You can’t always get what you want

Legislative Republicans are mad.  Really mad.  Their top priority for this year’s session fell to Governor Mark Dayton’s veto pen yesterday — their package of business tax cuts.

In fact, here’s what State Senator Julianne Ortman had to say about this yesterday:

“He vetoed our highest priority,” said Ortman said, who also is deputy majority leader. “I think there will be consequences. I think that he has lost the trust of many of my colleagues in the Legislature.”

That may well be true, of course.  The real question is if such anger is justified.

Is it unusual for one side or the other to get shut out on their top priority for a session?  Hardly.  All you have to do is go all the way back to last year — when Gov. Dayton’s top priority was to close the state’s sizable deficit using a balanced package that consisted of about 75% spending cuts and 25% revenue increases.  Did he get that?  No way — the final deal instead borrowed from our schools and sold out future tobacco settlement revenues.

Yet, despite that, Dayton has worked with Republicans and agreed to compromise on some significant issues — including permitting and health and human services reforms.  Dayton has also indicated willingness to sign some elements of the Republicans’ tax bill into law.

That’s the nature of divided government.  Your top priority is probably going to be real low on the other side’s list.  But the job description isn’t to punt when the top priority is off-the-table.  Real leaders double down their efforts in those times and do the best they can for their party and their state.  Too many Republicans seem content at this point to walk away with nothing — no tax bill, no bonding bill, and no Vikings stadium.  Minnesotans should expect better.

Why did the District 112 Technology Referendum fail?

For the first time since 1995, voters in the Eastern Carver County School District have defeated a referendum put forward by the School Board and Administration.  Let’s dig in and try to figure out the key factors that led to the defeat of the referendum.

We’ll get the easy one out of the way first — the economy is lousy right now and this is a really bad time to be advocating for a tax increase.  No further elaboration is required here.  If you look at school referendums around the state, requests to renew existing levies did very well, while requests for additional funding fared much worse.  Of the seven metro area technology referendums asking for new or increased amounts, four passed (Anoka-Hennepin, Edina, Mahtomedi, and Spring Lake Park) while three (District 112, Inver Grove Heights, and Stillwater) failed.

A second critical factor in the defeat of the referendum was the failure of the district to provide critical supporting information to voters.  It took the District a couple of weeks after the School Board approved the referendum to get basic information on the District’s website.  Detailed information showing specifically how the money would be spent came far too late in the process.  Certainly, this information must have been available at the time the School Board was considering whether or not to put the referendum on the ballot.

Additionally, the district failed to articulate some of the complexities of school financing.  That left the district in being forced to defensively respond to things like John Brunette’s letter to the editor as opposed to proactively explaining the factors that go into our school property taxes.  After digging into the information and requesting data from the district, I felt there was a compelling case in favor of the referendum.  But I can understand how some voters didn’t get the message.

The district clearly also needs to address that there is a substantial portion of the community that have real issues with some previous decisions that were made and wants to see substantive changes.  They do not trust the district to make decisions in their families’ best interest.  I’ve tried to point out, both here and at the Chaska Herald website, that the decision-makers who made those controversial decisions aren’t around any more, and it’s not entirely fair to blame the new Board (recall, that a majority of the Board was replaced just one year ago) and the new Superintendent for those decisions.

Nonetheless, this is a problem that needs to be dealt with.  Most prominently among these issues are the real and perceived inequities between the two high schools.  Voter turnout in Chaska was 20%, versus Chanhassen’s 13%.  There’s clearly a reason for that.  Anecdotally, there were a significant number of Chaska parents who indicated their “no” vote was designed to send a message to the district regarding these issues.  Similarly, there were a number of Chaska parents energized to go to the polls to try and get funding to help close these gaps.

Another element is the perception (related to the above issue) that Chanhassen High School was either not needed and/or too luxurious.  As for the “not needed” part, the numbers don’t lie there.

Between Chaska High School, Pioneer Ridge, and the two middle schools, secondary school capacity in the district was simply not sufficient.  Perhaps the district could have limped along for a couple more years, but there was no way around adding more capacity.  Lower grade levels show that increased enrollment is coming, and as the economy gets back on track, additional growth in the western part of the district will have the two high schools operating at higher capacities in a few years.

As for whether or not Chanhassen High School was built too expensively, opinions can differ on that.  Recall, though, that voters approved the $92 million price-tag for that facility.  It was not forced on to the taxpayers of the district by the School Board or the administration.

And regardless of your opinion on any of these issues, I would argue that it’s not productive to go back and re-litigate them.  Sending a message by voting “no” on a referendum may make you feel good, but it doesn’t solve the problems the district faces.

There are other ways to hold school districts accountable other than just voting “no”.  We can get engaged in the yearly budget process.  We can get involved in our children’s classrooms.  We can attend school board meetings and have discussions with the administration on critical issues.

Where do we go from here?  How should the district respond to the challenges that lie ahead from a budget perspective — and more importantly, from a trust perspective?  I’ve got some ideas, and I’ll be sharing them over the next few weeks.

3 reasons to be wary of GOP attacks on local school boards

In recent days, we’ve seen Minnesota Republicans ramp up rhetoric against school boards who have put levy referendums on the ballot this November.  It’s expected that there will be over 130 such ballot questions this November, from all corners of the state.  This would be the largest number of school levy referendums in a single year in state history.

Unhappy with what such a spate of referendums would imply about state levels of funding for education, several of them have started to spout off.  For instance, Rep. Pat Garofalo, the chair of the House Education Finance Committee said ”Unfortunately, we have some school boards that are using people’s generosity to engage in the fleecing of taxpayers, and that’s just not acceptable.”  He’s threatening — along with other members of the House Republican caucus — to publicly attack particular referendums they think are out-of-bounds.  Meanwhile, Rep. Steve Drazkowski recently urged voters in his district to oppose referendum votes in the Lewiston-Altura and St. Charles districts.

Garofalo and Drazkowski both cite changes in the recently-passed budget as making such referendums unnecessary — specifically a $50 increase in the per-pupil formula in each of the next two years and one-time increases in compensatory funds.  While I’m not here to pass judgment on any of the merits of a specific district’s referendum, what is clear is that such attacks by Republican politicians on locally-elected school boards are hypocritical on many levels.

First off, locally-elected school boards don’t have the variety of accounting tricks and gimmicks at their disposal the same way Republican politicians like Garofalo and Drazkowski do.  They don’t have the ability to shift when they pay expenses at their whim like the politicians in St. Paul have done each of the last two sessions.  And despite the happy talk from Garofalo and Drazkowski, the implementation of the additional school shift will do far more damage to school district finances than can be recouped through the changes to the funding formulas.  Here in Carver County, the Eastern Carver County School District will see a net loss in funding of $3.6 million over the next two years because of the Republican budget.  Total state borrowing from public schools now totals over $2 billion.

Second, Legislative Republicans who chafe under federal mandates are now passing that same treatment down to local officials.  Garofalo trumpets the need for local control of schools, but now threatens to stick his nose into the business of school districts outside of his home in Farmington.  Since when does he know better than the folks in, say, Thief River Falls about their local needs?  Drazkowski, meanwhile, has supported legislation that would stop implementation of the Affordable Care Act in Minnesota and a constitutional amendment that would allow state nullification of federal statutes.  Drazkowski and Carver County’s own Ernie Leidiger backed a bill that would have mandated a pay freeze on teachers.  Funny — Garofalo, Drazkowski, and Leidiger all bleat about their support for “local control” of schools on their websites.

Finally, the notion offered by Garofalo that most of these districts are looking for additional funds is just flat-out not factual.  If you look at the list complied by the Minnesota School Boards Association, most of the levy questions are actually renewals of existing levies, which would maintain existing tax levels, not increase them.

[NOTE:  I have not taken a position on the District 112 technology referendum as of yet and will not until I see additional information on specifically how the levy dollars are intended to be used.]

The Republican tax increase

Republicans, like State Senator Julianne Ortman, are trumpeting their “victory” in the state budget showdown, stopping Gov. Mark Dayton’s plans to increase taxes on the wealthiest Minnesotans.

What they don’t tell you, though, is how taxes will be increasing on practically all Minnesotans as a result of the budget that they voted for.

Let’s take a look at a couple of provisions that will touch you or your friends and neighbors.

The Market Value Homestead Credit is eliminated as a part of the Republican budget.  This credit program, instituted in 2001, as part of the larger property tax reform passed that year, gives a credit on property taxes of up to $304 on homes with values under $414,000.

Also, the renters property tax credit rate is reduced by 2% as part of the Republican budget.

Together, these two provisions of the Republican budget will result in a tax increase on 90% of Minnesotans — who will see an average increase in their property taxes of 4.5%.

So, when you see that increase hit your property tax bill, be heartened by the fact that the Republican majority stood strong and protected the wealthiest taxpayers in the state from having to pay their fair share of state and local taxes.

One graph that explains it all

It’s not always easy to explain the trends in the state budget and make it easily understandable.  As an absolute number, spending has been increasing in the state over the last decade.  Republicans play up that number — spending is out of control! — without providing the context.

What they don’t tell you is that the rate of spending hasn’t been increasing as fast as inflation and population growth — meaning that in fact, areas of state government are truly spending less today than they did before.  Overall, in fact, state government is spending nearly $900 per person less today than it did in 2002.  That’s why you’re seeing fewer government services AND higher property tax bills.

A graph of the trends in K-12 funding since 2003 (from Minnesota 2020) shows this rather clearly.

Inflation-adjusted per-pupil state spending on K-12 education has dropped 13.9% over the last eight years (the blue line on the graph).

The green line on the graph shows how local school districts have responded to the problem — by raising property tax levies to try to cover the shortfall.  In fact, local school district levies have increased 56.3% over that same time period.

The red line shows the net impact — in total, despite the local property tax increases, we’re spending 4% less per pupil today than we did in 2003.

This trend, sadly, is repeated all across our state government.  Cuts to higher education have led to tuition at our public colleges and universities that has doubled over the last decade (in absolute terms and increased by over 60% when adjusted for inflation).  Failure to fund transportation has caused our roads to decay and we’ve lagged the country in job growth, wage growth, and many other metrics.

Minnesota’s strong economic performance over the last three decades didn’t happen by accident.  We’re not guaranteed to stay there going forward.  We can’t assume that we can blithely cut away at the cornerstones of our success — education and infrastructure — and pretend that we’re not going feel the pain.  Republicans want us to abandon the principles that have made our state successful. 

We’ve spent the last decade playing the no new taxes/disinvestment game and the results are clear:  it hasn’t worked.

Let’s restore the principles that made our state so successful for so long.  That starts with a balanced solution to our current budget stalemate, including some new revenues to protect critical priorities.

MN Budget: Getting to “Apples to Apples” and Beyond

Minnesota Republicans have been talking a lot about their position on the state budget crisis lately.  It’s too bad that much of it is laced with distortions and comparisons that aren’t based in reality.

Frequently, you hear Republicans claim that last year’s state budget was $30 billion or $32 billion dollars.  That’s only partially true.  The state is projecting state revenues of $30.2 billion for the 2010-11 biennium — that’s the source of the “$30 billion” number. 

But that’s not all that’s included in the state budget.  Federal stimulus funding was used by the Legislature and then-Governor Pawlenty to fill holes in the budget.  On top of that, there was the K-12 payment shift that also saved money in the 2010-11 biennium.  Together, these items totaled over $4 billion.  So when you hear the $32 billion number cited, they are only counting one of those two items.

In fact, to get a true apples-to-apples comparison between the 2010-11 and 2012-13 budgets, you have to add the stimulus dollars and the shift dollars on top of the state revenue.  Why?  Because the federal stimulus dollars were not used to fund one-time projects — they were used to fund the ongoing operations of Minnesota state government.  We’re also not doing an additional K-12 shift in the 2012-13 biennium — school districts will receive payments per the normal schedule.

As such, the true 2010-11 budget is actually $34.5 billion.

Republicans don’t want to talk about this $34.5 billion number, because they are proposing a smaller budget — $34 billion — for 2012-13.  Poll after poll shows Minnesotans favor a blended approach of spending cuts and limited tax increases to solve the budget crisis. 

Republicans bristle when you point out that their budget is an “all-cuts” budget, but that’s exactly what it is.  While Gov. Dayton has been looking for compromise, Republicans have stubbornly stuck to their unpopular position.

Republicans would have you believe that $34 billion is a magic number.  Keep spending at that level, and everything will be OK.  They want to make the discussion about the numbers, ignoring the real-world impacts of what they propose.  Well, here’s a flavor of what in fact would happen:

At a time when our economy is still struggling, Republicans would undercut the state colleges and universities that provide the highly educated workforce that makes Minnesota a national leader.  Taking higher education funding back to 1999 levels is not how we stay competitive as a state.

At a time when labor markets are still working to recover, Republicans would cut more holes in the social safety net, kicking 138,000 people out of health care programs, slashing funding to Meals on Wheels, and refusing to pay for eyeglasses for people on MinnesotaCare.

Cuts to local governments would cause additional spikes in property taxes, as cities and counties would be forced to raise levies to make up for lost state funding — 4.3% on average.

Republicans have shown where their interests lie in this session:  property tax cuts for business, protecting the top 2% from paying their fair share of state and local taxes, making it harder for the elderly and college students to vote, and liability reform designed to make it harder for an average citizen to recover from a business that engages in fraudulent behavior.  Republicans are putting special interests and corporations ahead of the people.

These are not the policies that have made Minnesota great.  This is not the path we need to follow to move Minnesota forward.  It’s time for a balanced solution to our state budget.

UPDATE:  New polling released today shows that Minnesotans continue to show broad approval of Gov. Dayton’s budget proposal.

Nohealthcareville and other “highlights” of the 2011 legislative session

Well, that was fun, wasn’t it?  We’re a couple of days downstream from the end of the official 2011 legislative session, and it’s a marvel to look back at the last four months and see everything that didn’t get done. 

Republican majorities in the House and Senate offered no meaningful compromise from their pre-session position, while Governor Dayton changed the substance of his proposal significantly.

Let’s look back at some of the budget bills that were passed (and vetoed) and some of key provisions.  All of these were voted for by the Carver County legislative contingent of Sen. Julianne Ortman, Rep. Ernie Leidiger, and Rep. Joe Hoppe.

• The Health and Human Services bill passed by the Republicans would have kicked 138,000 people out of health care programs.  If all of those folks would have been in one city — Nohealthcareville, as I like to call it — it would be the third largest city in the state.   It’s about the same number of people as Duluth, Chaska, Chanhassen, and Waconia combined.
• The higher education bill slashes funding for the University of Minnesota and Minnesota State Colleges and Universities (MnSCU) systems — double-digit percentage cuts for both institutions while capping tuition increases at 5% of less.  The impact on students will be clear:  fewer class offerings, fewer support resources, and fewer professors, staff, and administration.  These cuts take higher education funding back to late 1990s levels.
• Republican cuts to local government and county aid will result in property tax increases for all Minnesotans, and Minnesota businesses too.

These sorts of budget provisions are not in character with what has made Minnesota great place to live for decades.  The Republican majorities are undercutting the things that have given Minnesota a competitive advantage — well-educated people, well-maintained infrastructure, and a safety net that protects the most vulnerable in our society.  You can’t out-Mississippi Mississippi, and we shouldn’t even try.

It wasn’t just the budget that made news during the session, though.  Despite their alleged focus on jobs and the budget, Republicans used their majorities to jam through numerous bills on divisive social issues.

• Ortman, Leidiger, and Hoppe all voted for the constitutional amendment to ban gay marriage.  Hoppe, who said he does not like amending the constitution but thinks when amendments are offered they “should be issues of great and lasting importance to our state”, has determined that taking rights away from a group of people should be enshrined in the Constitution.
• Ortman, Leidiger, and Hoppe all voted for unnecessary voter ID legislation.
• Ortman backed legislation to limit citizens rights to sue corporations by reducing the statute of limitations and increasing the hurdles for certifying a class-action lawsuit.

And, of course, no recap of the session would be complete without a reminder of Leidiger’s Bradlee Dean fiasco last week.

These are not the values that Carver County residents believe in.  We don’t believe in dividing.  We don’t believe in focusing on the sideshow while critical problems go unaddressed.  Let’s hope that cooler heads will prevail over the next month and both sides can agree to a sensible, balanced solution to our budget crisis.

(Cartoon from the StarTribune via about.com.)

Let the people decide?

With the flurry of constitutional amendments that have been proposed by the Republican majorities over the two weeks, you’d think that they had already taken care of all of the other problems that face Minnesota.  Of course, that’s not the case. 

While the budget still sits $5 billion out-of-balance and conference committees have failed to deliver final versions of the omnibus spending bills, Republican state legislators have spent considerable effort in trying to enshrine their agenda as part of the state constitution (because they don’t have sufficient support to do it the traditional way). 

The rallying cry behind putting these items on the ballot is “Let the people decide!”

Sounds good, at first blush.  But do these amendments really give people power to decide?  I would argue they don’t.  In fact, in many cases they weaken the power of future elections to impact the course of the state.  The power of the vote you cast will be diminished by these provisions.

Let’s look at a couple of examples.  For instance, let’s look at the amendments to make the prohibition on gay marriage part of the state constitution.  If the amendment fails, gay marriage will be illegal.  If the amendment passes, gay marriage will be really, really  illegal.  That’s not really much of a “choice”, is it?

Another example is a  call for term limits on state legislators.  Again, less choice for you as a voter.  It’s not as if voters have had problems turning out incumbents they were dissatisfied with in the last three election cycles, but the GOP wants to remove your ability to retain effective representatives.

There’s also a couple of spending amendments that are highly problematic.  Sen. Julianne Ortman and Rep. Joe Hoppe are pushing a bill that would limit state spending to 98 percent of the forecast revenue in the next biennium under current law.  If applied to this session, that limit would be 98 percent of $33.5 billion, or $32.8 billion.  Another proposal, supported by Rep. Ernie Leidiger, would require a supermajority of 60 percent in the Legislature in order to raise taxes.

These amendments would tie the hands of future Legislators and make it difficult for them to respond to serious financial crises — just see how similar provisions have worked in California  (perpetually in desperate financial trouble) and Colorado (where voters had to repeal many of the provisions in order to save funding for state services).

By doing so, it weakens your vote in the future as well, because your representatives won’t be able to pull all the levers of government should the need arise.  The power of the legislative majority (be it Democratic or Republican) will be reduced significantly.

To some people, of course, that sounds like a good thing.  But what it will really do is to ensure a continuing decline in critical state services.  First, let’s keep in mind that legislative Republicans couldn’t even live by the 98 percent rule this session — both the House and Senate GOP budgets have spending targets of over $34 billion — at least $1 billion more than would be allowed by the Ortman/Hoppe amendment.  If they can’t play by their own rules now, why are we to believe that it’s going to work in the future?

Second, look at what happened in states that have similar caps.  Colorado had a 79% increase of their roads rated in substandard condition by the federal Department of Transportation and had dropped to 48th in the nation on that metric at the time voters rescinded the most extreme of the state’s spending and tax limitations.  Those amendments literally starved the state’s infrastructure spending.  If you like how Minnesota’s roads have crumbled over the last decade, then this is the bill for you!

This isn’t the path we should be moving Minnesota down.  We should expect that our elected representatives do their job and make the hard decisions instead of punting.

16 Facts on the Middle Class Squeeze

Some shocking numbers, courtesy of the Atlantic magazine:

1. 33% of working age men don’t have jobs
2. 74% of American families are planning on reducing spending this year
3. Gasoline prices are up $1 this year
4. Average property taxes paid have increased 20% since 2005
5. Eight million Americans are behind on their mortgages, while 33% owe more than their house is worth
6. The average homeowner in foreclosure hasn’t made a payment in 17 months, up from 11 months two years ago
7. 13% of homes nationwide are vacant
8. There are two million more children in poverty today than two years ago
9. Half of American workers earn less than $500 a week, and the median weekly wage has declined $37 since 2000
10. Credit card debt is up 800% over the last 30 years
11. Americans now owe over $900 billion in student loans, an all-time high
12. 1,500,000 Americans filed for bankruptcy in 2010, the fourth straight year the number has increased
13. The number of Americans without health insurance has increased 14 million — to 52 million — over the last decade
14. 60% of bankruptcies have unpaid medical bills as a major cause and many of these bankruptcies are people who have health insurance
15. Median household net worth has declined 23% since 2007
16. 25% of American households have zero or negative net worth

While politicians fiddle around with birth certificates, voter ID, banning gay marriage (which is already illegal), tax handouts for the wealthy and corporations, and numerous other distractions in Washington and St. Paul, real people are dealing with real problems.

It’s time for our representatives to get back to work on behalf of all the people — not special interests, not corporations, not big money campaign donors.  We can’t afford to wait any longer.

(h/t Leanne)

Setting the Record Straight on Business Taxes

A common Minnesota GOP talking point is that Minnesota has an unfriendly tax environment for business.  It’s taken as an article of faith by Republicans, and many in the media and the general public just accept it as fact at this point.  Carver County Republicans, in particular, really love this talking point.  One just posted something on this very point the other day, and our representatives in the state legislature have all backed bills designed to help with this problem.

The reality, though, is quite different from the rhetoric.  In fact, significantly different.  The data shows that Minnesota — in most respects — has a tax climate that is better than the national average.

Let’s talk about some specific points as it relates to this.

Minnesota businesses pay less in state and local taxes than the national average

Republicans are correct that Minnesota does have a high base corporate tax rate — at 9.8%, it is the third-highest corporate income tax rate in the nation.  But it’s just one element in the overall state and local tax picture for Minnesota businesses.  Keep in mind that businesses here and in other states pay a wide variety of taxes: state and local property taxes, sales taxes, excise taxes, unemployment insurance, licensing fees, and for some types of businesses the income goes to the owner’s individual income tax return.

If you look at the picture in its totality — despite the high corporate income tax rate —  Minnesota business still pay less (as a percentage of gross state product (GSP), or the sum of private sector economic activity) in state and local taxes than the national average.

A study by the Council on State Taxation (a consortium of 600 major corporations) and the accounting firm Ernst & Young found that Minnesota businesses pay 4.3% of GSP in state and local taxes.  That’s less than the national average of 4.7%.

It’s also less than South Dakota – the place Minnesota Republicans and the Sioux Falls radio guy love to cite as a tax haven – which comes in at 4.9%.  It’s less than North Dakota (8.2%).  It’s less than Wisconsin (4.6%), and it’s less than Iowa (4.6%).  It’s less than Florida (5.3%), Texas (4.9%), and Nevada (4.9%).  The closest states where businesses pay a lower percentage of GSP in state and local taxes are Missouri at 4.0% and Indiana at 4.1%.

Business taxes in Minnesota are growing more slowly than taxes on individuals

The same study also looked at the five-year trend is business taxation by state (not adjusted for inflation).  In 2009, Minnesota businesses paid $900 million more in state and local taxes than they did in 2005, a 10% increase.  Again, this figure was lower than the national average, which saw a 15.5% increase in business taxes over that time. 

The 10% growth rate was also lower than that for individuals in Minnesota, who saw a 12% growth in their state and local taxes paid over that time.  So, the tax situation for Minnesota businesses isn’t getting worse compared to national average, nor are Minnesota businesses taking a larger hit than individuals in the state over recent years.

Republican plans to lower business property taxes will actually have the opposite effect

Legislative Republicans have touted their plans to cut state property taxes for businesses as part of their budget bills.  However, research by the state Department of Revenue shows that the other provisions in the bill — specifically the cuts to local government aid included in the bill — will result in Minnesota businesses paying $63 million per year more in property taxes.

A better path forward

A  factor that does make the tax situation in Minnesota problematic is that we’ve built a corporate tax code littered with the deductions and credits.  While this does lower the tax burden on business, it does increase costs of compliance and can — in some circumstances — cause a situation where government is favoring some businesses over another.  Instead of blanket cuts to corporate income or property tax rates, as Republicans have proposed, we should take a smarter look at business taxes.

We should look at removing the specialized credits and deductions instead.  This would allow the state to lower the rate across the board while maintaining the same level of revenue that state takes in today.  This would be a fairer — and more fiscally responsible — approach, given our current budget crisis.