyone justify any increase in taxes?
I have been asked my my employer to do with less this year. He cut my bonus to zero and has eliminated any raises for 2009.
How can we ask working people to live with less but don’t require the same “sacrifice” from our elected officials?
I have listened to part of the Bly/Dahle broadcast. They have correctly analyzed the problem, but don’t offer any real solutions.
They operate on the premise that only government can get the economy going by initiating infrastructure projects.
In general I do believe we need infrastructure improvement and we should spend our money wisely to do so. But to conclude from this that this will stimulate our economy ignores certain facts.
The way government finances these projects is by either raising tax revenue or by printing money we don’t have. In both cases government does not create new value. In taxation they just take money from one person and gives it to another, which in essence is a zero sum gain.
Printing money just devalues our own money and makes it worth less.
The perceived creation of jobs and wealth in both cases is really smoke and mirrors only and doesn’t address the fundamental problem.
Ray Cox is correct with is assessment of the problem. The only way we can increase our wealth is to allow the production of it. We need to attract young entrepreneurs to come here create businesses which also creates jobs which in turn creates revenue and wealth.
Minnesota, depending on who’s numbers you read, is in the top ten when it comes to tax burden in the USA.
It also is 42nd when it comes to a favorable business climate.
Raising the taxation burden on people will only worsen the picture and make it less likely for businesses to come here.
I don’t see how we can sustain government growth at 5% per year without being taxed to oblivion.
If we decide to tax the rich the effect will backfire on us. Money and wealth has become more portable then ever. If we don’t make it attractive for people with wealth to come here. They just move on and live somewhere else and we essentially lose even more revenue.
The real solution is for us to ask ourselves the question on what we expect the government should do for us.
Then properly fund it and hold them accountable for it.
I think legalizing pot is a mistake. Pot in itself is no more dangerous then alcohol, but it usually leads to the desire for stronger drugs. Besides it tends to make one paranoid, lazy and unproductive.
Anne, I do not dispute the facts and figures you listed. However, I am not in favor of social engineering to limit earnings for some selecdt group of people. America is the great country that it is today because we have (generally) a working free market system. I am not advocating for reducing the taxes on our high earners. I’m fine with things the way they are. But I also think the state then has an obligation to live within that revenue stream. As I said earlier, ‘solving’ the budget shortfall by implementing some new big taxes on a single segment of the population is not wise and can be predicted to not ‘solve’ anything. I agree with you that “the rich” are paying their fair share.
William brings up the wider sales tax base .That really isn’t such a bad proposition if enacted properly. One downside is that it hits lower income people hard. However, most of the really low income people do not pay any income tax at all, and in fact a huge portion of them receive a check from the government due to the Earned Income Tax Credit program. So a broad based sales tax really doesn’t hurt them as much as some people claim…..but there is a time lag in when they pay the increased sales tax and when they get their EITC check.
Minnesota used to have a personal property tax. The Assessors came around every year and imposed taxes on your TV’s, belongings, etc. It was phased out about 40 years ago I believe as it was very, very hard to enforce.
I continue to believe that Minnesota has to move from a ‘business as usual’ mindset to actually looking at demographics and charting a new course that matches where we are headed. They need major discussion on some issues that have not had good discussions for years. Example: Should individuals be required to use up evey last asset they have to fund their long term care? Or should they be able to shield some assests to pass on to their heirs, as we operate now?
Ray, it is difficult to understand your statement (in 14) that state government has grown by 5% per year in light of facts presented in a recent report by the Minnesota Budget Project “The Lost Decade,” which states ( http://www.mncn.org/bp/lostdecade.htm ):
Since Fiscal Year 2003, state funding has declined in the four key areas of investment (after adjusting for inflation).
And Minnesota has lost ground compared to other states.
State general fund spending on E-12 education rose by 10 percent from FY 2000 to FY 2009. A major tax reform meant that in FY 2003, about $1 billion in school funding was taken off of local property taxes and replaced by state funding. However, state E-12 funding has gradually declined since FY 2003.
State general fund spending on higher education dropped 16 percent from FY 2000 to FY 2009. Significant cuts earlier in the decade were partially restored in recent years.
State higher education funding per full-time student dropped by 28 percent from FY 2000 to FY 2007.
The state cut funding for child care assistance by a cumulative total of $250 million from FY 2004 to FY 2007.
State funding for affordable housing and homelessness prevention gradually declined in the 2000s, with the exception of two one-time boosts in funding. From FY 2001 to FY 2009, funding fell by 17 percent.
Minnesota is now average in its education spending compared to other states. In Fiscal Year 1987, per pupil education spending in Minnesota was 11 percent above the national average. By Fiscal Year 2006, Minnesota’s per pupil spending was equal to the national average.
So where does this increase in state government come from?
Kevin Phillips in his recent book “Bad Money” states that real inflation when figured accurately would be closer to 6% not the usual 2% increase reported in most circles. Add to that the fact that the State of Minnesota does not figure inflation in its budget spending. 5% growth would actually be a net loss. But perhaps Ray can explain where his figure comes from.
As to the 5% wealthy who, as you report, have to pay 70% of our taxes, the Minnesota Tax Incidence Report states that they will likely pay 10% of their total household income while most others pay 12%. If it’s true isn’t it really a statement of how much greater their income is than the rest of us? If they came here when Minnesota was investing in the things we need as a state and the State retreats from that investment as we have been doing isn’t it more likely they will leave if we can’t provide the things that once made our state great. We may see a mass exodus of the wealthy and turning away form our state because we can’t supply the educated workforce or infrastructure that fed our economic growth. Years ago the advocates of investment argued that not do so leaves us not much different than our cold neighbors, with the investment we became in economic force. My how times have changed.
For further reading, people might check out these blogs on tax fairness:
http://www.growthandjustice.org/Pertinent_facts_about_Minnesota_s_budget_forecast.html
http://www.mnprogressiveproject.com/diary/2262/pawlenty-ensures-the-minnesota-rich-do-not-pay-their-fair-share
Or this one on decline in state revenue:
http://www.mn2020.org/index.asp?Type=B_BASIC&SEC=%7B6907A88F-9AE9-4199-9924-A4328ECDC66A%7D&DE
David- The problem with statistics is that they are just that- statistics. They must be interpreted and that interpretation applied to fiscal policies. You state in your post, “…We may see a mass exodus of the wealthy and turning away form (sic) our state because we can’t supply the educated workforce or infrastructure that fed our economic growth…” This is a common liberal litany I keep hearing. Do you have some actual research to support that theory? I assume you do, as you present it as a fact. I would just like to see some documentation.
The problem I see with trying to increase the amount of tax money the top 5% pay is that they have much more flexibility in their movements. If they decide the tax structure is too great to handle, they can move somewhere else or exercise loopholes written into the laws to seek shelter. It is these inequities I see as something that should be addressed. I have heard some ideas about a flat tax, that everyone pays a set percentage of their gross income, no matter what it is. This would only be fair if the loopholes in reporting income were removed. I just haven’t heard anyone pushing that policy, yet. The attack seems to be on the top 5% rather than a uniform system.
As far as getting out of this financial mess we are in, I don’t have any quick answers, and I don’t think there are any. Just as bankers and investors gambled on future returns on increasing property values, and lost, the government has gambled on the same theory in collecting taxes. It just isn’t wise to count your chickens before they hatch.
My son lives in North Dakota, and with the discovery of economicly feasable processes to extract the oil in western N. Dakota, they are rolling in the money they have. They can’t figure out how to spend it fast enough. But, because the state has been controled by conservatives for the last couple decades, the government has not gone down the path of social spending and entitlements. With the advent of a new resource, the taxes are more than enough to cover the needs. Now, if there were another natural resource in Minnesota that could be developed, our deficit could disappear quite quickly. Unfortunately, I am not aware of anything like this.
David in post 19 you state that the State Government has not increased, WHEN ADJUSTED FOR INFLATION. That is the real kicker.
It is a typical response from the left that if the increase is not greater than than inflation index it is actually a cut. When in reality it is an increase.
If I make $100 and get a raise to a $103 but inflation is 3.5% did I get a raise or not?
The fact of the matter is that there are going to have to be real budget cuts at all levels of government. Economist on both sides of the aisle agree that we can not tax our way out of this current situation. Even President elect Obama is backing off on repealing the Bush tax cuts.
Budgets are going to have to be trimmed and yes it is not going to be fun for any of us.
For those of you who would want to read it, here is a link that I feel gives a pretty good analysis of state governments’ actions affecting business climates:
http://www.taxfoundation.org/research/show/22658.html.
Since business is the source of taxable revenue, I think it important to consider how we attract and keep those businesses. Their profitability and success directly affects tax collection. This is where the fundamental differences between fiscal conservatives and fiscal liberals affects how these needs are interpreted and addressed.
David, I’m not sure what numbers you use when working on state budgets. When I served I was quite content to use the Department of Finance figures. For the last biennium, 08-09, the state budget grew by just over 10.1 percent when compared to the 06-07 budget. There is no dispute on that. I don’t have all the previous Dept. of Fiance figures in front of me, but I can assure readers that government spending did in fact increase by roughly 5 percent per year.
As John points out so well in #20, statistics can be twisted and turned into any shape. That is why I believe it is far better to simply use the figures from the Dept. of Fiance. They don’t lie. They don’t twist things. They simply report the actual tallies of spending plans.
And Bruce, thank you for making the point about how increases are often looked at. The media constantly reports on ‘cuts’ to various programs and budgets, but they most often are not really cuts. They are reporting that some agency or division wanted a 12 percent increase in something and received an 8 percent increase, so they ‘were cut 4 percent’. Only government spending gets reported in that manner and it is a rather bizarre way to look at the world.
And David, K-12 spending received increases of just over 8% in the 06-07 biennium, then was granted another 8% increase in the last biennium. That works out to just about 17% increase in 4 years. With inflation at record low levels that is a very health increase, especially with a declining student enrollment. Carefull management of funds by local school boards is required, but no one can say that Minnesota is not funding k-12 well.
I agree with John, that Minnesota risks driving businesses out of the state much faster with a hostile tax and business climate than we do by supposedly not producing well trained workers. For example, I suspect it won’t be too many more years and we will see 3M headquarters leave the state, and take just about all their remaining jobs. That won’t be because of poorly trained workers. It will be related to taxes and business climate, as well as a change in the location of the bulk of their customers to foreign lands.
As I said earlier, Minnesota has to come to grips with changing demographics. We cannot continue using methods that we used 30-40 years ago. The times have changed and our state has and is changing. Today’s article in the St. Paul Pioneer Press reports that about 90 percent of our k-12 schools will be having reduced student levels. There is your lack of workers. If we cannot attract people to move to this state to live and work here, then we are going to have a shrinking work force, schools….and a shrinking tax base.
We’ve recently seen a perfect example of what happens when old methods are not replaced by new methods suited to current conditions…..the UAW and the American auto industry. The UAW is so set in its ways that it refused to even talk about any contract concessions needed in an effort to keep the auto makers alive. And industry management agreed to various unstable contracts over the years that essentially guaranteed future insolvency, but they did it for current year labor harmony and current year earnings. The Congress’ rescue plan failed to advance. President Bush funded a smaller level of ‘rescue’ money—-but does anyone really think it will do anything to keep the auto makers alive and healthy?
John is absolutely correct….”Since business is the source of taxable revenue, I think it important to consider how we attract and keep those businesses.” Minnesota can either properly address that issue, or we can ignore it, use outdated models and methods, and watch our business climate deteriorate and shrink—and our tax base with it.
>If I make $100 and get a raise to a $103 but inflation >is 3.5% did I get a raise or not?
Bruce raised this question. Its a good basic quantitative literacy question. One way to illuminate the answer is to consider another question: If we paid Bruce $100 one year and then the next year paid him 300 pesos and inflation went up 3.5% did he get a meaningful raise? Clearly the number associated with his salary got larger (300 is larger than 100). But if he tries to go buy something with that money (assuming folks are just as willing to peso as dollars at current exchange rates) Bruce would find he can’t purchase as much stuff (gas, milk, etc…).
I’m guessing he wouldn’t be happy if we labeled his new salary a ‘raise’. The point here is that the number of dollars (or pesos) isn’t actually the thing any of us cares about. What we care about is how much ‘stuff’ we can exchange it for. So talking about changes in ‘cost’ over time without taking inflation into account is pretty silly. Because if you don’t take inflation into account you’re not really talking about changes in costs--you’re talking about changes in cost mixed in with changes to the units you’re using to measure cost. This mixing together of the thing that actually matters (real ability to buy stuff) and the something that is just an arbitrary number makes it harder to make clear arguments. We could just figure the state budget in English Pounds (or even Euros) this year and get the budget to go down to a smaller number. Would that make anyone happy? I suspect not.
So when I see folks making arguments about costs ‘changing’ and they aren’t taking inflation into account I’ve got to assume they either don’t actually understand how money works, or that they are trying to get me to believe something that isn’t true.
Thank you David and Ray for sharing your thoughts. I certainly don’t follow the numbers as closely as you do.
All I can offer here is my family budget and I can attest that over the years the tax burden and inflation has reduced my take home pay steadily.
Inflation is caused by an oversupply of money. This oversupply was created by irresponsible budget management and a consistent increase in debt.
We can argue about who created the debt and when, but for working families this means very little. The end result is just the same regardless at what level the debt has been created.
Unfortunately I don’t hear much on how we seriously going to fix this. All I see is finger pointing and academic discussions on how to raise more taxes.
It is easy to criticize the Governor for taking some unpopular actions. It is much harder to offer tough solutions that will reduce the debt without raising taxes.
We can raise taxes on the rich which is an easy and very popular target, because it only hurts a few initially.
It does however neglect to explain the trickle down effect it has on society as a whole.
Some years back we had a luxury tax on yachts, boats and other luxury items. As a result these items became more expensive and the demand for them went down. Which forced some of the makers of them to either close down or layoff people. In the end the tax hurt more the working class then the rich.
Just as recent as last year MN has given themselves a higher per diem and now Washington is considering a raise for themselves????
How about politicians lead by example and take a pay cut? Just a thought.
Ray, I’m not following your arguments. You say “Carefull management of funds by local school boards is required, but no one can say that Minnesota is not funding k-12 well. ”
I’m pretty sure I’ve been reading in the papers about school districts across the state (and even here in Northfield) having to cut programs and having funding referendums on local ballots in order to keep from cutting programs. Is the implication that schools were funded ‘too well’ before and now they are simply funded ‘well’?
You also make (a not adjusted for inflation) argument about funding for schools having risen over the last two budget cycles. But I think we all remember that in the years before that school funding from the state received cuts that were much larger than any recent
increase. So if you’d choose to look over a slightly longer period of time you’d see that school funding has not made a dramatic jump, or even a jump at all.
John thanks for pointing out statistics are statistics and more often times than not depend on your political perspective for how you see and interpret them. Take for example the views of the Tax Foundation not everyone agrees, here are some critics:
http://gregmankiw.blogspot.com/2008/08/corporate-taxes-here-and-abroad.html
http://economistsview.typepad.com/economistsview/2008/08/the-greek-menac.html
I have not heard that Obama is rethinking his repeal of the Bush tax cuts. The reason the Reagan, Bush and Minnesota tax cuts to the rich have not worked is that the very wealthy are not interested in creating the promised jobs their proponents keep promising. They are interested in investing in things that increase their wealth. And unlike tax cuts to the middle class they can’t spend enough in consumption to make a difference in the economy.
Let’s not lump all businesses and all taxes together either. I can see there are some small businesses that are clearly more effected by taxes as clearly many Northfield businesses are adversely effected by sharp increases in property taxes. I am not proposing we raise property taxes, which have been the result of cuts to LGA at the State level.
What I am hearing is that we are in very unusual times right now and just as Eisenhower spent money to develop the Interstate highway system to escape a recession Obama is proposing government spending on infrastructure to stimulate the economy. This is because right now the Government is the only entity right now in a position to create growth in the economy. There is so much uncertainty in the private sector that investments and borrowing are nearly impossible.
http://www.nytimes.com/2008/12/26/opinion/26krugman.html?_r=1&partner=permalink&exprod=permalink
Those who want to use such an opportunity to shrink government more are putting the economy at greater risk.
Bruce I don’t believe I said that we have seen a cut in spending, however reports I have read say that the rate of overall state government spending is in decline. But at the ground level when the Northfield School District experiences 6 to 8 % inflation and receives 1% or 2% or God for bid 0% increase in funding from the state, the District must make cuts.
When the State of Minnesota receives less in revenue than budgeted for (and currently we don’t budget for inflation in projecting spending) it must cut, to the tune $5.2 billion right now. We can’t deficit spend our way out of this as we have to balance the budget. I appreciate the suggestions reflected in the comments here and I am sure we will have to consider these ideas. I also think it is important to remember that most economists are saying that what we are experiencing is not just effecting state government spending. The economy as a whole is changing and the market appears to be in a free fall and we don’t know what will happen. More and more people will turn to government at the state and federal level for help. We are seeing more evidence that our economy is not a free market system as much as conservatives want to turn it in to that. We are a mixed economy based on interactions of private, public and non-profit activity. They all play an important role and right now the government (public sector) maybe what we need to rely on to keep the economy afloat.
Sean, Minnesota’s schools have never received an actual dollar cut. There were several years (I believe 3 out of my 15 years) when I was on the school board that I remember we got 0% increase, which is to say our funding from one year to the next year was left the same, as long as we had the same number of students.
In 2003 schools again received a 0% increase. They did not get a cut. However, due to the way schools are funded, if a district saw student decline then under a 0% increase they would actually receive fewer dollars than the previous year.
In my mind there is nothing wrong at all with local school districts making the decision to ask local voters for school support. That is what is meant by local control. Some districts do not do it, but most do. For example, until 2 years ago Belle Plaine had never asked voters for levy support. They elected to run their schools on what the state sent them. That’s a local decision. Local school boards make the decision about what programs and classes to offer and still fit their budget.
I personally think we have a pretty good balance between state and local school support right now at about 82% state and the rest local, if a levy is in place. In 1972 when Minnesota was recognized for our “Minnesota Miracle” we lifted state school support to 72% with the rest on local taxpayers. As noted, Minnesota state support has gone far beyond that figure today….and I think it is appropriate.
I do not think the state should ever be in the position of 100% school support as Gov. Ventura attempted to do. I want to have local taxpayers have ‘some skin in the game’ so they pay attention to what is going on in the schools. As long as we have local bargaining for employees, I think we must retain some local taxing effort. A system where 100% of school funding comes from the state will lead to a complete state run school system….something I would never, ever support.
I do not care for the current method of schools being forced to ask for all their local support in the form of a voter approved levy. I’d rather see a system where the state pays a set portion of school costs, and local taxpayers are assessed the balance of the cost on their property tax statement. I’d keep the voter approved levy option, but would hope it would be rarely and carefully used.
Finally, I have no real problem with budgets that do not include inflation. It is an easy calculation to make as an add in as budgets are being set. In many respects it is much easier to use raw accurate numbers. Inflation is a guess as we all know. I’d rather see inflation added in as a best guess at the time the budget is being adopted and formulated. I do have a problem with the way the state adds inflation to the revenue side and not the expense side.
One of the reasons that gov’t spending is confusing is based upon unfunded mandates.
It’s my understanding that the Sibley school expansion request is not based upon student enrollments so much as the need to have adequate space for the special needs programs that are required by the state.
David- Thanks for the reply. The one issue you and I differ on is whether government can actually increase wealth. It can print money, but all that does in dilute the value of the money in circulation. As far as people looking to the government to bail them out, I think this has contributed to the economic downfall we are experiencing. The government cannot supply everyone’s needs. In my opinion, government has enabled poor management, both of personal finances and now corporate finances. There is no shame in trying something and failing and learning from that experience. When we insulate people and now corporations from the realities of life, then I think we stifle growth, but I know that my opinion is not popular right now. It would be nice to see some of JFK’s proposal being advocated today- it is not what your country can do for you; it is what you can do for your country.
It is interesting that you cite Eisenhower as one who built infrastructure with the national freeway system. This has been a mixed blessing, in that it has facilitated the local distribution of goods and services more easily and expanded markets. It has also fostered American dependence on personal transportation rather than public transportation. It seems we can’t seem to find the balance between the two concepts. I appreciate what Obama seems to be doing so far in trying to use a centrist position in governing. We’ll see how successful we can be with that.
Ray, I certainly agree that putting fixed imaginary future inflation numbers into future budget calculations is misguided. Predicting the future requires a lot more nuanced judgment than that. Though imaging the future will be exactly like today (and so budgeting without any consideration of inflation) is just one possible guess about the future and not always the wisest one.
My qualm is with folks citing past budget figures (where the inflation rate is well documented) as support for arguments without doing the inflation adjustment.
I hope we all agree that the actual purchasing power of the money (not the number) is the thing we should really be caring about. And if that’s the case arguments that try to convince people we have spent “too much” or ” not enough” (which at their root appeal to our gut instinct as to what is a ‘big’ number) and which fail to cite the number for the ‘real’ value that we’re all concerned with can mislead.
For example you cited an increase in the state education funding from 2004-2005 to 2006-2007 of just over 8%. That sounds (intuitively) like a big number. (which I think was your point) But you don’t say whether that’s inflation adjusted. If it (for example) is not then we could do a quick check of the consumer price index (comparing for example Jan 2004 to Jan 2006--not really the right calculation but just for the sake of example), see that inflation over that two year period amounted to about a 7% increase, and so the actual increase in real purchasing power was only 1%. That feels like a much smaller number and makes your argument much less compelling.
Perhaps the 8% you cited is inflation-adjusted. Perhaps it isn’t. But I think this illustrates the danger of not using inflation-adjusted numbers in cases where they can give a more accurate picture of what’s really going on.
There will have to be some tough choices made and we cannot afford to squabble of who is right and who is wrong. One thing I know for sure Long-Term Care and the people who work in the industry must not bear the burden of budget cuts or less funding we have a moral obligation to the workers and to our parents and grandparents since maybe someday they will need the services of long term care. Maybe holding it at current funding levels would ok but Long-Term Care cannot bear the brunt much longer. Long -Term Care cannot go to the voters and ask for a referrendum like some other needs of the budget can. I would like people to think that every time you drive by Three Links Care Center and Northfield Care Center think of the dedicated workers who work every day and holiday and they do not do it for the money. They do it because they are dedicated and very hard working . Just a thought David Roberts
John, excellent points. I too fear that we are creating a dependency culture that has the potential to doom us all. Turning to the government to ‘save’ you from whatever ails you is not the answer in many instances. You are right in that there is generally much to learn from a failed venture. Many successful people took several tries to make an idea or business work for them.
Sean, you said “I hope we all agree that the actual purchasing power of the money (not the number) is the thing we should really be caring about.” Agreed. I also hope we all can agree that government budgets should not simply be based on what the previous budget was. Hard looks must be taken at what is being done with the money…is the plan working, are there measurable results, etc. Without doing that we just create bigger more bloated government. That is why a budget shortfall is actually about the only time that true government reforms can take place as it is the only time that programs get a hard look. The easy way is to cry for more taxes from the taxpayers. The real work is in figuring out how to do what government should do with the revenue collected. Advocating to make the revenue pie larger and larger for the same number of people is being the engineer for a train wreck.
Ray — I definitely agree that what government does with revenue and what the right amount of revenue might be is something that should always be a top consideration on the table. I would disagree with your statement that “Advocating to make the revenue pie larger and larger for the same number of people is being the engineer for a train wreck.”
One of the defining features humanity is that it has gotten dramatically more efficient at producing stuff over the course of its existence. We leverage our intelligence to find better, more efficient ways to meet our needs and desires. 100 people today (leveraging the hard won prizes of long healthy lives, steady food, shelter, educated minds, technology, stable social structures, predictable availability of capital, etc, etc…) can produce dramatically more stuff (real or virtual) than those same 100 people could 100 years ago.
The result is that people today can afford to spend radically more on government than they did 100 years ago simply because they are radically more productive. There is simply more money, more value around. We can spend the same percentage on the things that government buys us (much of which the free market can not) and get more and more for that same percent as we are more and more productive.
So to say that (with a fixed population) a growing investment in the social goods that government represents will lead to some sort of fiscal melt-down doesn’t jive with the notion of steadily increasing human productivity. Of course if government growth is faster than GDP growth over long periods of time then we will eventually have problems.
But I don’t think that’s our current problem (speaking now about the last decade of budget battles--this year’s financial turmoil is just bringing to a head a reality that has been lurking for some time). Our current problem is that while our GDP has been climbing steadily in recent years the fruits of those labors, that value, has come to rest in an unprecedentedly uneven way across the population. A very few hold most of that new value and the great majority hold very little of it.
As a result you have the great majority thinking “we are in hard times, we must tighten our belts” since they have seen little growth in wealth. They are indeed in hard times. They indeed cannot afford higher taxes without having to make real sacrifices. At the same time the nation as a whole is wealthier than it has ever been.
David Bly: First of all, thanks for weighing in. It is good to know what our legislators think at a time like this.
Sean, we agree on some things and disagree on some things. I don’t think I could ever find myself uttering the words “The result is that people today can afford to spend radically more on government than they did 100 years ago” because it assumes that what government is doing is all proper, and that government derserves to take more and larger amounts of money from some people—often just to give it to other people. I believe there are better ways to accomplish much of what government is doing today by using other methods.
Less than 10 years ago with the same level of taxation we have today, the state of Minnesota had so much excess revenue that ‘Jesse checks’ were sent out to taxpayers. Now today we are facing a $5.8 billion shortfall. That is after a $2.5 billion excess in 2007. Minnesota has got to figure out stable revenue amounts that fund proper government functions, then save a certain amount of surplus to get us through some of the difficult times. When we spend every dime we have in one biennium then have to face massive shortfalls the next biennium it does not make for good government.
And as I said earlier, much of this has to do with Minnesota demographics. Take a hard look at demographics…numbers of people, ages of people, education levels, etc…. and you can see what we are facing.
Ray and John: I agree with you guys that no real progress can be made until we abolish the idea of a “nanny” state. Especially damaging is the concept that every expenditure is an “investment”.
The idea that the government, which already is trillions of dollars in debt, should spend money on infrastructure as an “investment”, is analogous to remodeling your house when you can’t make the mortgage payment.
Ray and David L., can you give some specifics of services in the city, schools or the county that shouldn’t be funded, or which should be cut back significantly? I’m trying to see your definition of what constitutes a nanny state.
Ray,
In #14 you alluded to ideas you suggested recently in the Northfield News as possible ways to reduce spending: repeal lawmaker raises and reduce House committees back to 2006 levels. I’d defer to your direct experience on the substance of these ideas. But as you said yourself, these are tiny, tiny cost savings in the big budget picture. You suggest that such steps would send a “huge signal” to taxpayers. As a taxpayer myself I guess I do see a signal here, but the signal I’d get is less “now we’re really going to get serious about the budget” than “look how nicely we’ve rearranged the deck chairs.” I’m hoping for more substance and less symbolism. In times of serious economic pain I think there will need to be accommodation on both the spending and the revenue sides. If T-Paw just tacks hard right, it won’t be pretty.
Concerning budget numbers, you describe yourself as “content” with Department of Finance figures, which indicate something like 10% biennial state revenue growth over recent biennia. But do you know whether those figures reflect inflation, population increase, or other such fac
Oops … something jumped the gun on my posting a moment ago. Let’s try the last paragraph again:
Concerning budget numbers, you (i.e., Ray) describe yourself as “content” with Department of Finance (now part of Minnesota Management and Budget, I think) the figures, which indicate something like 10% biennial state revenue growth over recent biennia. But do you know whether those figures reflect inflation, population increase, or other such factors?
And are you also “content” with other information from the same source? For instance, the Price of Government report (go to
http://www.mmb.state.mn.us/budget-pog
and click on Price of Government) says that total state, local, and school district spending in Minnesota has remained almost constant, or fallen very slightly, over the last 10 years or so, as a percentage of personal income.
I don’t know the best mix of spending cuts and “revenue enhancements” in these troubled times. But the idea that the price of Minnesota state and local governments are taking larger and larger cuts of personal income appears to be factually mistaken.
Paul, you are correct that the price of government has reduced slightly over the past decade. I have not checked lately but I assume it is around 16.5% down from 17% some years ago. I would hope that is a good thing in that government is delivering mostly the same basic services but at a reduced cost. I don’t think it will—-or probably can— go much lower. The price of government is simply the sum total of all the revenue governments take in, divided by the number of people in Minnesota. If we are not growing our population and we are not reducing government spending, then the price of government will go up slightly over the coming years. But if there are significant spending reductions made we may see the price of government remain stable.
When I said I was content with the Finance Department figures, I meant that I had confidence that they were true and accurate. I don’t have the same confidence in most other reports as they are generated by those with ‘a dog in the fight’. The Finance Department is consistantly accurate.
David L. your comments about remodeling your home when you can’t pay the mortgage are spot on. And that is what we are seeing with the federal government get involved in all these huge bailout programs. Managing a proper bankruptcy is not something the government should avoid. As someone said earlier, there is a lot to learn from a business closure. Where were all these government programs when PanAm folded up? When Braniff went bust? When Studebaker closed up? And when Northwest went into bankruptcy a couple of times—-and emerged healthy? They were not around and let the shut downs occur, as they should. The planes were purchased and kept flying. Studebaker was purchased and merged, just like Rambler and Hudson and Packard merged. Trying to prop up failing businesses is nuts.
Anne, anything the state is doing for people that they can and should be doing on their own winds up in the nanny state column. In Northfield one might think the liquor store falls into a nanny state program. Lots of people consider state funded day care a nanny state program. Others think creating bike trails is a nanny state program. Then many think providing funds for college educations is a nanny state program. Others will gladly lump ethanol support payments into that nanny state category. One can go on and on with the list—-as long as you leave off the ones I like!
Hi, Ray,
I don’t mean to pick on your many postings … just want to rescue myself from any charge of apathy!
Concerning the factoid you mentioned above to the effect that the top 5 percent of Minnesotans (by income) pay 70 percent of taxes …
Like all factoids, this one is subject to interpretation and definition, but since you threw this one out, here are a couple of questions:
1. What percentage of total income does this 5% control? Anne Brett asked this earlier and, unless I missed it, no answer emerged. Seems to me the answer is pretty important if the object is to assess what’s fair.
2. You worry, perhaps justly, that tampering with tax rates can amount to “social engineering”. Fair enough, but isn’t *every* tax rate structure, including the status quo, to some extent socially engineered? If it’s true, as some have said here, that top earners actually pay lower total state and local tax rates than poorer folk, isn’t there some social engineering implicit in that situation? Weren’t the Bush tax cuts — which went principally to richer folk, even at a time of government deficits — another form of social engineering?
My own view (in a spirit of full disclosure) is that *every* tax structure entails some social consequences and incentives. In some ways this is a Bad Thing, but taxation at some level is clearly necessary, so the object of good tax policy should be to raise the necessary revenue as fairly as possible, with as few perverse side effects as possible. Like other constrained engineering problems, this one is very difficult, but worth doing as well as we can.
It bears the question on how much real wealth we have created. It is true that our GDP has consistently increased, but it is also true that our national debt has increased at the same time.
Couple this with a steady increase in inflation one could argue that our perceived increase in wealth isn’t that great after all.
Their are always two sides to a balance sheet. How much is your worth really worth when offset against your obligations?
David B. you’ve been trying to make the point that only government can create real growth in the economy.
I respectfully disagree with you on this. Government run projects are nothing more then “make work” projects some of them with very questionable value.
Surprisingly enough even Obama starts to understand that government is in no position to provide real growth.
His hiring of Christina Romer as the head of the CEA speaks volumes on this matter.
http://blogs.wsj.com/economics/2008/11/24/who-is-christina-romer/
Christina Romer has clearly established that increase in taxation has a negative impact on growth.
Quote
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She has found that tax cuts are usually associated with increases in government spending, for example. But she has also found that tax increases cause the economy to contract. And her dissertation showed, to the great delight of free-marketers, that the federal government has not gotten much better at stabilizing the economy since the Great Depression.
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I hope Obama will be able to fight off those who believe that government is the solution for our economy….because it is not.
In today’s Nfld News: City leaders say use reserves to replace LGA.
NY Governor Paterson, a Democrat, has proposed his budget and it includes cuts to K-12. NY Times: Paterson Proposes Austere Budget to Close Deficit
MN Growth and Justice on Dec. 11: For Minnesota, education on the chopping block.
I like the idea of zero-based budgeting, but is it politically feasible? And is there enough time to do it?
Dec 9 MinnPost: Legislative leaders take pains to stress cooperation with Pawlenty in solving state’s budget shortfall.
MN Growth and Justice on Dec. 11: For Minnesota, education on the chopping block.
Hmmm. Could we borrow from the strategies used to close military bases?
Thanks for your list, Ray. By your logic, would the Northfield Downtown Development Corp., the Convention and Visitors Bureau and EDA be creating dependence on the nanny state services to businesses who should be financing their own efforts? And given the liquor store philosophy, should the hospital be run by one of the many fine private health care organizations in the area? The ice arena also would be as discretionary as the bike trails, wouldn’t it?
There’s a lot of money to be saved with your thinking, to be sure. I guess as long as everyone shares the burden, I’m willing to consider all the options.
The world power structure is decentralizing before our eyes. The traditional media is melting down because they can’t hold a large enough audience share (blame Griff). Financial markets are imploding – the biggest reason for this is probably that they are no longer a viable business model (they offer society no bang for the overhead buck). “The rich,” big corporations and the government functioned for societies as repositories of information – they were the Internet – but now we have the Internet which is far more efficient.
MN government (all government) cannot remain the same any more than the music industry can remain the same. How does MN survive? The good news is its pretty easy to survive a huge pickup in economic efficiency provided entrenched interests are not reactionary to change. One major difficulty is how does local and state government navigate this change within a federal (or global) system – when said system is weaving around like a drunken giant?
Business as usual would be to look to Washington or Wall Street or big corporate employers for answers … but these institutions are in crisis and unlikely to provide any solutions … in fact, they are already becoming the problem (tossing around billions).
I would think one top priority for MN given our climate would be to become energy independent asap. Maybe Ray Cox or David Bly knows to what degree we can meet our energy needs with local or immediately regional natural resources (or reserves). If MN can’t meet its needs locally then I would think local energy sources be they windmills or whatever would be a top priority. Hopefully the world economic system will straighten itself out but having local energy independence would seem like a strategic imperative in a cold climate.