It has been just over one month since the Governor announced he was ending negotiations and would go it alone on budget cuts. We thought it was unwise then and it remains so now to do budgeting behind closed doors. Unallotment is meant to be a scalpel, not an ax and it is meant to be used at the end of the two-year budget cycle, not the beginning. It is for unanticipated budget shortfalls, not ones created by vetoes and a refusal to negotiate.

This is wrong on at least two levels. First, the DFL legislature had in fact created the budget in private, asking next to no help from either the governor or the Republican caucus. It did so on May 8, and then did so on the last night of the legislature, passing a bill barely by midnight. It is rather rich for Clark to argue that the governor will go it alone when they did not take his wishes into account (something Rep. Gene Pelowski understood.) Gary Gross is correct in saying that Clark and her colleagues assumed they could get Pawlenty into special session, where the pressure would bear down on him as much as them. She is upset that the Governor side-stepped that box.

Second, Clark has misrepresented the nature of the unallotment process. Luckily, a review of the process was done only last October. The House Research document on unallotment speaks to the issue of timing:

The statutory duty to reduce allotments is mandatory to the extent needed to make up a projected deficit not solved by use of the budget reserve account. However, the statute does not specify a timetable. The authors presume unallotment would have to occur in time to make up the projected deficit within the biennium. Arguably, the Commissioner of Finance must unallot immediately once the conditions that require unallotment have been determined to exist, and the commissioner has approval of the governor and has consulted the LAC. However, in the past, it has been a common practice of commissioners of finance and governors to wait until the legislature had time to rewrite the budget before unallotting. The requirement to obtain the governor’s approval and to consult with the LAC may imply that the commissioner has some discretion in the timing of unallotment. (pp. 4-5)

The governor notified the legislature of his intention to use the power if he did not receive a plan from them. They chose not to act on that power except to run forward a last-minute bill that had already been vetoed once (and had that veto sustained.)

The Minnesota Supreme Court also spoke on the unallotment process in Rukavina v Pawlenty (684 N.W. 2nd 525 [2004]), finding it constitutional for the Legislature to have ceded that power.

Although appropriation of money is the responsibility of the legislature under Minn. Const. Art. XI § 1, it is an annual possibility that the revenue streams that fund those appropriations may be insufficient to actually realize each appropriation. For that purpose, the legislature, by statute authorized the executive branch to avoid, or reduce, a budget shortfall in any given biennium. Minn. Stat. § 16A.152 does not represent a legislative delegation of the legislature's ultimate authority to appropriate money, but merely enables the executive to deal with an anticipated budget shortfall before it occurs.

Although purely legislative power cannot be delegated, the legislature may authorize others to do things (insofar as the doing involves powers that are not exclusively legislative) that it might properly, but cannot conveniently or advantageously, do itself. (cite omitted). It does not follow that, because a power may be wielded by the legislature directly or because it entails an exercise of discretion and judgment, it is exclusively legislative. (cite omitted). Pure legislative power, which can never be delegated, is the authority to make a complete law--complete as to the time it shall take effect and as to whom it shall apply--and to determine the expediency of its enactment. We conclude that Minn. Stat. § 16A.152, does not reflect an unconstitutional delegation of legislative power, but only enables the executive to protect the state from financial crisis in a manner designated by the legislature.

Indeed, to the extent possible Governor Pawlenty has delayed most unallotments to not take place until July 1, 2010, to both hope for more revenue from an improved economy and to allow the Legislature time to make changes in cooperation with the Executive. The door isn't closed: The governor offers the chance to find a better solution, and makes plain the consequences of not compromising.

It isn’t accurate to say that the DFL didn’t submit a balanced budget. It’s accurate, though, to say that the first balanced budget they submitted to Gov. Pawlenty passed the Senate with minutes left in the session. It’s equally accurate to say that the Tax Bill that passed was a hodgepodge bill, filled with a litany of tax increases and spending shifts.

And let's not forget that this was trotted out at 10:30pm for passage before midnight in an uncivil manner. Senator Clark should also answer for that clusterfarg.

Labels: Clark, DFL legislature, Minnesota, Pawlenty, St. Cloud

Eighteen months ago the Lady Logician wrote about her new home Utah which has a flat income tax and wondered whether it would be time for one in Minnesota. You might want to say that you can't do this when we're in a recession. But that's not stopping Maine:

This month the Democratic legislature and Governor John Baldacci broke with Obamanomics and enacted a sweeping tax reform that is almost, but not quite, a flat tax. The new law junks the state's graduated income tax structure with a top rate of 8.5% and replaces it with a simple 6.5% flat rate tax on almost everyone. Those with earnings above $250,000 will pay a surtax rate of 0.35%, for a 6.85% rate. Maine's tax rate will fall to 20th from seventh highest among the states. To offset the lower rates and a larger family deduction, the plan cuts the state budget by some $300 million to $5.8 billion, closes tax loopholes and expands the 5% state sales tax to services that have been exempt, such as ski lift tickets.

This month the Democratic legislature and Governor John Baldacci broke with Obamanomics and enacted a sweeping tax reform that is almost, but not quite, a flat tax. The new law junks the state's graduated income tax structure with a top rate of 8.5% and replaces it with a simple 6.5% flat rate tax on almost everyone. Those with earnings above $250,000 will pay a surtax rate of 0.35%, for a 6.85% rate. Maine's tax rate will fall to 20th from seventh highest among the states. To offset the lower rates and a larger family deduction, the plan cuts the state budget by some $300 million to $5.8 billion, closes tax loopholes and expands the 5% state sales tax to services that have been exempt, such as ski lift tickets.

It seems like everyone's running for governor here in Minnesota; support of a flat tax would be one way to distinguish the candidates. And it doesn't have to be just Republicans:

One question is how Democrats in Augusta were able to withstand the cries by interest groups of "tax cuts for the rich?" Mr. Baldacci's snappy reply: "Without employers, you don't have employees." He adds: "The best social services program is a job."

Labels: Minnesota, taxes

North Dakota is cutting its income tax rates by about an eighth across the board. Corporate rates too. Think Governor Pawlenty knows the Maryland story?

I hope the governor is watching New Jersey, where a fight over a flat tax is going on in the Republican primary. I don't like the Lonegan proposal only because there should be a zero rate up to some income level. (As you might have told yesterday, I'm an old Hall-Rabushka supporter.) Governor Pawlenty, should he decide to run for a third term, could make fundamental reform -- one bracket, not three or four as the DFL proposed -- the cornerstone of the next campaign.

Labels: Minnesota, Pawlenty, taxes

Winners of the Council for Economic Education's Economics Challenge 2009.

Phillips Academy and Little Falls High School defeated more than 2,000 teams from across the country to become the champions in the 2009 National Economics Challenge Finals sponsored by the Council for Economic Education and the Goldman Sachs Foundation.

Student teams from high schools across the country competed as finalists and traveled to New York to compete to win in one of two divisions. Students enrolled in advanced placement, international baccalaureate and honors economics courses were quizzed in the Adam Smith Division, while those enrolled in single semester general economics classes faced-off in the David Ricardo Division. The teams had each previously won state and regional competitions. Over 8,000 high school students in 34 teams competed in the Spring of 2009 to advance to the championship series.

"Teams were required to answer rigorous questions about complex economic concepts and theories of micro- and macroeconomics, international economics, and current events in an oral quiz bowl tournament style." Congratulations to Luke Leblanc, Elizabeth Hauer, Cody Richner, Jacob Devine and their teacher Tom Stockard for bringing the trophy to Central Minnesota!

Labels: economics, Minnesota

The FDIC reported out first quarter bank results, including these for Minnesota. Twin Cities Business Journal is reporting a drop in profits of 65% over first quarter 2008, but this should be taken with some caution. When banks report income, they must include in their figures any charge-offs they take for anticipated loan losses.

Return on assets, though, fell in Minnesota to 0.56% from 1.18% a year ago. Yields on loans are falling faster than their cost of funds, which is squeezing profits somewhat, and then you add to it larger charge-offs (for the uninitiated: a bank puts money aside in anticipation of losses on loans that are deteriorating; it then draws on that fund if the loan defaults as anticipated.)

The quality of loans held by Minnesota’s banks continued to decline. Net charge-offs as a percentage of total loans and leases were .94 percent, compared to .74 percent in the fourth quarter of 2008 and .48 percent in the first quarter of last year. Noncurrent loans and loans as a percentage of total loans and leases was nearly 3 percent, compared to 2.6 percent in the fourth quarter of 2008 and 1.5 percent in the first quarter of last year.

Total loans of Minnesota banks fell from $80 billion a year ago to $54 billion now (deposits fell much less, from $62b to $56b.) The share of assets that were mortgages fell from 42% to 21% in the period. Equity capital has fallen from $8.2 to $7.1 billion in the same time.

This isn't bad, and it certainly isn't WaMu bad. But it isn't good for Minnesota when loans at its banks decline by a third. (That's different than saying credit in Minnesota declined by a third -- many of us get credit from institutions in other states.)

What is interesting about this period is that we have had only 8 commercial banks close, so many banks are restructuring while their leverage ratios have not moved very much. It appears that, as much as anything, the banks are going through this process in an orderly fashion. Bloomberg reports as well that banks' riskiness is now being better perceived by other market participants, so that weak banks are being charged higher rates than healthier ones. This is improving credit conditions:

U.S. companies have sold a record $600 billion of bonds so far this year, up from about $500 billion in the same period of 2007, according to data compiled by Bloomberg. Rates on 30-year fixed mortgages are about 1.8 percentage points more than 10- year Treasuries, down from 3.27 percentage points in December. ...

While financial markets are improving, more than 60 U.S. financial institutions have collapsed over the past two years, according to Bloomberg data. In its latest quarterly survey of senior loan officers, the Fed found that more than 70 percent of respondents said bad loans will rise should the economy progress “in line with consensus forecasts.”

And if all this talk about green shoots doesn't pan out... perish the thought.

Labels: banking, economics, Minnesota

In four short paragraphs, we get a veritable cornucopia of crap.

We tend to believe that the United States is the best place to live. And of all of these United States, Minnesota is the best of the best. Collectively, we want opportunity and education, quality health care and transportation systems, as well as readily available police and fire protection.

So why can’t we agree on how to pay for these things that we all use? Our Legislature last week presented the state with a two-year budget that is balanced and fair. It taxes those who can afford it the most and includes cuts to spending where possible. Our governor says he will veto this bill and cut spending according to his own whim.

This no tax policy favors the rich at the expense of the rest of the state.

Gov. Tim Pawlenty spends much of his time with the top 2.5 percent (by income) of the population of Minnesota. Is this why his tax policy favors them? Is it because his experience is different from the majority of Minnesotans?

Where do we start with this?
"We tend to believe"?  Why hedge this?  Are you suggesting that this might be a wrong belief?
But that group is not the favored group right now.  We read for the remaining 500 or so words of the article about an "ecumenical" group that seems to have no place for 20 million or so business owners.  Isabel Paterson once noted:

Most of the harm in the world is done by good people, and not by accident, lapse, or omission. It is the result of their deliberate actions, long persevered in, which they hold to be motivated by high ideals toward virtuous ends.

Labels: DFL legislature, Minnesota, Pawlenty, St. Cloud

There were many great comments made on my reflection on the bishops' letter. It's not an easy thing to discuss, and I would point out that those who disagree with many of my posts are on conventional ground in arguing against me there. Let me add a couple of points made to me from outside that chat.

My former producer Matt Reynolds pointed me to the story of Zacchaeus (from Luke 19.) Worth remembering that Jesus called him by name and asked to stay with him without any demands made. Zacchaeus was a tax collector (a private function in the Roman empire; Zacchaeus probably was a subcontractor for one rather than one himself: on this the Bible isn't so clear) but who wants to hear Christ's teachings. When called he repents of his sins of his own volition, consistent with the observation I put forth for the rich man in Matthew 19.

An ELCA pastor notes for me Luther's doctrine of the two kingdoms; I'd heard of this before but not spent much time reading it. The kingdom of the left is the worldly kingdom, ruled by law and man's reasoning powers. The kingdom of the right is God's, ruled through faith and His grace. Government is therefore divinely ordained, but operates in a world where the Devil also roams. We can't just accept every government action as being the result of God's left hand. So we should ask the bishops: What is it about requiring non-Christians to pay taxes that allows us to preach Christ crucified and resurrected and the grace of God?

He also tells me to look at Philippians 4:17, in which Paul thanks the church in Philippi for the gifts they send him, which had been the most generous of all of his churches. "Not that I seek the gift, but I seek the fruit that abounds to your account." Paul clearly is laying out how he is not collecting the money for himself (Paul too having the experience of tax collection is certainly sensitive to the perception!) but that it develops a generous heart in the people who give. Is it possible that paying taxes creates character in the citizenry? I dare say not.

Many thanks to Mitch for his notice of my earlier article; their discussion was equally enlightening.

Labels: economics, Minnesota, religion

I probably used Twitter more than ever this weekend in arguing a few points with people over the budget discussions. You'd be better off following that trail to find out what I said. A few points of summary:

1. I doubt the DFL really thought either override vote would pass. It was theatrics and nailing a few positions down for the 2010 elections, particularly on the GAMC line-item veto. Expect what Gary calls the Fine Whine Tour over the next sixteen months. Certainly the reporting over the weekend over the "somberness" and crying of DFL legislators over the vote indicates this.
2. Pawlenty spokesman Brian McClung (via Twitter) says legislative leaders are to be at the Governor's mansion in the next twenty minutes. There was this odd conflict last night over who was supposed to call who next after the governor dropped a plan on the DFL late Saturday night. One side said the governor's representative said they'd be in touch, the other side said the DFL would sleep on it and call back. Reminded me of teen love and phone standoffs that often happen therein. Besides, I doubt the DFL was going to do anything before getting their override votes. (UPDATE: Politics in Minnesota reporter says meeting delayed to 12:15 at DFL request: unclear why a delay.)
   
3. The DFL seems still to be in denial over the recessionary effects of a tax increase. The least recessionary thing they could have done was to do something with the governor's tobacco bonds, but because that cuts revenue for them to spend in later years they don't want to do that. So they are stuck using a tired Keynesian argument that tax increases are less harmful than government spending increases. This is a better argument at national than subnational levels of government. Speaker Kelliher and the two tax committee chairs really needs to read Feldstein and Vaillant before talking about this again.
   

Labels: DFL legislature, Minnesota, Pawlenty

Speed Gibson:

Know what I think of the DFL lecturing us about ethics? Pull my finger.

Labels: DFL legislature, Minnesota, Pawlenty

I obtained last night a copy of a letter that reinforces the Lutheran Coalition for Public Policy in Minnesota's bishops' letter from March. It was sent out to all Lutheran pastors in at least one synod this week. "Lutheran" in this case represents the ELCA branch, so you LCMS and WELS folks can relax, or shake your heads, or both. From the first link (the second letter):

All six Minnesota bishops of the ELCA signed on to a letter encouraging Minnesota legislators and the Governor to “allow us all to be a part of determining a future for Minnesota in which dignity and value of each one of us is upheld. The challenge is not just yours – it’s ours.” ... They followed up with an April 16 visit with legislative leaders and Governor Pawlenty to convey with their presence that “the budget is a moral document that reflects the choices we make for our life together. The measure of our moral fiber as a people is how we treat those who need our help the most.”

As I pointed out in the post this morning, the budget at some point becomes Governor Pawlenty's responsibility, in particular at that moment when the Legislature discharged its duties and sent bills forward to him. There were listening tours, testimony and negotiations, and then a swift tax bill that Pawlenty vetoed. Given the tone of the rest of the LCPPM's letter, I daresay they would not agree with the veto:

Join the chorus of concerned people of faith and voice your support for a moral budget. Here’s how:

1. Contact your state representative and state senator and say that “We are not afraid of tax increases if it means poor people who are sick can get health care, families who lose their homes find shelter, and children are cared for.” ...
   
2. Pass this message along to your friends and family and urge them to take action.
   
3. Write a letter to the editor and submit it to your newspaper and/or your church newsletter. If you or someone you know relies on Minnesota’s network of health and human services, tell that story.

Now let me not pretend to be a religious scholar. But I sit in church each week and attend Bible study. I've worked as well as a church treasurer. If we had members, or neighbors, or recent immigrants to our town that we thought were in need, what would we do? There would be a sermon, and then there would be the offering. If we wanted extra money to help, we may pass the offering plates around a second time and designate those funds for those in need. It would be reinforced with the many, many verses in the Bible that ask us as believers to help the poor.

If the bishops thought the best way to help the poor was to give the state more revenue, I do not see any restriction that would prevent them from passing the plate while saying "our government needs more money. We are told to render unto Caesar that which is Caesar's, and so we think at this time you should as a believer give more to our government. We will mail it in for them." As the treasurer, I could send a check to the state. (Here's a form you'll need. You're welcome.)

But this is not what the bishops seek. They wish to ask the state to compel non-believers into contributing to causes believers seek to fund. They remind me of the quote that inspired Amity Shlaes' great book, as written many years ago by William Graham Sumner.

The type and formula of most schemes of philanthropy or humanitarianism is this: A and B put their heads together to decide what C shall be made to do for D. The radical vice of all these schemes, from a sociological point of view, is that C is not allowed a voice in the matter, and his position, character, and interests, as well as the ultimate effects on society through C's interests, are entirely overlooked. I call C the Forgotten Man. For once let us look him up and consider his case, for the characteristic of all social doctors is, that they fix their minds on some man or group of men whose case appeals to the sympathies and the imagination, and they plan remedies addressed to the particular trouble; they do not understand that all the parts of society hold together, and that forces which are set in action act and react throughout the whole organism, until an equilibrium is produced by a re-adjustment of all interests and rights. They therefore ignore entirely the source from which they must draw all the energy which they employ in their remedies, and they ignore all the effects on other members of society than the ones they have in view. They are always under the dominion of the superstition of government, and, forgetting that a government produces nothing at all, they leave out of sight the first fact to be remembered in all social discussion - that the State cannot get a cent for any man without taking it from some other man, and this latter must be a man who has produced and saved it. This latter is the Forgotten Man.

Bishop A and Bishop B (and W, X, Y, and Z, in the case of this letter) want to compel nonbeliever C to do for poor D what they won't ask believers F, G, H &c. to do by the offering plate. They do so under the guise that "a budget is a moral document".

And my budget is, in fact, a statement of the morals of my own family. My church's budget is a statement of the morals of my church. The government is not a church, or a family. The government's budget is not a statement of the entire society's morals. It is a compulsion of the majority upon the minority.

Where, dear bishops, is that compulsion a "moral statement" directed in the Bible?

I recall only that when the rich man heard he could not enter the kingdom of heaven without sacrificing all his earthly possessions, "he went away sad, because he had great wealth" ... and Christ let him go. The bishops are not so inclined.

Labels: economics, Minnesota, religion

It is worth contemplating the anxious reaction of the DFL leadership to Governor Pawlenty's announcement last night that he'll use his line item veto powers to balance the budget if he does not get agreement with them before Sunday. Within hours of his announcement DFL House Speaker Margaret Anderson Kelliher sent a letter to the governor. (Thanks to Politics in Minnesota for posting copies of many of these letters.)

According to your press availability this afternoon, your latest offer to solve our budget deficit implies that you will sign the budget bills sent to you by the House and Senate, and then proceed to unilaterally unallot portions of the state budget. As you clearly have been planning this course of action for some time, Minnesotans have a right to know how you plan to proceed with your unallotment strategy. It is best if this offer can be fully vetted in a public forum.

She attempts to personalize this by crossing out "Governor Pawlenty" and handwriting "Tim", which I think is rather arrogant as well as her demand in the next paragraph that "an immediate meeting of the Legislative Advisory Commission must be convened" so they can dress down the chief executive officer of the state.

Which is what he is. To re-use a rapidly wearing out phrase, elections have consequences. He is not a king, he is the duly elected governor of this state, and he earned therefore the right to the line-item veto. To put it in sports terms, "scoreboard."

When my boss makes a decision after hearing five months of discussion, and after having received a memo from me, I do not call it arrogant for him to decide not to do exactly as my memo suggests. The CEO gets to make the final decision. And that's exactly what Governor Pawlenty told her in response last night:

You characterized my announcement this afternoon as an "offer". It was not an offer, it was a decision.

The CEO does not react to the anxious demands of his or her organization. He leads; he makes decisions. He leaves the door open to discuss those decisions but does not relinquish his executive rights. What many have praised in President Obama has been coolness in leadership, a firm vision of what he wants to do and a determination to do it. I don't like what he's doing, but I have to tip my cap to his public stylings (as opposed to his private thuggery.) Governor Pawlenty is displaying at this moment that same cool hand: "The budget will be balanced; no endgame shenanigans or uncertainty of a shutdown or special session. There will be no tax increases; get on with your lives."

Leaders lead.

If the Legislature intended to have further discussions it could have held these bills from the Governor until such time as a revenue agreement was reached. They offered these bills to induce an endgame where they could negotiate the revenues ex post. I don't write my household budget by writing down all the expenditures I want first and then figure out how to pay for them. I write my budget listing income first and then what I can afford. (Do you write a budget? Here's an example of how. Note what's on top.) They have made a hash of the session, a vacuum into which Pawlenty has had no problem stepping forward. The blame for their fate is in the mirror into which they stare nervously this morning as they wonder what they'll say when they take their end-of-session flyaround on Tuesday.

Labels: DFL legislature, Minnesota, Pawlenty

Speed Gibson makes good points about the DFL legislature's failures of the current session, and pins the tails on the right donkeys: Kelliher and Pogemiller.

Both of these leaders are incompetent. So are their lieutenants, Taryl Clark and Tony Sertich. They've had two years to learn their jobs, but the events this past week show no tangible improvement. Again, forget the policies and proposals for the moment. Look at the process and the resulting lack of progress. When even the normally undemanding media is openly complaining, even the DFL must admit they have a problem.

Look at this $ 992 million tax bill, just announced. Gone, suddenly gone, are the "thoughtful" Senate and House bills that made their way through weeks of deliberation. All that work for nothing, replaced by something hurriedly cobbled together, a bill they could have written in January. It needn't have waiting for the February forecast, but OK, they could have written it March. Instead, we see it in May, with two weeks left in the session. I have to believe even a few in the DFL were surprised and disappointed by this. ...

To my untrained mind, this session has only one real purpose for the DFL: get Pawlenty. That's what the "listening" tours were about. That's what all this posturing the past two months has been about. And now it's May, crunch time. As this new tax bill concedes, operation "Get Pawlenty" is headed for the rocks.

What Pogemiller and Kelliher don't understand is that they're no match for Pawlenty in a political duel. They have only their strength in numbers, and those numbers should seriously think about who they're following and why.

Gary Gross is calling it "seat of the pants taxation":

As a result of the DFL’s infighting, they were forced to take the step of rewriting the Tax Increase Bill from scratch, passing it through the House and Senate, then have Gov. Pawlenty veto it before he headed out for the Annual Governor’s Walleye Opener on White Bear Lake.

What’s worse is that the DFL hasn’t shown any inclination towards finding cost savings. There’s no denying that they’ve figured out cuts but that’s a different story. Cutting budgets just means that you’re cutting spending and services. Finding cost savings means that you’re cutting spending but keeping service levels the same.

The tactic of "get Pawlenty" has focused on his proposal to pull future tobacco settlement revenues forward to cover some current spending that the governor has decided cannot be reformed in the way Gary describes. What the governor does is say "look, I can't cut a billion more here in this biennium: too much, too fast, and unwise in a recession. What I can do is pull money into this biennium and get you to spend less later when the economy improves." A smaller reform, details TBA, starting two years from now. It's not a great plan in my opinion, but it's not bad. (Better would be to identify what you're cutting later, rather than letting the Legislature figure it out for you.)

But the only other options are to find current cuts without cutting services, as Gary describes it, or raise taxes. When Sen. Bakk defeated Rep. Lenczewski in conference and got this tax bill -- which the governor declared DOA before they even passed it -- the leadership put itself in a box: It has said it won't accept the tobacco bonds while agreeing with Pawlenty that the last billion can't be cut. It therefore must act contrary to wishes of its own national leadership either to raise taxes or cut spending in E-12. If it thinks it can do that and also "get Pawlenty", they have yet to show how.

UPDATE AND BUMP: Just before I left I checked the comments email box and got this at the bottom of a statement from Marty Seifert (I assume this is a summary by House GOP caucus staff -- I haven't seen an official letter):

Also today, Governor Pawlenty made the first significant offer to bring the session to an on-time close. In a letter to the Legislature, the governor said he would accept the Senate DFL's position of not funding the budget reserve, accept the House's desire for a larger K-12 education shift, and halve his proposal for appropriation bonds. Democrats responded by calling the offer "not responsible" even though two of the three parts are DFL initiatives. By rejecting their own proposals, Democrats are making it awfully difficult to bring this session to a close by May 18.

We might need a corollary to the rule of holes: when you've painted yourself into a corner, stop painting! Because the DFL is still working that brush.

And they might still want to remedy this year's deficit.

Labels: DFL legislature, Minnesota, Pawlenty, taxes

Details are emerging of a new tax plan from the Minnesota DFL leadership, dropped this morning into a conference committee "without any discussion" according to Republican sources. The details I have at this time are for about a billion dollars, half of which comes from a new 9.0% personal income tax charged on income over $250k for married couples filing jointly ($141,250 for singles and $212,500 for marrieds filing separately -- updated via Andy). An increase in tax on all varieties of alcohol and a surtax on "excess (?)" interest income on credit cards makes up the rest. $585 million of that money goes to E-12 education and the remainder to HHS.

There's a press conference of the Republican legislative leaders happening probably about now. More details as I get them.

UPDATE: Conference report is up. Larry Schumacher finds it odd.

I've never seen a bill that wraps both taxing and spending provisions together, and neither have the other two reporters on staff here who've covered the Minnesota Legislature in the past.

Yes, but it puts two powerful lobbies in play to campaign for a tax increase. (Not like they hadn't already.) For them, it's not "you've got taxes!" but "you've got OPM!"

UPDATE 2: Found an email in a folder I wasn't watching this morning from the House Republican Caucus. They note on this bill:

• 61.6% of all returns in the $250,000 tier report income from a business.
• Raises alcohol taxes by $240.9 million, including increases of 275 percent on 3.2 beer and 143 percent on strong beer. And on fish opener! Dude!
• Puts the top rate at only tied for fourth-highest rate. I guess we should thank our lucky stars it wasn't 9.25%!
• The money for E-12 and HHS is not guaranteed, the caucus release states. "Democrats admitted that cuts in all of these areas could still be made."

UPDATE LAST: As expected, Pawlenty calls it DOA:

The end of the session is rapidly approaching. I understand the DFL majority is poised to pass a hastily processed and ill considered letter tax increase proposal.

If you insist on passing such legislation, I respectfully request you send it to me today so I can veto it immediately and leave a maximum number of days for better legislation to be considered and passed.

Rep. Marty Seifert via Twitter notes that all Republicans plus Rep. Gene Pewlowski voted against the measure, which passed 86-47.

Labels: DFL legislature, Minnesota

Representative Pat Garofalo of Farmington wondered about six weeks ago about "integration aid", without some people being sure what it's used for:

In 2005 the legislative auditor performed an audit of state integration funding program and found a number of problems.

For example, the purpose of funding is not clear — some school staff believed its purpose was to alleviate racial imbalances, other thought the funding was to close the achievement gap, noted the auditor,

Other findings were that neither school districts nor the state adequately assessed the program, and racial concentrations in some schools receiving the funding continued to increase.

Rep. Mindy Greiling, DFL chair of the K-12 Funding Committee said everyone knows it's broken and suggested it be capped. Why would you keep this going?

Today Rep. Garofalo repeated the charge and added more examples as the K-12 bill heads towards completion. I assume this to mean the integration program is still intact.

• After school soccer, $3,000
• Art Exhibit: supplies, consultants and “artifacts”, $7,500
• Collaborative coordinator, $43,000
• Cultural liaison officer, salary & benefits, $125,000
• Culturally responsive teacher training, $15,000
• Equity coach, $74,000
• Ethnic celebrations, $3,000
• Field trip scholarships, $10,000
• 5th grade kindness retreat, $5,000
• Food and snacks for ethnic celebrations, $4,000
• Integration program coordinator, $99,000
• Secretary to IPC, $57,600
• Newcomers program teacher, $113,000
• Pen pal book club, $3,500
• 6 step hip hop program, $2,000

Is a six-step hip hop program meant to teach people how to hip-hop or like hip hop Anonymous, a six-step program to stop hiphopoholics? (That was fun to write, thanks for asking!) I don't think $5,000 is enough to pay for a fifth grade kindness retreat -- you ever work with fifth graders? Oy!

Labels: DFL legislature, education, Minnesota

Tom Steward of the Freedom Foundation of Minnesota has been making some noise with his scorecard of municipal golf courses.  Many of them make losses, and if one was to use the yellow pages test developed by Stephen Goldsmith of Indianapolis you certainly wouldn't think muni courses were a good use of public dollars.

Labels: economics, golf, Minnesota

A juxtaposition of a Dane Smith column and certain other items (other items are the unitalicized, with links infra):

Something may be wrong with our education system if so many citizens can confuse the legitimacy of the original Boston "tea party," a tax protest preceding the Revolutionary War against a despotic undemocratic monarchy, and the taxes today that are imposed by the most legitimate, democratic and representative governments the world has ever known.

ACORN, an activist group that turned in 90,000 completed voter registration forms in Clark County for last year's election, violated state law by setting mandatory quotas for workers who canvassed neighborhoods looking for people to register to vote, according to the state attorney general's office.

...Canvassers were required to register at least 20 people a day, and could be fired if they didn't, officials said. ACORN also instituted a bonus program called "blackjack" or "21 plus" in which a worker could earn an extra $5 per shift by registering 21 or more people.

Improvements in civics education might help more people understand at least the possibility of a relationship between taxes and the overall quality of life in society, and the idea of common good.

Source.

Thankfully, polls consistently show that most Minnesotans have a reasonable understanding and acceptance of government taxing and spending.

Minnesotans have little taste for higher taxes that would hit most people's pocketbooks, but two-thirds would offer up the wallets of richer folks to help solve the state's budget woes, a Star Tribune Minnesota Poll has found.

When it comes to a broader increase -- income tax hikes for most Minnesotans -- nearly 60 percent said that would be unacceptable.

Half of the poll respondents said they think the state should use a combination of unspecified tax increases and spending cuts to help erase the state's $4.6 billion deficit, while another 40 percent said the balancing should be achieved primarily through spending cuts alone. Only 4 percent favored squaring the books primarily with tax increases.

"I don't know why people should be punished for being successful," said Sarah Dawdy, 61, a retired business manager in Pequot Lakes. "For me, that's totally against what the free enterprise system is.

...Surveys also have shown that about 60 to 70 percent of Minnesotans favor a balanced approach to our historic $6 billion budget shortfall, or a mix of cuts and reasonable revenue increases. Polls also have shown Minnesotans also support income-tax increases on the top tiers, and especially so if it goes to education and property-tax reductions.

A government that robs Peter to pay Paul can always depend on the support of Paul. 26% of Minnesotans pay no federal income tax, likely also no state income tax.

Labels: Minnesota, taxes

It's last week of the semester here, and it's going to be a little harder to post things during the day this week. I have some links I put up for development students on my class blog, class of which occupied my morning.

I am probably the most sympathetic conservative to the idea of removing tax preferences in legislation, but I think Rep. Ann Lenczewski has missed the main message of tax reform. The lesson from 1986 was that you could only trade their removal for lower tax rates. The 2005 tax reform proposal at the Federal level was an example of this as well. But removing tax preferences makes substantial changes in the tax price of certain economic activities. Removing the tax preference for home ownership raises the cost of it, at a time when the market needs to stabilize. The plan Lenczewski proposes reminds me of nothing so much as the famous yacht tax. The home construction industry is probably in worse shape in 2009 than the boat-building industry was in 1990. Million-dollar mortgages support million-dollar homes which support many electricians and carpenters. A phase-in during a period of robust home construction would make much more sense than the present bill.

I could go on, but time is short. I outsource my own thoughts on tax reform to Alvin Rabushka.

Labels: DFL legislature, housing, Minnesota, taxes

I am 61 years old. I have lived and worked in Britain all my life. Not even in the dark days of penal Labour taxation in the Seventies did I have any intention of leaving the country of my birth.

Despite a rumour put around some years back, I have never contemplated leaving Britain for tax reasons. But in the 40-plus years I have been lucky enough to work here, I've seen a bit. So I must draw your attention to what is really proposed in this Budget.

Here's the truth. The proposed top rate of income tax is not 50 per cent. It is 50 per cent plus 1.5 per cent national insurance paid by employees plus 13.3 per cent paid by employers. That's not 50 per cent. Two years from now, Britain will have the highest tax rate on earned income of any developed country.

I write this article because I fear the inevitable exodus of the talent that can dig us out of the hole we find ourselves in. It is inevitable, given that other countries are bidding for entrepreneurs.

Give up? Suppose I said "composer" rather than "author". Link below.

Meanwhile, let's consider what Senator Tom Bakk, whose bill to put up tax rates in Minnesota is now in conference with a competing bill by Rep. Ann Lencewski (she deserves her own post, which will have to be tonight), said about alcohol and income taxes:

The new income taxes would raise virtually everything Senate DFLers were looking for in new revenue to help erase a $4.6 billion deficit through the middle of 2011. They are also proposing across-the-board spending cuts and using federal stimulus dollars.

Senate Taxes Committee Chairman Tom Bakk said tax cuts of the 1990s were unsustainable and the state needs more money for priorities such as schools, even though the Senate voted to cut K-12 education.

Bakk said the reductions would be deeper without new tax dollars.

"It's a huge deficit that the state is facing. Everybody's going to have to participate in the solution," said Bakk, a Democrat from Cook who is preparing to run for governor.

...Bakk said eliminating the current mortgage interest deduction could hurt Minnesota's high rate of homeownership and higher alcohol taxes would drive some liquor shoppers across the Wisconsin border. [Both these provisions are in the House bill --kb]

Bakk said about 85 percent of taxpayers would pay more under his plan, but most of the money would come from people with the highest incomes. ...

The Senate tax bill would raise the lowest rate, 5.35 percent, to 6 percent on income of up to $31,860 for married couples filing jointly. The middle rate would rise from 7.05 percent to 7.7 percent on income between $31,860 and $126,580. The current top rate would climb from 7.85 percent to 8.5 percent on income of $126,850 to $250,000.

The new fourth-tier rate of 9.25 percent would apply to incomes starting at $250,000 for married couples, $141,250 for single taxpayers and $212,500 for single heads of household.

So people would drive across the border for alcohol if we raise the tax on booze, but if we raise the tax on work they'd stay put? Not just the top rate either. As Sen. Julianne Ortman pointed out on my show Saturday, the Bakk plan gives us two of the top ten state income tax rates in the U.S. Bakk seems impervious to the idea that life location decisions are as influenced by tax rates as booze purchase decisions.

The Briton who doesn't believe this? Andrew Lloyd Webber. H/T: Stephen Karlson. Webber notes a young entrepreneur in the stage construction industry:

Under the new tax regime, he will have to pay 13.3 per cent to employ himself before he pays himself anything. And then he will have to pay 51.5 per cent on what's left.
This is a guy at the cutting edge of his profession who works all over the world. He is in demand in every major territory where entertainment is produced. He has a young wife and two children. Last Thursday he told me that he and his wife had decided that the UK was no longer where they wanted to live.

His wife thinks the State education system is inadequate. And she fears that a bankrupt Britain will increasingly be a worse place in which to live as the horror of our present financial mess hits us all in the solar plexus.

He says that he is young enough to set up shop somewhere else. The new tax rates were the final straw. These talented young people know they will make it impossible for them to educate their kids privately in the UK.

So Britain plc loses not just the 40 per cent he would have paid in personal taxes under the old regime - plus NI and everything else - but... Come on, I don't need to explain the knock-on effect. It's obviously huge and immensely damaging ...

I realize Sen. Bakk lives on the other end of the state, but he might want to pay a bit of attention to Sioux Falls.

Labels: DFL legislature, economics, Minnesota, taxes

Sen. Dan Sparks, DFL-Austin.

One bill that’s already in conference committee is the bonding bill. The bonding bill is expected to create more than 3,600 jobs in the construction phase by spurring infrastructure improvements across the state, and even more ongoing jobs will be created once renovations and facilities are completed. It’s a key area where we can spend a little money to make even more money in the future and put Minnesotans back to work. Unless Minnesota makes important investments in economic development initiatives and other job-growing policies, we will not recover from this recession or have an opportunity for success in the future.

But it hasn't worked, as the data above show. There has been no increase in construction even in the areas most likely to add jobs with government money.

The Senate bonding bill weighs in at a whopping $329 million while the House version is a “slimmed down” $248 million. Both bills greatly exceed what the State Management and Budget Office pegs as the maximum remaining bonding capacity in order to keep the State within a 3 percent debt service payment limit.

Under normal legislative procedures major bonding bills (public construction projects financed with state general obligation bonds) are dealt with in the even year sessions. But never wanting to miss an opportunity to spend the State further into debt, DFL majorities in both the House and Senate want to use the recession as an excuse to create “public works” jobs at taxpayers’ expense.

And while the whole construction industry is on its back, we have a local legislator proposing a bill to create a new board for a state residential building code. That'll help, Larry!

Labels: DFL legislature, Minnesota

In her e-news letter to constituents, Senator Tarryl Clark (DFL-St. Cloud) reports on the difference between the Senate's plan to balance the state budget and that of Governor Tim Pawlenty.

Using a combination of cuts, federal recovery funds and new revenues it brings the state budget into balance for not only the next two years, but also the two years beyond that. This is something our Governor does not plan to do. Instead he pushes much of our present problems into the next two years. Seemingly he is hoping, and that’s all it is, is a hope, that things will get much better, much sooner than most economists believe. If his hope is misplaced Minnesota will be in even worse financial straits.

I don't think the Obama administration is buying that with their forecast of GDP. CBO, who has panned some of the President's numbers, nevertheless expects real GDP to grow 4% in 2011, 4.1 in 2012. Indeed, the disingenuous part of Sen. Clark's statement is that there are no forecasters saying growth will be weak in 2011, when the next biennium budget begins.  (See the WSJ survey last week, or Blue Chip yesterday.)  Why is Sen. Clark so pessimistic about Minnesota?  Why does she not share the optimism of her party's leader?

I will be dissecting other parts of this letter next week.

Labels: Clark, DFL legislature, Minnesota, St. Cloud

I'm through reading the April update of the Minnesota budget situation. One thing we find out is, you know, that demonizing of bonuses going on in political circles isn't a free good:

Individual income tax receipts were $47 million (4.5 percent) less than forecast in February. Almost the entire income tax shortfall was due to lower than projected withholding tax receipts. While lower than expected withholding tax receipts are always a matter of concern, this shortfall appears to be due to lower than projected bonus payments, not lower wages. Withholding payments generally have tracked February’s forecast quite well except during a short period in mid-March when many firms pay bonuses depending on the firm’s performance during the past year.

Also, on the state of the economy generally, the update relies on Global Insights, who are still revising 2009 GDP downward. I agree with revising down but I probably was on a higher previous level than they were. Also:

...while the worst of this crisis may soon be over, that does not mean that the economy will quickly return to normal. Global Insight’s April baseline does not show real GDP returning to pre-recession levels until the spring of 2011. Employment takes even longer to recover, with the number of jobs remaining below the 2007 peak until early 2013.

I still think this is pressing down on the state budget more than had we hired almost any other national forecasting service to drive the state forecast. This is not the Obama Administration's forecast.

Labels: economics, Minnesota

I don't understand why the Minnesota Senate is choosing to pick this fight. A press release from the Minnesota Senate Republican Caucus came with an attachment indicating a vote today for an amendment offered by Republican leader Senator Dave Senjem to retain Truth in Taxation (in SF3) for property tax levies. Four DFLers joined all nineteen Republicans in supporting the Senjem Amendment; forty DFLers were against. After the vote Sen. Senjem said

As a former city council member, I will attest that ‘Truth in Taxation” hearings provide an invaluable opportunity for a specific meeting dedicated to discussing the budget and to hearing directly from citizens regarding the tax policy of local governments.

Ending ‘Truth in Taxation’ hearings at a time in history when we need more citizens involved with their government and paying more attention to tax policy in Minnesota is simply wrong.

MN House of Representatives Research shows what a Truth-inTaxation hearing is intended to do:

Under the law prior to TnT, the main avenue for taxpayer involvement was on the valuation side of the system. Taxpayers received their market value notice early in the year, and then no further information was sent to the taxpayer until the property tax statement was received the following February or March—almost a whole year later. The legislature felt that TnT would improve local accountability by focusing taxpayers on the relationship between the budget process and property taxes.

The main purposes of TnT were:

• to enhance public participation in Minnesota’s property tax system,
• to educate the public on how property taxes are determined,
• to encourage the public to understand the local government’s budget process,
• to encourage the public to become involved in helping local officials set spending priorities.

Although there are some exceptions (i.e., referendums, court costs, etc.) the local government’s final levy can not be increased above the proposed levy amounts reflected on the TnT notices.

It appears at least you'll still get the notices that tell you whether your property taxes are going up because of a change in spending, change in valuation, state aid, etc. But your local elected officials will no longer have to hear from you as they set spending targets. The PiPress spoke against SF3's repeal of TnT already. I guess the DFL only likes listening tours when they know who they will listen to.

Labels: DFL legislature, Minnesota, taxes

We're #4, says Forbes, of the most taxed states:

Average tax burden per person: $3,203

Most states either have high income taxes or high sales taxes, but in Minnesota, residents are treated to the pleasure of both. When average Minnesotans look over their yearly bills, individuals will find $1,495 gone away to pay income tax and $1,429 thanks to sales tax.

Here's the background story. Taxes included are "property, individual income, sales, alcoholic beverages, tobacco, motor vehicles, hunting and fishing, motor fuels, death and gift taxes, as well as insurance premiums. Adding up total receipts and then dividing by the number of citizens, we arrived at our tax-burden-per-person metric." Data for July 2007 to June 2008. The article discusses the cyclical nature of state budgets as well. On how to decrease the cyclical nature of state budgets, see this and in particular Finding #9.

Labels: Minnesota, taxes

Before she wrote about it, I was unaware that the school district was contemplating issuing these bonds (OPEB) that incur a cost to taxpayers that the school district does not have to get a vote on. But here's our school district (ISD 742) listing a set of alternatives to close its budget deficit and the top of the list is to float $1.6 million in bonds "and levy to repay bonds". This of course allows them to take the money it would have used to pay health benefits to retirees, and use that money to do something else.

Barbara writes (links added):

Although school board members are elected to make decisions on behalf of the population, pecuniary decisions are best left to the people. This has been a guiding principle in our laws, as shown by the requirements that other excess levies require voter approval.

However, the Legislature is now moving further with rules that circumvent the ballot box. If a levy passed and opponents could get 15 percent of the school district’s voters to sign a petition, a school district could face a revocation of that levy.

The recall allows some mechanism to demand accountability from school districts. But the Senate E-12 Education Budget and Policy Division has now sent forward a bill that would kill the petition option.

And it’s not just at the school board. Rep. Paul Marquart, DFL-Dilworth, introduced a bill to allow a county to raise sales taxes to “make up” for reductions in state aid. While some cities have made hard choices and found budget savings, Marquart’s bill would allow the others to avoid those choices and impose new taxes on a recessionary economy.

The conversation at the Times website today is animated on this subject. Check it out.

Labels: DFL legislature, Minnesota, Mrs. S, taxes

I found this line in the Westover-Quimby exchange humorous:

Westover wrings yet one more post out of the notion that progressives fight dirty because they fail to acknowledge "threshold economic principles." This forces conservatives to argue about the details of tax and spending plans, where they lose because... well, free market economic principles have not had a great record when it comes to fixing potholes and helping poor little kids get breakfast.

Actually, Advertising Age reports that the free market is doing a very fine job in fixing potholes, at least in Louisville.

Don't be surprised if you see Col. Sanders out filling potholes. In an unusual cause-marketing push, KFC is tackling the pothole problem in Louisville, Ky. in exchange for stamping the fresh pavement with "Re-freshed by KFC," a chalky stencil likely to fade away in the next downpour.

And private generosity feeds kids in DC schools, but that's apparently not enough for Quimby. The fact is that government cannot produce a single breakfast unless it removes the value of that breakfast from someone else. It's not just lunch that there is no free production of; it applies to the other meals of the day. It can only choose to do so by deciding that someone's breakfast is worth more to society than someone else's breakfast. And it's highly unlikely that this animates the chooser as much as the thrill up the leg of the person who gets to do the choosing. As Craig replies, one wonders if the fear of free market solutions is really the fear of freedom itself.

Labels: economics, Minnesota

As one might expect in days of creeping corporatism, the interest in economic freedom is growing among economic policy thinkers. You have a great opportunity to get a little more education on this on April 14th, noon at the Minneapolis Hilton, from a talk by Lawrence McQuillan of the Pacific Research Institute. Titled "The Sizzle of Economic Freedom", McQuillan argues that “along with extolling the virtue of liberty, conservatives should be selling the everyday benefits of economic freedom. ” He will highlight the results of PRI's U.S. Economic Freedom Index and how Minnesota compares. I used that index a few years back when Minnesota was 44th. I'm not sure if we got better or other states got worse, but the new index puts Minnesota at 26th. Not good, not even average (we have expectations to be better than average here in Lake Wobegon County, donchaknow!), but perhaps in all the Sturm und Drang of this legislative season, a way in which we can say ideas on liberty are making inroads in this state. I'm sure Dr. McQuillan will hit on these points. Classroom duties will keep me away, but I hope you'll attend.

UPDATE: John LaPlante published a few weeks ago on the Mercatus Center's alternative ranking of the states. Minnesota did far worse in that index. How can these things flip around so much? Read my book.

Labels: economics, Minneapolis, Minnesota

Last night I was at our BPOU meeting and heard about HF 264, which would have mandated health insurance policies that covered durable medical products like a wheelchair to provide hypoallergenic pillows and HEPA-filtered vacuum cleaners to policyholders who were suffering from "asthma symptoms." It was also to be included in payments for people on medical assistance. This is the braincrampchild of Representative Karen Clark of Minneapolis. We had some fun talking about it this morning on the KNSI Morning Show.

Today they posted a revision, removing the mandate on private policyholders, but retaining it for MA. It's on its way to the Finance Committee, having passed Health Care and Human Services. One can only shake his head, but hope his dandruff does not cause an allergic reaction.

Maybe it's time for another version of stupid bills.

Labels: DFL legislature, Minnesota

Marty Owings, whose fight to get access to the Minnesota Legislature was chronicled on our show last Saturday and earlier, is now credentialed to the Minnesota House. How many others? We don't yet know:

My remaining concerns are simple. If there are new rules for "online" media, I haven't seen any. Perhaps we all fall under the umbrella of "Press", but then there remains the issue of updating the language to remove words like "television" and "radio", to be replaced with the more generic term "Press". If the process has not changed and the rules are what they've always been, then will every Journalist who applies for credentials have to wait two months and pester Legislators endlessly until they approve them?

So we do not yet know if anything has been done for Dan Ochsner. As Sunshine Week conitnues, let's keep working for equal access to all journalists, regardless of their media. Let's hope that Marty getting a pass and Dan losing his is the result of a process that provides equal access and not because Marty and Dan are on different sides of most issues.

Labels: DFL legislature, Media, Minnesota

Two Republican legislators are proposing a suspension of a public works provision that keeps wages on public projects very high, reducing the amount of jobs that could be created:

Today, Sen. Chris Gerlach, R-Apple Valley, and Rep. Steve Gottwalt, R-St. Cloud, have joined with commercial builders to introduce legislation to call “time out” on prevailing wage mandates during budget strife. The bill would suspend prevailing wage for the calendar year following a November budget forecast of a 1-percent deficit or greater.

...Gottwalt said this means the state either pays more for a project, gets less construction for its money, or has fewer workers on the job. Being more efficient will create better outcomes for everyone, he said.

“We can’t cut other vital government services, lay off state employees, and raise taxes while deliberately overpaying to build or renovate buildings,” Gottwalt said. “With the state bonding bills averaging over a $1 billion per biennium, we could save a minimum of $70 million. That’s money that can build more projects and create more jobs.”

Paul Burke, owner of Mike’s Clean Sweep Services, agreed.

“We do the heavy cleaning to prepare the building for occupancy,” he said. “Our company pays good wages: nearly always more than my competitors. We need to do so to keep the best workers. But prevailing wage rates are 40 percent higher than my rates. I have to pass that on through the contract, and that means the project is more expensive, or they use less of my services and I have to hire fewer people.”

“At a time of budget cuts, it just doesn’t make any sense to have a super-minimum wage for state funded construction projects,” Gerlach said. “Our prevailing wage system is deliberately biased to ensure that high wages are paid. How can we deliberately overpay to construct buildings, while laying off the people that were supposed to work in them? The least we can do is suspend the program when we know we have to cut spending or raise taxes.”

Among other studies cited, Gerlach and Gottwalt offer a 2005 Minnesota Taxpayers Association study that shows that payment of "prevailing wages" as required by Davis-Bacon legislation (such as that proposed in the federal stimulus package) adds 7-10% to project costs. This enriches insiders that work on public projects, many of them unionized, at the expense of those who would work for less and permit those funds to hire more workers.

It would make some sense if the wages that were required on public projects were those common to a region -- you wouldn't want people getting public money who were paying low wages when the purpose of the project is to stabilize family incomes. But as Investors Business Daily pointed out last week,

At the Department of Labor, two agencies gather information related to wages and labor: the Wage and Labor Division (WHD) as well as the Bureau of Labor Statistics (BLS). It is the WHD that has the job of calculating the prevailing wage under the Davis-Bacon Act.

A 2008 study by Suffolk University and the Beacon Hill Institute found that WHD prevailing wage estimates were 22% higher than the BLS average reported wages paid in various cities. The reason is madness in the WHD's method.

According to the Suffolk study, the structure of the WHD methodology results in lower participation from small and midsize firms, provides an opportunity for unions to dominate the process of reporting wages, and lets as few as 12.5% of survey respondents set wages for the entire universe of workers.

In contrast, the BLS uses the Occupational Employment Survey, which collects wage data from more than 1.2 million establishments. Thus BLS wage estimates rely on a much larger sample that better represents wages that prevail in the labor market.

In Minnesota it's worse insofar as the sampling is for a modal wage (according to the MTA study), so one unionized large firm can force a high wage on many smaller firms (which may or may not be unionized.) The gap is probably not 22% in Minnesota, given the MTA estimate of 7-10%, but it is sufficiently high to cause one to wonder how these laws actually help all workers.

I hope Gerlach and Gottwalt go beyond this law and seek a law change that requires payment of median wages rather than the modal standard. It would reduce costs, allow more workers to be hired, and still assure that low wages are not paid on public projects. It's what most states do; time for Minnesota to catch up.

Labels: economics, Minnesota

My interview with Marty Owings and Dave Aeikens on the Minnesota House press-supression is here. The St. Cloud Times weighed in yesterday with an editorial:

In an apparent effort to avoid being caught on candid camera, the House tried to limit audio and video recording and photography of public hearings in House Committee hearing rooms.

Yes, that’s right. They sought to prevent reporting to the public events at public hearings.

On the Senate side, local conservative radio personality Dan “The Ox” Ochsner had the DFL-led Senate deny him annual media credentials this session despite having held them several other sessions.

Capitol folks have tried to justify these actions on themes such as “not enough room,” “we’re updating our rules” and “they don’t regularly cover the Capitol.”

Sorry, but they are missing the point. Legislators are conducting the public’s business, not the media’s business. The only rules needed are those that embrace openness — no matter who is asking for it.

Amen to that. Gary Gross provides additional coverage.

Labels: DFL legislature, free speech, Minnesota

Marty Owings is still banging at the doors of the DFL Legislature, trying to get equal press access.

Mr. [Andrew] Whittenborg [DFL Director of Public Affairs] mentioned that various people had "touched the Meeting/Hearing policy proposal from house attorneys, the Sergeant At Arms Office, House Leadership, Republicans and members of the media." and quickly added that "Your feedback to this has been sharp and instantaneous and nothing on this is going forward."

Mary Lahammer of TPT's Almanac suggested that any lawyer who proposed these rules should be "disbarred". Tom Hauser from KSTP agreed and added that it was "absurd" that any Law Maker would even propose these rules. Jason Barnett of the Uptake.org asked what the real issue was. Mr. Whittenborg said it ran the gamut from "space concerns" to "security issues." He said some concerns were raised about who was filming Law Makers and that some of them were "weirded out" while others welcomed the cameras.

Pat Kessler reported last night on this meeting, including a clip of Michael calling shame on the DFL.

You will recall that we reported on this last Monday, and I thought that the press might take this story up. Mary Lahammer has picked up on this, including an utterly stunning story in which Don Davis, a very longtime, reputable reporter for Forum Communications, was approached by state troopers for taking pictures of a representative introducing a bill. Tim Budig thinks it's got everything to do with bloggers (though as I recall the Uptake, which is a blog with a camera, has six passes!)

Most of the attention so far is on the House. I hope there is as well follow-up on the removal of credentials by Senators Tarryl Clark and Larry Pogemiller from KNSI host Dan Ochsner.

Labels: DFL legislature, Minnesota

On fiscal freedom Minnesota is actually about average, with the most striking flaw the dependence of local governments on higher-level governments for about half of their revenues. However, the state ends up 31st on economic freedom, 31st on personal freedom, and 35th overall. Some striking facts about Minnesota include the following: Wine is taxed quite heavily ($4.85 per gallon effective rate) but beer and spirits are not; the state still has blue laws for alcohol; low-level marijuana possession is decriminalized; the state lacks helmet laws and prohibits sobriety checkpoints but requires personal injury auto insurance coverage; labor laws are extensive; health insurance mandates are the most costly in the country; asset forfeiture does not require owner knowledge of criminal activity; and cigarette taxes are high.

From the new Freedom in the 50 States index created by the Mercatus Center. It is only 1/8 taxes, 50% paternalism. The last sentence lists some things I don't spend enough time thinking about for Minnesota.

You can find critiques of these types of indices in my book.

Labels: economics, Minnesota

We know that the state is already in place to pick up $1.3 million of the federal stimulus spending aimed at supporting state budgets. From faculty union sources I've learned that there is an additional $669 million in spending for K-12 and higher ed. But that requires the legislature and Governor Pawlenty to keep spending at 2008-09 levels. So for instance, the governor's budget sought base spending reductions of $73 million for the next biennium for MnSCU; that would have to be rescinded to get that $669. So too would cuts to the U of M. And it would delay the day of reckoning on the higher ed budget. I probably don't have the exact net gain or loss figured in here, but that $669 is not a free lunch.

Also, the federal stimulus bill raised Pell grants by $500. That can be used to shift off spending by the Office of Higher Education on state grants. According to thesame union sources, that might be another $69 million. The temptation will be, of course, to shift that money out of higher education.

Labels: higher education, Minnesota

The local area unemployment rate in St. Cloud reached 9.4% in January. January is always high due to post-holiday layoffs of seasonal employees, but this is clearly a record. Retail dropped 554 jobs in January, but that's barely 20% of the 2631 jobs lost in the area overall. Even areas normally not moving down in January, like health care, saw losses.

The size of the declines are worse in the Cities (that data is seasonally adjusted, unlike the St. Cloud data -- I do the SA myself.) Health sector there is at least holding some gains, but construction looks worse.

Labels: economics, Minnesota, St. Cloud

State and local governments in Minnesota are expected to be eligible to receive nearly $4.6 billion in assistance under the ARRA. At this time, however, the forecast impact of the additional federal spending on the state’s budget outlook is much smaller than that amount. Much of the spending authorized by the ARRA is dedicated to specific purposes and projects so it will have no direct impact on Minnesota’s general fund outlook. For example, Minnesota is expected to be eligible to receive about $450 million in additional funds for highway and bridge construction projects. When received those funds will be directed into dedicated highway construction funds and not comingled with general fund revenues, leaving the state’s general fund budget outlook unchanged.

This forecast includes only one direct ARRA related budget adjustment, the change in the Federal Medical Assistance Percentage (FMAP). Unlike other federal funds, Minnesota can recognize and spend these funds within current law and without additional review. In fact, the state is already preparing to receive the retroactive portion of the FMAP increase. The change in FMAP is expected to provide Minnesota with an additional $464 million in FY 2009 and $1.359 billion in FY 2010-11.

That $464 million alleviates any additional unallotment that might have happened in FY 2009 and in fact some of it carries over to FY 2010-11, if the Legislature and Pawlenty don't get itchy to spend it. I recall from the original Obama transition plan for what became ARRA that we would get more direct spending than offset of tax cuts ($.60 increase in G and $.30 decrease in T.) Since most of the FMAP money will reduce the deficit and (one hopes) reduce any potential state tax increase, it seems like this fits right. It's fairly close to what the Pawlenty budget projected, too.

February’s baseline economic forecast from Global Insight (GII), Minnesota’s national macro-economic consultant, calls for real GDP to decline at a 2.7 percent annual rate in 2009. The recession extends into early fall, with the economy growing at below trend rates through mid 2010. The unemployment rate reaches 9.4 percent in early 2010 and remains at that level until the fall of that year. By the end of 2009 U.S. payroll employment is expected to be 6 million below its fourth quarter 2007 peak, it then recovers very slowly. It is not until mid-2012 that the number of U.S. jobs exceeds the 2007 high. In GII’s February baseline real GDP grows at a 2.0 percent annual rate in 2010 and at a 3.5 percent annual rate in 2011.

Hmmm. The new Obama budget calls for growth in 2010 of 3.2% in 2010 and 4% in 2011. OMB has gotten a bit tetchy about this; they rely on comparison to a forecast where borrowing trillions of dollars has no effect on private sector investment, and where the productivity of whatever government buys is equivalent to the productivity of private investment. So who do you believe -- the Obama Administration, or Global Insights and the MN Dept. of Finance?

I'll have to read the rest later -- busy until late this PM.

Labels: economics, Minnesota

On Saturday's Final Word we had KNSI program director and talk host Dan Ochsner, more often known around St. Cloud as simply The Ox. Dan had reported to me on Thursday last week that he had had his press credentials to the floor of the Minnesota State Senate revoked after holding them for many years. Here's a Google cache of the 2006 press booklet for the senate. It contains KNSI entries for Ox and for former news director Cory Kampschroer. The 2009 book, in contrast, has an entry for KNSI in its table of contents, but nobody from KNSI is listed. (I listed the Google cache just in case the other book is disappeared.) The new book was printed Feb. 5 according to the properties of the Adobe document, a month after the opening of the Senate. This was the same week, it appears, that Ox was denied access to the Senate. (Worth noting here: credentials are a hard plastic badge which are renewed. Ox reported sending in his request for renewal; no additional badge was expected.)

Dan has been an officer of professional radio organizations through the AP and held credentials for many years. His biography includes being past president, Minnesota Associated Press Broadcasters (2000-01) and a news or program director since 1999 in Detroit Lakes and St. Cloud.

It was not the Ox's first visit to St. Paul this year. He broadcast, it appears, from the Minnesota House on January 7. At that time nobody had informed him that his credentials to the senate were being pulled. He had, as usual gone to do a show at the opening of the legislature (as Gary reported) and had, among other things, discussed the amount of per diem money received by Senator Tarryl Clark.

Did this have anything to do with Ochsner's credentials being pulled? He reported on the air that he was told that the Senate had decided to focus their floor privileges to reporters who were more often at the capitol (Dan's show makes a monthly appearance, though he says he visits the capitol more often than that.) He was informed that this came from Clark and DFL Senate leader Larry Pogemiller. When Sen. Clark subsequently was interviewed on Ox's show, she was questioned about this. At one point she is reported to have said that she thought his listeners were not interested in this subject and that Ox should move on. Ox's response was that he knew his listeners, and that they were interested.

Readers are probably aware that in her successful special election campaign in December 2005, Senator Clark's opponent was none other than Ox. It's noteworthy that she continued to do his show even after the credential was pulled. The ostensible reason -- that there's too much traffic on the Senate floor, flies in the face of the evidence, insofar as a new organization that is not a radio, TV, or print outlet, The Uptake, holds five credentials. Is access for that group more important than for out-state news organizations? Does the Senate not respect the journalism of people who are outside the Twin Cities? (Notable silence from the one remaining St. Cloud journalist with full access.)

There is a particular issue, perhaps, between Ox and Clark. Perhaps; I'm not as interested in that. Later in the show Marty Owings, who probably agrees with nothing I blog here, called in to say his work as a journalist was equally hampered in the House. (Chris Stellar reports on this in MnIndy.) His story, that Rep. Tony Sertich had used a procedural trick to restrict access to online media, was the point where I decided this has to be discussed. (h/t on Marty goes to Mitch.) He appears in Hour 2 of the Final Word broadcast of 2/28.

The Society of Professional Journalists has spoken out in favor of online journalists, but not yet, as far as I can tell, for Ox.

If the Legislature is concerned about the conduct of individual reporters, existing rules and procedures can be utilized. If the problem is one of space, then the criteria for distributing media passes should be equitable for all journalists, not arbitrarily discriminatory based on an outlet’s medium.

The Minnesota Independent quotes House Rules Committee Chair Tony Sertich as saying a rule change to allow online media would open access to anybody. In fact, the change gives open access to everybody, which is the best and most credible means of government accountability in a democracy.

Indeed. Dear SPJ, let me take you to a page that I would say summarizes the problem here. This is the temporary rules of the Senate. Lines 10.8-10.16 state:

16.1 The Secretary shall provide space for news reporters on the Senate floor in limited numbers, and in the Senate gallery. Because of limited space on the floor, permanent space is limited to those news agencies that regularly cover the legislature, namely: The Associated Press, St. Paul Pioneer Press, St. Paul Legal Ledger, Star Tribune, Duluth News-Tribune, The Forum, Rochester Post-Bulletin, St. Cloud Times, WCCO radio, KSTP radio, Minnesota Public Radio, and Minnesota News Network. The Secretary shall provide an additional two spaces to other reporters if space is available. One person from each named agency and one person from the Senate Publications Office may be present at the press table on the Senate floor at any time. Other news media personnel may occupy seats provided in the Senate gallery.

The italics are mine. By what right does the Senate get to restrict access to this oligarchic structure of media? Why are certain groups privileged? (And indeed, why are these called "press privileges"? A freedom is not a privilege.) Where are the First Amendment advocates? Who decides which of these agencies are named and which are not? If you favor open access for everybody, dear SPJ, strike this list.

Labels: censorship, DFL legislature, Final Word, free speech, Minnesota

Mea culpa.  On Friday I posted a simple graph of state government employees under the title "Growth in the supply of "witnesses" at DFL "listening sessions"".  Late last night Dave Senf, an economist at DEED, where they compute those numbers, set me straight on the data I had posted.  

The data you are using in the graph at SCSU scholars is correct but it is Current Employment Statistics data which includes work-study students at our public universities and colleges. If you dig deeper, you will find that most of the job growth in state government employment in the last eight years has occurred at the state’s public universities and colleges, places like SCSU.

I had thought to look at that split, which is available on the site I had linked, but I guess I decided it didn't matter. What I missed entirely is that "work-study" point though. Senf is correct that the amount of students receiving work-study aid (federal and non-federal) has grown recently, from 5.4% in 1999-2000 to 7.2% in 2003-04 (last data available from the National Center for Education Statistics.)  I was unaware that work-study students are counted in the CES data which I used, but not in the QCEW data that Senf provides here (in Excel form.)

MnSCU employs 19,734 persons, up from 17,653 in 2005-06 (MnSCU demographic report.) That second report seems pretty clearly not to include work-study. University of Minnesota system employment rose over that period by less, from 24,498 to 25,976. But those data do not account for half of the rise I showed in the graph on Friday, and it is quite likely that work-study student employment accounts for the bulk of the remainder, and had I pulled that data out the graph would seem to have been much less dramatic.  I regret the misstatement.

Labels: economics, Minnesota

UPDATE (3/1): Please note: this graph doesn't show what I thought it did. Please see my erratum.

Res ipsa loquitur.  Source.

Labels: DFL legislature, Minnesota

The conclusion first: When you speak before a legislative body, don't be cute with your presentation.

Yesterday a young assistant professor of mechanical engineering at the University of Minnesota goes before a state senate committee meeting to argue for a bill that, inter alia, would set goals for the state to lower greenhouse gases by "reduc[ing] the number and length of vehicle trips" and by changing "development patterns". (Among other things, the bill proposes to have a 15% reduction in the number of vehicle miles traveled in Minnesota by 2025, and directs Met Council to come up with a plan to reduce driving in the Twin Cities to 1990 levels. Not a good bill if you favor commerce and markets, but that's another point.)

The professor favors this bill, and is brought in (I assume by its supporters) to testify. The StarTribune describes what happened when he spoke:

Dr. Julian Marshall of the University of Minnesota displayed a digital slide containing two versions of the historic ad.

The original ad is an illustration of a man driving a convertible and bears the slogan "When you ride ALONE, you ride with Hitler! Join a car-sharing club TODAY!" -- the idea being that a failure to conserve resources was aiding the German dictator, who was shown riding in the passenger seat.

The parody replaced Hitler with Osama bin Laden, a reference to oil-producing countries with ties to terrorism. It came from the cover of a 2002 book by the comedian Bill Maher, which was titled, "When You Ride Alone, You Ride with bin Laden: What the Government Should Be Telling Us to Help Fight the War on Terrorism."

"It's no secret that money spent on gasoline goes to places that are not very happy with us," Marshall said. "The issues we're talking about are all interconnected -- climate change, transportation, energy, geopolitics, climate security, energy security."

The STrib link contains the posters. You can also watch his introduction, and the reaction of Senators Dick Day and Juliann Ortman, here:
It's a classic rookie mistake. That slide is a slide that you'd certainly use in a classroom: It's provocative; using Bill Maher makes you seem cool to students; it challenges those who disagree with you to provoke a discussion. In a classroom, those are fine goals (assuming you use the provocation of the students to get them to engage your subject matter rather than as an opportunity to disrespect them. That's been known to happen, but there's no evidence that's an issue with this young man.) But a legislative hearing is not a classroom. I've done a couple of those, and you have to be very sensitive to not give the other side of your issue an opening. The young professor risked being stopped before he could get past the first slide (the chair of the committee has to permit him to continue, as you see at the end of the video.)

If you are from a school of public policy, or work generally in public policy, you should know that, or get advice from a senior faculty member who's learned it. But again, this young fellow is in a department of mechanical engineering. Not exactly a breeding ground for public policy wonks. Who put this fellow on the list to provide testimony? Did he? Or did one of the bill's authors? If the latter, it's their mistake for putting him in harm's way.

There's a time and a place for cute, a time and place for provocation. But that place is not a Senate hearing. Hope he learns his lesson.

Labels: legislature, Minnesota

A corrected slide for the 21st Century Tax Reform Commission report, as we discussed Saturday with Prof. John Spry on The Final Word. Short interpretation: The corporate income tax in Minnesota is regressive.

Labels: economics, Minnesota, taxes

At least we're above average: On a measure of "small-business vitality", the Twin Cities comes in at 40th of 100. Raleigh was #1; Detroit was #100. Here's the methodology. Tax burdens are not factored into that measure; it's solely a measure based on employment and small business formation. What policies would make this better?

Labels: Minnesota

On Saturday I asked whether Gov. Pawlenty would join Gov. Jindal et al. in refusing any of the stimulus money. Jim Gegharty provides an interview, in which Pawlenty responds:

Minnesota ranks forty-sixth in terms of getting federal spending in relation to the amount of taxes paid — for every dollar we sent in to Washington, we get about 72 cents back. We’re a major payer of the federal government’s tabs, unlike many other states that I won’t mention. I say, when you’re paying to buy the pizza, it’s okay to have a slice. Now, if you were a liberal Democratic governor and you opposed military spending, are you not going to take National Guard funding? If you were a liberal who opposed No Child Left Behind, are you going to take federal funding in education? So I’m wondering why that standard is only being applied now to conservatives.

All the governors are going to take almost all of the money. I’m not aware of any governor turning down a substantial amount.

So let's see:

1. Others are taking the money too, so why shouldn't I?
2. Since I have to pay anyway, I might as well get my stuff. (Sounds like the argument for spending on the Twins.)

I hope Littlest learns better than this. We wouldn't accept this logic from our children.

UPDATE: Craig Westover adds to the discussion saying conservative answers for where to cut spending fall short of standing on principle, too.

The way out of the current economic situation is not further sacrifice, but less. A more revealing question than “What government services would you be willing to see curtailed?” is: “What government services have you, or will you, unilaterally give up?” As no individual virtue is found in imposed government largess for the benefit of others, there is no virtue in waiting to accept curtailment of government largess to one’s individual benefit. Perhaps the answer to your question is as simple as “just say no.”

Labels: economics, Minnesota, Pawlenty

From the MN Senate:

The Rules and Administration Committee, chaired by Sen. Lawrence Pogemiller (DFL-Mpls.), met Thurs., Feb. 19, to discuss the Senate budget and to review proposed changes to the Permanent Rules of the Senate and the Joint Rules of the Senate and the House of Representatives.

Pogemiller said that, in light of the severity of the budget shortfall and at the suggestion of several senior members, effective immediately there will be a staff hiring freeze and staff pay freeze for the remainder of 2009. In addition, upon the request of any member of the Senate, the Secretary of the Senate (Administrative) must reduce the salary paid to that member, by the amount requested by the member, for the remainder of the 86th Legislative Session, Pogemiller said.

Pogemiller said the Rules and Administration Committee may grant an exception to the hiring freeze only for an essential employee.

Michele Kelm-Helgen, executive director for the Rules and Administration Committee, briefed members on the steps that have already been taken to reduce the Senate budget. She said the Senate reduced it’s budget by $710,000, or three percent, last year and that December’s unallotment process further reduced the budget by $800,000. She said a total of 24 positions have been either eliminated or unfilled. Pogemiller said the magnitude of the shortfall is such that there will probably need to be further staff reductions, either through attrition or lay-offs.

Sen. David Senjem (R-Rochester) made a motion to change the effective date of the hiring freeze to Wed., Feb. 25. Senjem said the Republican Caucus is in the middle of the process to hire a new chief of staff and the delay would allow the process to be completed. The motion was defeated on a 6-2 roll call vote.

Same old Pogie.

Labels: DFL legislature, Minnesota

Frequently students come to my office, usually near the end of the semester, and ask if I can give them an 'incomplete' grade for the class. They need more time, they say, to do the work required. Sometimes their reasons are valid, like an illness or in one case jury duty that lasted four weeks. Many other times, though, the student simply managed his time poorly, in which case the answer is 'no'.

I've posted and spoken on the Final Word about the inability of the DFL leadership in the Minnesota Legislature to come up with a budget plan. I think we're making some headway on this, because today DFL Assistant Leader Tarryble Clark responds that it's too hard for her to figure out a budget:

Perhaps an explanation of the well-established processes the governor and the Legislature follow when creating the budget will help ease the confusion.

Every two years the governor puts together a budget for the state for the next two years. The governor, his staff, and the staff at the agencies he controls are the only group capable of assembling a complete budget of the size and complexity our state requires.

There are hundreds of people working up to seven months to produce the documents that become our budget.

The Legislature's duty is to examine the governor's budget, seek input from the public and accept, reject or modify what the governor is proposing.

Not so fast my friend (with apologies to Lee Corso.)

First, the budget process does have the governor providing a budget. But what about new governors? How much extra time do they get, given they don't even know they're governors until the first week of November? The answer, according to the Senate, is three weeks. This seven months and a full staff explanation is a canard. If you really needed that long to develop a budget, you would not hamstring new governors with such a short time horizon.

Second, the idea that poor little Tarryl has nobody to help her and her colleagues develop a budget is, to be polite, connerie. The Senate has 211 full time staff members; the House, 249. That's more than four hundred staffers. The Senate has a budget of over $25 million. The House doubled the amount of money it spends on its committee structure. Why does Senator Clark think they are incapable of helping her develop a budget?

Third, Senator Clark has received $4,128 in interim per diem payments which means since the end of the special session last year. Not only was there 211 full time Senate staffers, they had access to 43 days worth of Mrs. Clark ($4,128 divided by the miserly per diem rate of $96.) Her leader, Larry Pogemiller, had 73 days; Tax Committee chair (and DFL gubernatorial candidate?) Tom Bakk, 60. If they did not have time to write a budget, what were they doing that they thought was more important? Do any of them intend to account for these days?

During these "listening sessions" -- and you can still sign up to speak, if you want -- you are probably not going to get answers to the following questions. You should ask them anyway:

1. Can you account for the days you spent for which you received interim per diem payments?
2. Why is it so hard for legislators to complete a budget when they have large, full-time staffs?
3. Why does Minnesota state statute say a new governor has to come up with a budget within seven weeks of entering office, but the leaders of the Senate cannot in seven months? Is it too hard for you? Why?

Labels: Clark, DFL legislature, Minnesota

If these sessions were really seeking to find grass-roots budget solutions or even common ground between differing proposals, wouldn’t there be more than just one proposal on the table?

But there’s not. The major focus of these meetings is to examine Gov. Tim Pawlenty’s proposal.

So how are Minnesotans supposed to judge his idea with nothing for comparison? Especially no plan from DFL leaders? Or is the idea to hold another statewide “town meeting” tour once that plan comes out?

We sure hope not.

As we have repeatedly noted the past several months, Minnesota legislators are facing a serious fiscal challenge — one that is their duty to overcome. Doing so will require creative thinking, common sense and the courage to cast votes that won’t always be popular.

Holding statewide “listening sessions” isn’t really a factor in any part of that equation.

Congratulations to the St. Cloud Times editorial board for seeing through this sham.

Labels: DFL legislature, Minnesota, other people's money

Here's a case where the news completely misunderstands what it is reporting on.  An AP report on the new Minnesota Tax Reform Commission report is headlined by our local paper "Tax Plan Targets Shoppers, Smokers".

Shoppers and smokers might have to plunk down more pocket change at the cash register to improve Minnesota’s business climate, under a proposal released Friday.

That's the first sentence, and it portrays businesses as separate from households. This is of course not true. The Tax Incidence Study done every two years here in Minnesota shows that of the $780 million collected in the corporate franchise tax, much is shifted to others. The report states that, while the taxes are legally paid by businesses, they are "...partially shifted to consumers (in higher prices) or in some cases to labor (in lower wages). Only a portion of business taxes are borne by capital owners as a lower rate of return on their investment." (p. 32)

To see this, take a look at the incidence report's Table A-1 at page 77.  For a $120 million in additional tax on capital, only $61 million is borne by Minnesota businesses.  Minnesota labor receives wages $3.8 million lower because of the tax.  Most of the tax is borne by consumers because businesses raise prices to shift the burden of the tax onto purchasers of their products.  Turning that into a sales tax does not mean a dollar transfers from consumer to business, as the corporate tax was mostly being transferred to consumers anyway.  Consulting Table A-2 we find that $.42 of each dollar of corporate tax was transferred to Minnesota consumers, and another eight cents to labor.

Alas, that point seems lost on our political leaders, even Governor Pawlenty who created the commission:

First reactions from state leaders — including Gov. Tim Pawlenty, who appointed the 15-member commission — were tepid. Pawlenty spokesman Alex Carey said the GOP governor wants to make Minnesota more business-friendly but isn’t embracing the proposal to expand the sales tax.

“He does not like the idea of raising sales taxes on consumers,” Carey said in an e-mail.

House Speaker Margaret Anderson Kelliher also had reservations.

“It’s interesting to raise taxes on Minnesotans to pay for a corporate tax cut for people who may not even be Minnesotans,” said Kelliher, who added that she plans to study the report.

Kelliher is correct, that the tax is borne by out-of-state capital holders. That's because 90% of corporate capital is owned by out-of-staters.  But that means as well that a lowering of their tax rate will pull capital from other states into Minnesota, rather than the other way around.  Do you think Speaker Kelliher would be interested in having capital move back into Minnesota?  We already have a tax rate much higher than the national average.  Governor Pawlenty has proposed simply to get to the average by halving the rate.  How much more capital would we gain if we went to zero?

The commission report is a nice piece of work (full disclosure:  I had a chance to review and comment on the report before its publication.)  There's a lot more in it than the part the newspapers have reported.  My bias is towards the kinds of demographic concerns expressed in page 10 of the report:

The number of Minnesota workers reaching retirement age jumped 30% in 2008 as the first members of the Baby Boom generation turned 62. The number of workers turning 62 is expected to double by 2013, compared with 2006 levels. Meanwhile, the rate at which younger workers enter the workforce is leveling off, and the number of Minnesotans in the 18-25 age group will decrease in the next 15 years. Minnesota’s labor force grew 1.5% annually during the 1990s, but annual growth will slow to 0.1% by the 2020s.

As boomers age, leaving a slower-growing workforce in their wake, they will reshape Minnesota’s revenue and spending as never before. Aging workers will likely pay sharply lower state income and sales taxes once they retire, even as their health-care needs increase. These demographic changes will increase pressure to raise business taxes to solve revenue shortfalls and finance spending growth as baby boomers retire. To grow, Minnesota must expand its tax base by attracting new or expanding businesses and the high-quality jobs they bring. It’s crucial to fill the gap without resorting to anti-competitive tax increases.

It is unlikely that this gets dealt with in the current legislative climate of deficit panic, but someone needs to save the Commission's report to implement when the panic subsides.

Labels: economics, Minnesota

And that's the job Tony Sertich, DFL head of the House Rules Committee, is seeking to do. A new rule is being debated in his committee today:

2.42 TIME LIMIT FOR CONSIDERATION. The Committee on Rules and Legislative Administration may establish and shall announce parameters for floor consideration of a bill, resolution, or other matter before the House.

That means that Sertich can decide how long any bill can be debated, so that those bills that are railroaded through by the DFL majority, which the GOP would like to amend, might get so short a debating period that very few amendments can come forward. This body, which as managed to get exactly one piece of legislation to the governor's office so far this year, and can't produce a budget alternative, is instead making sure the minority in the Legislature doesn't get to speak on key pieces of legislation.

If the rule passes in committee today, it might make it to the floor tomorrow.  How long will legislators get to debate it?

Labels: DFL legislature, Minnesota

I want faculty to testify---I’m afraid that the administration may try to dominate this, which would be tragic, since they will never bring up the need to raise taxes (which legislators need to hear), ... . I am also worried that anti-government/anti-tax groups may try to swamp these meetings. Start recruiting faculty and student turnout.

From an email from my union a few minutes ago, turning out the tax consumers for the Beggars' Banquet Budget Townhall Meetings. Emphasis added.

Smells like extra credit for students!

Labels: DFL legislature, Minnesota, unions

Steve Perry provides a useful set of notes on where "revenue enhancement" might come from for the Minnesota budget. In the list he includes an observation I had been meaning to make on a surcharge:

A temporary across-the-board income tax surcharge: This has been done before. Back in the early 1980s, then-Gov. Al Quie, a Republican, imposed a 10 percent surcharge on all income brackets. I've been surprised to see how many Democrats like this idea--in some cases preferring it to more progressive upper-bracket hikes. It's not clear why; maybe it's because there's no progressivity in the proposal, and Democrats have learned to fear any proposal that posits higher rates for the rich. In any case, the going estimate on additional revenues to be raised with a 10 percent surcharge is $1.5 billion for the biennium.

Temporary tax hikes are usually less distortionary than permanent ones. Rich folks don't move south to duck a one- or two-year increase in tax rates. I know a few people who were around when Gov. Quie agreed to the surcharge (Lori Sturdevant wrote about it last September) and their take on the current situation is that it feels like it was the right thing to do then and not as bad an idea as many now. (I wonder how Mitch Pearlstein would view it?) Of course one should fear that the other experience with "temporary" tax increases: In 1971 the sales tax was "temporarily" raised to 4%; it never came down. (It's worth viewing revenue commissioner Dan Salomone's presentation to get a longer perspective.)

On the other hand, in order for there to be no distortion we would have to believe there were lots of savings laying around that could pay higher tax bills, that it would not eat into any incipient recovery in economic activity in 2010. But the savings now is an attempt to rebuild busted portfolios, and taxation of savings at this time emisserates the middle class. It would be far better to cut spending. But if you are going to tax, recognize that Minnesota's tax system is highly cyclical and that recessions are temporary. Temporary measures should as a matter of principle be preferred.

Labels: Minnesota, taxes

You have to admit, when the StarTribune refers to the state corporate income tax as "a stinker", it's a good day for the people who support lower taxes.

[W]ould the corporate tax cut stimulate the economy in the way Pawlenty predicts? Or would it simply drain away revenues that already are shrinking?

Economists and business leaders are mixed on whether lowered business taxes would prove a jump-starter. But they are virtually unanimous in their assessment that the corporate income tax is, to put it bluntly, a stinker.

The discussion though always turns to how the government makes up the money:

[F]or all its problems, the corporate business tax has been a boon to state coffers. The tax yielded only $588 million five years ago and now hauls in $1.02 billion a year.

"Given our economic situation, if we're going to get rid of that, we have to think of what replaces it," said Senate Taxes Committee Chairman Tom Bakk, DFL-Cook. "Given where this state is right now, we can't afford to turn our backs on a billion dollars of revenue unless it's offset somewhere else."

But the forecast in November was not for this level of income. Only $597 million is expected in FY 2010 (to start July 1 2009) and $809 million in FY 2011, and barely rising above $900 million by FY 2013. Compared to $5 billion or more in deficits for the next biennium and the one thereafter (we'd expect), this is not that much.

Tax competition between the states (illustrated by this chart from the STrib) is costing Minnesota jobs and corporate tax revenues. Brent Bartsch writes that North Dakota is already considering cuts in the corporate rate. This kind of tax competition is more known in Europe (thus calls for "tax harmonization", which is cartel behavior by governments) but also can happen between states.  When other states are scrambling to hold down deficits, however, you can bet on nobody else following your lead on corporate taxes, at least for awhile.  That would make Pawlenty's play on taxes for small businesses and corporations potentially a winner.

Labels: economics, Minnesota, Pawlenty, taxes

I was going to comment on the thread accompanying Janet's post about road emergencies but decided it was worth its own post. (I get to do that: it's my blog.)

Conservative opposition to the extra-constitutional creep of government into everyday lives does not mean that government can never work well in our view. It might. What we do not know is how well roadside assistance like that Janet received would be provided by the private sector. We do have AAA and other roadside assistance programs. One could choose to save money and have no assistance; in a private-road world AAA or other roadside assistance programs may offer an expanded range of services. We currently organize society to have public provision of roads and of emergency services, and we currently choose to have public financing through taxation for those services. That they served Janet well that day last week does not make them the most efficient. We do not know, nor does anyone commenting on Janet's post know, how those services would have been provided if 911 and MnDOT did not exist. Maybe it would work well, and maybe it would not. The point is that just because MnDOT in some case does its job well does not mean some other organizational structure might not provide it better and cheaper.

We already have many states contracting out for toll roads. Often these toll road contracts include contracting for maintenance services. For a road that had upgraded roadside assistance even better than MnDOT's perhaps people would be willing to pay a higher fee.

UPDATE (10 pm):  During 24 commercials I read two emails to this post.  From Janet:

In both instances, I used AAA for towing. The first instance, when I was waiting for AAA, MNDOT stopped to check. Nice that they did but not necessary. In the 2nd instance, I was concerned my car would just coast to a stop in a lane with lots of speeding traffic because that section of road has no shoulders. There would be no way for me to get out of my car safely nor would there be any warning for oncoming cars other than my flashers – hence my call to 911. I thought maybe I could get a cop car to get behind me so I wouldn’t be rear-ended and hurt along with people in the car that could not avoid hitting me. Luckily, I found the only 40’ of grass and got off the road. At that point, 911 turned me over to a towing company.

My point was that there are times that it’s nice to have government help but that’s not to say a private operation could or could not do better. Personally, I’d prefer most of it private because of accountability. However, there are times when one needs police and my 2nd instance was one where police could have been appropriate.

Overall, just because 2 agencies did their jobs, does not make one a supporter of all government services...

The second from Prof. John Spry of Univ. of St. Thomas:

I am attaching a link to a paper of mine about services on toll roads. ...

The paper was inspired by my 89 Dodge Aries breaking down on the New York Throughway, and calling AAA. AAA was banned from helping stranded AAA members on that road, so that politically connected repair shops could have a monopoly on towing on “their turf’ of a stretch of toll road. So I sat in 5 degree weather for 3 hours after calling AAA waiting for the non-AAA government appointed monopoly to arrive.

It does seem that there are functions that can be best served by police such as Janet's second breakdown. (Hopefully her last, too, as Janet will be getting new wheels shortly.) But John's story is instructive -- when you allow government to decide who can serve these functions, rent-seeking too often ensues with taxpayers left without the efficient level of service.

Labels: economics, Minnesota

In Michael Deaver's memoir of Ronald Reagan, Reagan is reported to have told a yarn several times about finding a man at the Bureau of Indian Affairs crying. Reagan asked what was wrong and he replied "My Indian died, that's what's wrong. What the hell am I supposed to do now?"

On the second hour of the Final Word on Saturday, I talked about the DFL's response to Governor Pawlenty's budget proposal from last week. The budget deficit has been known since November, and back then Sen. Larry Pogemiller had some strong words on what they would do:

DFL Senate Majority Leader Larry Pogemiller said finance committees will start from scratch and examine every nook and cranny of current spending. Pogemiller said state government will have to stop doing some things, and he already has a target in mind.

This Senate and House has paid itself over a quarter-million dollars in per diem money when the Legislature was not in session, most of which was in the last six months of 2008. Add to this mileage. Most of the money was spent in the last six months. The number of committees used by the Pogemiller-Kelliher-DFL legislature has grown dramatically. In return for that, and given the imperative of dealing with a budget deficit that is likely to grow from the current estimate of $4.8 billion, don't you think you'd get a budget proposal?

As HAL 9000 would say, "I'm sorry, Dave, I'm afraid I can't do that."

Or maybe we should let Senator Tarryl Clark explain:

The strategy is obvious: The DFL leadership is seeking pressure from tax consumers to force a different solution than the one that requires no tax increases. The law states that the House and Senate must develop budget targets (that's the Senate document for 2007-08; I haven't found the ones for 2009-10 yet.) (UPDATE: The Senate rules are still temporary, here. 30 days from the release of the last Finance update, which I now here is scheduled for March 2.)

But Sen. Clark went looking for new Indians. Our faculty union sends this admonition:

Legislators are planning to hold hearings on the budget around the state, and I will send you times and locations as soon as they are available. It is very important we have a big turnout of higher education constituencies at these hearings to offset the pressures from other constituencies, particularly the advocates of deeper tax cuts.

The House and Senate, who I remind you have spent a quarter million dollars on meetings outside of the Legislature, now set up websites to "solicit input", which is what I thought they were doing with those meetings last fall. Every taxpayer ought to check the data provided by Pat Kessler of WCCO and write their legislator the following letter:

Dear Senator Clark,
I note from Pat Kessler's Reality Check last month that you received $4128 [change to fit] of per diem payments in the interim period outside of the Legislature's normal duties. I note that the legislature has not developed a budget. As a taxpayer and constituent I make the following request: Please document the 43 days [you should change this to be the number above divided by $96 per day for senators, $77 per day for representatives] you received this money and the nature of the business you conducted that day. In particular, please note the days you spent working on closing the state budget deficit. Thank you.

Sign it, and even give them a SASE, since they appear to be short on stamps at the Legislature. If you do send one, please send a copy to me (comments at name of this blog without the www. part) and we'll read it on the air on The Final Word next week. We'll see if they actually worked on cutting spending, raising taxes, or finding new Indians.

Labels: DFL legislature, Minnesota

When we Minnesotans drive in the winter, we assume our great snow removers will do their job and we can go merrily on our way. And, for the most part, that is true. However, once in awhile we need help - this is my story of 36 hours of major car problems.

I love driving manual transmission cars, just love it. Perhaps because I feel more in control, perhaps another reason but simply put, they are fun to drive. I'm pretty easy on clutches, too. I sold a previous car with 150,000 miles on it and the original clutch. My current car's first clutch lasted 65,000 miles, the second one, 109,000 miles. One might conclude, I'm ok with clutches.

Monday I'm tooling along 35E and notice with every shift, the odometer needle approaches the red line and hovers there before declining. Hmmmm Then I start smelling something burning. Hmmm. Then I discover I can't accelerate over 60 mph so I pull off the road. I call my husband, AAA, the dealer, and lay back for a nap. Along comes MNDOT. The driver had noticed me sleeping and stopped to check. I explained the situation; he marked my car with an orange X so others would know help was on the way. The great thing was he stopped and asked. My car gets towed to the dealer and clutch gets replaced.

Tuesday, I pick up my car with the new clutch - fine. I drive to my class four hours later. As I'm approaching the 35W SR 65 split heading into Minneapolis, I hear a very unusual, fluttering noise. I turn off the radio and the noise is still there. I try to steer and it's hard to turn the steering wheel. Looking for a place to get out of speeding traffic, I aim for the sand barrels between the two roads only to discover I had no breaks. OOOOOO, not good. I stay in the right lane, call 911 assuming that I'm going to need a cop car to protect me from getting rear-ended because I now have no acceleration, no brakes, a totally useless new clutch, minimal steering and am searching for some place to get off the road (there are no shoulders in that section of highway).

Very, not good. However, someone was watching me because just past the I94 overpass on SR 65, there's a 50' patch of grass which gratefully had been half plowed by MNDOT. I manage to coast to the snow and get off the road by 6" - but I'm off the road where cars are continuing to whiz by me. 911 connected me with a tow truck; I wait; call my students and suggest they wait (or we need to find another night for class). Tow truck arrives, takes me to my class and tows in the car. Unfortunately, 48 hours later we hear that I need a new engine.

While these two days' events were rather frustrating, MNDOT came through both times, as did 911. Thanks to all of you. I need a new car but no accidents, I didn't freeze, and all will be well.

Labels: Minnesota, snow

A short blogger conference call with state Senator David Hann went a bit awry with the technology. The result was a ten minute conversation with the senator a few minutes later. (I hope the other bloggers got the same courtesy.) I have appreciated Sen. Hann's forthright assessment of issues, and in ten minutes we were able to cover three topics.

1. The budget: There has been to date no proposal from the DFL majority, only Governor Pawlenty's which now will be subject to the saber-rattling of the tax consumers. The Legislature's rules call for budget targets to be set, but it was reported in the call that when asked if the DFL would be providing a budget, Senator Tarryl Clark, assistant DFL leader, said a simple 'no'. (Video was supposed to be forthcoming, but not received as of this moment. I will add it to Final Word's "TC No" collection.) To date, there have been no "substantive" hearings on any proposals in budget committees, said Sen. Hann.
2. One of Gov. Pawlenty's proposals to balance the budget was to shift the timing of payments to school districts. This basically borrows from this biennium to the next one by lagging those payments, which incurs a cost for school districts that have to borrow money. Sen. Hann noted that nobody yet has estimated the "tails" or the impact of the Pawlenty budget on the next biennium. If the economy turns around and is robust, this may not be a problem. Sen. Hann was less certain this would be true, and is one reason he supports fully Pawlenty's program to stimulate business investment.
3. Sen. Hann is generally troubled by the state of the economy, and he particularly pointed to the state not attracting private sector investment. This is a harm to the economy. I'm offering to seek data on private sector investment from official sources to talk about those trends.

I thank him for the time.

Labels: legislature, Minnesota

I had read this list of 10 worst pork economic stimulus requests made by Minnesota cities yesterday but had not commented on it. While I think Tom Steward is a fine political observer and supporter of conservative causes, I'm not as keen of this particular list.

Imagine: You are a college student and a member of a group on campus. Your group is going out for pizza and the bill is to be shared. Common practice is to split the tab. The pizza arrives. What happens? Everyone grabs, eats quickly. There is no incentive to conserve. Even trying to look noble and restrain your appetite does no good, because others are also facing the same incentives and gorge themselves. Seeing this is hopeless, you do too. In economics, we would say the marginal cost of eating another slice is zero. If you paid by the slice, you'd eat less (MC > 0).

The same is true with this Conference of Mayors. The Obama Administration has said it wants to spend gobs of money. The marginal cost to you of proposing one more program is zero. Indeed, if you do not get any of the money and some other mayors do, your opponent in the next election will say you are ineffective because you didn't bring enough slices of pork pizza back home. Principled stands of "no pork" are expensive -- look no further than the beating some representatives here in Minnesota took for deciding against seeking earmarks.

If all the mayors could get together and decide the size of the stimulus package, it might not be as big as this one is because their fingerprints are on it. They might choose to cooperate if they could negotiate. Since the size of the package is already set, and since others are feasting, there is no incentive to hold back on your own requests. Thus waste abounds, from skateboard park to snowmaking machines. The incentive to be frugal has been killed in D.C.

Labels: earmarks, economics, Minnesota

Steve Perry seems to think he's discovered something new: economic data can be revised.

As I noted in my earlier post this morning, the number of jobs lost in Minnesota for 2008 that was being bandied about the Capitol just last week was roughly 39,000. The new number, 55,000+, underscores just how rapidly the economy is losing ground beneath the feet of bean-counters and prognosticators.

Rapidly losing ground? Indeed the pace of recession, at least in terms of job loss, quickened in the second half of 2008 both nationally and in Minnesota. But go back to 1982, when job loss was in a 12-month period averaging 3% a year. Even for the second half of 2008, the average rate of job loss was 0.9% (Data.)

Data revisions are nothing new, and I noted last spring one that turned a negative outlook for the end of 2007 to a positive one. The data come from surveys, which like the polling data we all read last year in the elections are subject to standard errors. In Minnesota those bands on the unemployment rate, for example, are +/- 0.6%, so that when we say the unemployment rate this morning is 6.9%, we are using an estimate for which the 90% confidence interval is 6.3% to 7.5%. A revision like the one noted by Perry is no cause for gasps (the difference is less than .6% of total employment; here's the estimates of standard errors for employment by state.) It's part of the normal process of reporting and revising survey data.

Labels: economics, Minnesota

Mitch writes about proposal in the Minnesota Legislature to scale back or end the charter school program in the state. Mitch quotes this article, which ends with the following paragraph:

Legislators are likely to propose freezing the number of new charters. In part, that's in response to criticism that charters suck students, and the state money that comes with them, out of the regular schools. Also, such a freeze could save money. According to House figures, the state spent more than $69 million last year and this year providing aid to charter schools to rent building space.

Mitch's emphasis included in that quote, who notes the outflow of students and their parents from St. Paul and Minneapolis schools.

Complaining about charters sucking money out of "regular schools" (read: government schools) is like complaining about WalMart "sucking money" out of "mainstreet businesses." Our answer to that has always been 1) consumers save money; 2) small business should learn to compete. Having government regulate charter schools is like, well, having main street business owners on the town planning commission ... which happens about everywhere. We more easily recognize it in the latter case as rent-seeking behavior.

As regards $69 million in renting building space: if all of those students went back into a government school, wouldn't they clamor for more buildings and pass more bonding referenda? You see the $69 million going to charter schools for rental. What you don't see is the $69 million or more or less that doesn't get spent buying more public school space. The good economist sees both.

Labels: education, Minnesota

After the State of the State speech, Senate Majority Leader Larry Pogemiller argued that Gov. Pawlenty's proposal to reduce corporate income tax rates to increase job creation is a "failed strategy" at the national and state level. See for yourself at the end of this clip.

There has long been debate over the responsiveness of business location and employment to state corporate tax rates, but to call it failed is almost certainly an overreach. Chile is a good example of a country that grew after tax rate cuts in the 1980s (see Perry and Leipziger, for example); evidence for the US could be found in Alan Auerbach's work (see for example the 1994 NBER Macroeconomics Annual.) More recently, Djankov et al. (2008):

We present new data on effective corporate income tax rates in 85 countries in 2004. The data come from a survey, conducted jointly with PricewaterhouseCoopers, of all taxes imposed on “the same” standardized mid-size domestic firm. In a cross-section of countries, our estimates of the effective corporate tax rate have a large adverse impact on aggregate investment, FDI, and entrepreneurial activity. For example, a 10 percent increase in the effective corporate tax rate reduces aggregate investment to GDP ratio by 2 percentage points. Corporate tax rates are also negatively correlated with growth, and positively correlated with the size of the informal economy. The results are robust to the inclusion of controls for other tax rates, quality of tax administration, security of property rights, level of economic development, regulation, inflation, and openness to trade.

Wheeler [2006] also documents the evidence on reduction of state taxes; she summarizes the findings:

1. Employment -- "Four out of seven studies found small effect on employment; one found 6 percent increase in employment when 1 percent tax decreases were offset by transfer payment expenditures. Two studies found effects only in limited cases using data prior to 1975."
2. Domestic investment-- "One study found that a 1 percent decline in the ratio of taxes to personal income that is financed by an equal reduction in transfer payments would lead to a 9 percent increase in investment."
3. New firms -- "One study found that a 1 percent decrease in the effective tax rate leads to a 9.5 percent increase in the number of firm births in the communications industry and a 2.7 percent increase in the furniture industry."

I would hardly call this "discredited". I would argue instead that Sen. Pogemiller's reaction is informed more by ideology and a fear that he might have to make larger spending cuts, and without much concern for the level of economic activity in Minnesota.

Labels: DFL legislature, economics, Minnesota, Pawlenty, pogemiller, taxes

Ed Morrissey reports on the stalling of our school buses last week because of the blending of biodiesel. The superintendent in Sauk Rapids reported the same thing -- several buses were having trouble on Wednesday, and they could not risk broken down buses Friday. Things appear to have been worse in the Cities. (Wiki on gelling of biodiesel.)

We currently require a 2% blend of biofuel in our diesel(known as B2). The Legislature passed last May a rule requiring an increase of diesel to a 5% blend, B5. Many metro area bus districts have actually moved to B10 and B20. Governor Pawlenty and DFLers have both supported biodiesel standards here. Is anyone going to ask the question whether they are appropriate for our climate?

Labels: DFL legislature, Minnesota, Pawlenty

h/t: Mark Perry.

Labels: Franken, loons, Minnesota, Ventura

Here's an intriguing poll. It is headlined "Many OK with taxes, spending cuts to balance budget." 49% support a combination, while 41% favor primarily budget cuts (see poll results and splits here, starting at question 8.) But it's all about raising someone else's taxes. Raising the top individual income tax rate (which affects probably less than 100,000 taxpayers in Minnesota) is favored by 53% of those polled; no word how many of those responding favorably were in the group whose taxes would rise. But when asked whether or not they would support a sales tax expansion to food and clothing, 81% said no. Nobody I've heard has even come remotely close to asking to tax food. Clothing is another matter. The Minnesota Taxpayers League notes in an e-update this morning "It’s easy for people to say yes to tax increases…as long as it’s not their taxes."

Source of title.

Labels: Minnesota, taxes

I didn't get to hear Governor Pawlenty's state of the state speech (I might watch it tonight after I get home from a late meeting), and as expected it was long on rhetoric, particularly about taxes:

Imagine a typical Minnesota kitchen table. A mom and dad have just tucked the kids into bed with a kiss and a prayer, and they come back to the table to confront economic reality.

On the table are bills, notices and a notepad with a budget that’s tighter than it’s ever been. Hope and fear are also at the table.

How do we pay these bills? How do we fix the car? How do we pay this mortgage?

How are we going to afford college or even retire someday?

The same emotions, concerns and urgency at that Minnesota kitchen table must be at all the tables we sit at here at the Capitol – the budget hearing table, the agency tables, and the negotiating tables.

And this day, on behalf of Minnesotans sitting at their kitchen tables, I ask each member of the legislature:

Please don’t add to their burden by increasing their bill from government.

Please don’t take more of their hard earned money.

Please don’t raise their taxes.

As I posted this morning, if you're going to make statements like this, you have to state what choices you really are making. (Turns out I said that last year too.) And one statement he made shows one place where he's being rather bold: Despite balancing the budget, he wants to reduce business taxation.

The way to renew our prosperity is to unleash creativity, innovation, entrepreneurship and job growth.

Successful economies are built by people. Our economic landscape is shaped by men and women who see unmet needs and opportunities in the world around them, and devise goods and services to meet them. For all the turmoil in our nation's financial markets, the malfeasance, corruption, and neglected oversight, this truth remains: While government can commission public works, write checks and foster conditions for job growth, it can’t match or replace the power of people who create goods, services, and jobs. ...

In 2009, it costs too much for employers to create and keep jobs in this state. If we want to build up employment, we need to bring those costs down. I’m proposing a Minnesota Jobs Recovery Act.

For starters, Minnesota’s business tax rate is way too high. A recent study by the Tax Foundation concluded that if Minnesota were a country, we’d have the third highest business tax rates in the world. It’s way out of line and it needs to get fixed.

Today, I’m proposing that we cut Minnesota’s business tax rate in half. This means reducing the current 9.8 percent business tax rate to 4.8 percent over the next 6 years. This will take us from having one of the worst business tax rates in the country, to having one of the best. It will help us keep and attract more jobs.
...

These days, lack of financing is a major barrier to small business success. To jump start small business job creation, I’ve proposed a 50 million dollar package of tax credits that will create over 100 million dollars in new investments.

In addition, I’m proposing a 25 percent refundable tax credit for small business owners that re-invest in their business quickly in order to stimulate our economy.

I’m also proposing a capital gains exemption for qualifying investments in small Minnesota businesses. This will encourage investment in Main Street and help grow jobs.

Wisconsin has a 7.9% corporate income tax rate; perhaps the Minnesconsin idea could be applied as a start? Even at the lowest in Pawlenty's proposal, we'd still be higher than South Dakota and North Dakota if income is under $8000.

The two changes work at cross-purposes, leading me to wonder how the Pawlenty Administration intends to implement the credits. Tax credits are more valuable when the marginal tax rate is higher; as the tax rate cuts work through the system, the amount one gets back on an investment through the credit becomes lower, especially for small businesses (unless the credit is refundable, which seems unlikely.) The proposal sounds similar to Ohio's plan, which was subject to a constitutional case a few years back. The research tends to support the idea that state investment tax credits, by reducing the user cost of capital, increase the amount of capital formation in a state (see Chirinko and Wilson (CW) [2006a and 2006b] and Ernst and Young [2003]). Tax competition between states tends to be substantial, and CW 2006b show that states tend to create these together to avoid losing businesses to neighboring states. Given we already have a kind of investment tax credit in JOBZ for outstate investment, metro area firms are most likely to benefit from Pawlenty's new plan.

I suspect that the offer to cut corporate marginal tax rates is going to fall on deaf DFL ears. (I heard from one reporter that the DFL is already labeling the speech a billion-dollar addition to the deficit.) I am looking forward to the opening Pogemiller Yell. (You know that "Please don't tax me" line got a little color in Pogie's cheeks.) But by and large it was a relatively mild speech based on the reading. No dramatic veto pens, even when many expect he's going to get a budget he has to veto. Is he signalling softness? Or is he just keeping his cards close to his vest until the budget gets released in a couple of weeks? I think the latter, but I don't know that.

Labels: Minnesota, Pawlenty, taxes

There's some consternation on campus today about us being open while the surrounding school districts are closed. The temps are low enough that exposed skin can freeze in seven minutes. My house was -24 this morning (at last check, it was -15.) Is it safe for students, someone asked.

My first year up here there was a Saturday in January 1985 where the morning temperature was -34. My old '71 Chrysler New Yorker had a block heater that I had plugged in -- low temperatures seldom sneak up on you -- and sure enough it popped on the first time. Several people ran out to get jumps of their cars. That night a colleague and I went to dinner at a nearby supper club outside town. Several other cars were there; all were left running, perhaps for hours. We didn't have remote starters back then. At Panera this morning I counted (!) 22 cars in the parking lot, 14 of which were running. I was 23rd and 15th while enjoying a bagel and a cup of coffee. (I know some legislator is now going to introduce a bill to prevent this in the name of global cooling global warming climate change. Send me the bill, we'll mock it on Final Word.)

Exposing skin is the result of carelessness. I understand that children sometimes forget mittens. I would cancel school thinking of this. But college? Maybe we can use the cold to get rid of poorly prepared students -- it's quicker and cheaper than hiring composition or algebra instructors for sixteen weeks. Seriously, YOU LIVE IN MINNESOTA. If you do not know how to wear a ski mask, or a scarf, or a balaclava, then stay inside, move, or get Tom Coughlin Face.

Our campus meteorologist Bob Weisman wrote me a note that you have to go back to 1996 to a really cold January. (I wouldn't know -- I was in Ukraine that winter escaping the cold.)

The last really, really cold outbreak here was late January-early February 1996. That week, we had 6 straight lows colder than -30 and lows frequently below zero. We had one day with a high of -20, the coldest high in St. Cloud records. The record low for Minnesota (-60) was set on Feb. 2. This isn’t close to that.

We might set a record tonight, Bob says, but only because the record for St. Cloud for this date is a relatively mild -31.

* Alternate title: Life's hard; wear a balaclava.

Labels: Minnesota

Read this about how to close the deficit.

Count the number of paragraphs before you get to "cut spending".

Grow's formula raises six taxes (and a fee) before you finally get to "cut private school aid for such items as transportation and textbooks." Emphasis mine. God forbid we touch the public schools.


Grow argues that even the laundry list of tax increases can't fix this deficit, that at the end,

The political reality is Republicans can doodle with cuts as much as DFLers doodle with tax increases. In the end, both cuts and taxes are going to be needed.

But note to Doug Grow: There are no needs. There are only choices to be made. If Governor Pawlenty decides, either today in the State of the State or sometime later, to sign tax increases, that is his choice. Same is true of the DFL leadership. I do not want to hear "we had no choice." You do. And you asked for the job of choosing. There is no theoretical basis for calling some spending 'need' and other spending 'want'. It's all 'want'. Tell us what you want, and we'll vote to tell you if it's what we want, too.

Grow wants a lot, and wants your money to pay for it.

Labels: DFL legislature, Minnesota, Pawlenty, taxes

The very last item on Duluth's list of I-wanna's from Santa Obama: "Spirit Mountain snowmaking and maintenance facility, $6,000,000, 70 jobs." That comes out to $83,000 a job. To make snow in Duluth, which averages over 80 inches a year. Tell you what. For half that, you can have all the snow in my back yard. Buttercup would like to have her yard back, guys. Help yourself. (h/t: Kristina Rasmussen.)

Labels: Buttercup, Minnesota, Obama

This article argues Minnesotans do not flaunt their wealth. (Just their WELLSTONE!!!!!!! bumper stickers.) According to the article on which it draws:

"There's certainly less mass luxury on parade in the Midwest than either coast," said George John, who as chair of the Carlson School of Management's marketing department tracks buying trends. Even the virtuous rich are probably spending just as much as ever but "we just don't see it. Public consumption is only public to the extent we can see it, like the cars people drive, partly because American society is so segmented."

One thing they do is hide it in the garage. I watched some of Sunday night's episode of 24 in someone's garage. It had a heater, a 27" flatscreen TV. And it was only two car stalls. Many homes have three stalls, meaning the garage has a bigger footprint than the car itself. What goes in the third stall? The boat (pronounced "bo-o-o-o-oat" here.) The snowmobile. The ATV. As Joe Soucheray would call it, your wealth is tied to your cylinder index. (I'm a very wimpy 17.) Most people aspire here to higher C.I.s as much as they would jewels or fur.

Surveys show that about a third of Americans think they will someday be rich (with rich being probably in the area of $200k of income.) I haven't found a survey like this just for Minnesota -- I wish we had one -- but I suspect the share of Minnesotans who think they will be rich someday is higher. Better education helps, as does a relatively dynamic economy here. And so there's a tension in Minnesotan public policy; we probably have Scandinavian attitudes towards income inequality, but because we think the shoe will be on the other foot soon, we have an inclination not to go too far in terms of using taxes in the state for redistribution. Bryan Caplan notes (in discussion of Obama and redistribution) "It's not like, 'Look, we're raising your taxes to (more evenly) distribute [income]. We're doing it because we need to raise money.'"

But that doesn't explain really this reluctance to display wealth. Mrs. S (unlike me, a native of Minnesota) has always bought into the idea that the rich don't show it. When I observe on TV someone in a Brooks Brothers suit and say hey, he's rich, she will argue it may just be a middle class person putting on airs. I know at fundraisers I wear suits, and many locals do not. I know I've sat with people in flannel shirts over coffee, and after they leave a mutual friend informs me how well off that person was. Is it the luxury of not having to care for what you wear? Is it embarrassment over one's wealth? Or is it that the income distribution in Minnesota is more fluid, more dynamic, such that wealth comes to people who are not particularly of a certain class? If it's the latter, that cylinder index might be an interesting way to look at the distribution of wealth in Minnesota.

Labels: economics, Minnesota

I am happy to report that I have not had the disaster poor Ed had (or James?) but the weather has caused at least one disaster in our family, albeit a mild one. Littlest is playing basketball for a high school team this year, and to get from a piano lesson to a game eight miles away (according to GPS.) Game is scheduled for 6, we get out of piano at 4:50. Cake, right? Nope; not one, not two, but three accidents block the two paths from one place to another. First one has me skirting through residential streets. Locals can tell you horror stories of CR 134; Monday was mine. Finally navigating towards the school, we see Littlest has the home uniform on, but we're going to a road game. Got to head home. Now we find a guy puts his car in the ditch and tries to drive out onto Highway 15. Ends up stopping two lanes of traffic. James notes "If, after following the instructions in step one, you find yourself in the ditch, stay there. You’ve earned it." Not that chucklehead. A just God would have put his car in the Sauk River.

Get home at 5:20. Still six miles to game. 5:22, accident stops traffic by other major artery going to Sartell (where the game is.) Turn back around, head through another residential development to get around. Success. No, fail -- person driving 20 on a 45 mph road in front of me, only two lanes. Arrive 5:47. Success? She has only to put her shoes on and grab a ball. Maybe she can still play.

Except the game started at 5:45. Nobody told Littlest the game was a 5:45 start (she plays for a high school different than her own.)

She road the pine. But safely.

Labels: Minnesota

Immediately after GMAC became eligible for TARP money, GM reduced to zero the interest rate… on certain models. This, of course, penalizes GM competitors, including Toyota, Honda and other “transplants” whose cars are made in America by Americans for Americans, and Ford, which does not have the freedom of maneuver conferred by TARP money because Ford is not taking any…

Source; h/t: Coyote Blog, who notes "If you pay people trillions of dollars in response to a bad behavior (in this case, credit lenience) then you will just encourage more of that behavior, even if everyone acknowledges it to be a bad behavior."

While we're at it, note what is introduced as Senate File 1 at our own state legislature. I'll provide you a short translation: If Obama sends us money, we're spending it on stuff we like, such as "to promote a green economy." Tax cuts? Fuhgeddabouddit.

Labels: economics, Minnesota

KSTP reports:

There is a push at the State Capitol to make sure Minnesota workers get paid if they take a sick day from work.

The Minnesota Paid Sick Days Coalition along with Sen. Ellen Anderson and Rep. John Lesch will unveil the Healthy Families, Healthy Workplace Act Friday.

Sen. Anderson and Rep. Lesch say sick workers cost employers in lost productivity while also spreading illness in the workplace.

The bill would establish a minimum number of paid sick days and detail how workers can accrue sick days.

The government can better figure out the cost to employers of possible infection from sick employees than can the employers themselves. Right. Gotcha.

A reminder to Sen. Anderson and Rep. Lesch to read their Friedman:

There are four ways in which you can spend money. You can spend your own money on yourself. When you do that, why then you really watch out what you’re doing, and you try to get the most for your money. Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost. Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch! Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government. And that’s close to 40% of our national income.

Labels: DFL legislature, Free Markets, Minnesota

There goes my budget:

Gov. Tim Pawlenty plans to cut money for cities and counties and for human services to make up for a $426 million short-term deficit.

Pawlenty presented his plan Friday afternoon. It includes $110 million in cuts for cities and counties. It will be deducted from the money they were set to get Dec. 26.

...Pawlenty's plan also includes cutting spending for human services by $73 million and taking back $40 million allocated to the University of Minnesota and the Minnesota State Colleges and Universities system.

The Taxpayers League's Phil Krinkie is applauding this decision. The key was to get it out there before the LGA money was to be distributed. You can only unallot monies that haven't been spent, and if you sent out the LGA money on the 26th you would either have to make deeper cuts to human services and higher ed, or impose a quicky tax increase. Besides bad timing, the latter option probably is impractical in such a short period given the lag between passage of a bill and implementation. I will be waiting to see DFL reaction to this, but my expectation is that any commentary will be muted -- their turn comes to deal with the $4.8 billion deficit to be closed for the upcoming biennium, so they'd be better off letting Pawlenty accept the responsibility for this without any cover or criticism.

We're already looking around the university for money not to spend, cutting travel and looking for low-enrollment classes we might be able to cut. I don't know the local effect because I haven't yet heard what the split on that money would be between the U and MnSCU (and whether the latter puts more pain on larger institutions, which has been their wont in the past.) The university has been trying to keep us up-to-date with information. If I learn more that I can share, I'll update this.

UPDATE: Here's the governor's announcement. MnSCU takes a $20 million hit, and the U of M system takes $20 million.

For the remainder of FY09, the reductions represent approximately five percent of the unexpended general fund appropriation for each.

“These reductions present a challenge, but the availability of reserves and unspent state appropriations at these institutions should allow them to respond without dramatic impact on students,” Governor Pawlenty said. The MnSCU system has approximately $70.8 million in reserves across all campuses and about $7 million in central reserves. The University of Minnesota has $15 million in central reserves and $50 million of unspent state appropriations not needed to cover binding obligations.

Most departments excepting police and corrections and military & veterans affairs are going to take a 10% hit. Meanwhile, the legislative leaders have volunteered to chip in $2.2 million of their funds; it expects to spend $80 million according to budget documents.

Labels: legislature, Minnesota, Pawlenty, taxes

The DFL leadership has decide unsurprisingly to blame Republicans for "a significant lack of jobs problem".

When state finance officials released their latest economic forecast last week, they predicted Minnesota will lose another 58,000 jobs by the end of the current recession. 

"We have a significant lack of jobs problem going on in this state," said DFL House Speaker Margaret Anderson Kelliher.

Kelliher has taken note of the numbers and, along with other Democrats, is now stressing a job-creation theme when discussing the state budget deficit. 

During a recent MPR interview, Kelliher said it's time to reexamine the state's economic development efforts. 

"The loss of jobs over the last few years would tell us we're not doing as well as we could," Kelliher said. 

DFL Senate Majority Leader Larry Pogemiller also wants another look at jobs programs. But Pogemiller has already made up his mind about the need for big changes. 

"I think it's pretty clear that our economic development strategy that we're on has been a failure, and I think we need a total revamping of that," Pogemiller said. "And frankly, I think we need some new leadership there."

Pogemiller is specifically targeting the Department of Employment and Economic Development and its commissioner, Dan McElroy, a former Republican state representative from Burnsville. McElroy also served as state finance commissioner and chief of staff to Gov. Tim Pawlenty.

Many states are already approaching the incoming Obama administration for a big stimulus check, which is just shifting the deficit spending from the states to the federal government.  Chris Edwards points out that nationally 7.6% in 2007 and 7.0% in 2008; such money is supposed to be spent on infrastructure for the states, but we've already had taxes imposed by the DFL for more of this, and nationally that level of infrastructure spending is 2.4% of GDP.  About of third of this is coming from state governments, as shown in the last graph in this CBO presentation last May.

As to job creation, Kelliher and Pogemiller seem to be unaware of the difficult national environment in which the Minnesota economy exists.  The state economy has 16.5% of its employment in the goods-producing areas (largely construction and manufacturing, plus some forestry), all of which has taken a beating in recent years.  This is 1.5% more than the national level (as of 2008).  Indeed, in 2008 the decline in goods production in MN has been better than for the country as a whole; the decline in area construction accounts for most of the decline in 2006-07, which does not have roots in the policies of DEED, Governor Pawlenty or anywhere else.  It certainly is not the case that causality runs from Minnesota to the national figures.  It's that the state economy is being dragged along by the national.  

Most of my presentations to local economic groups in the last year have emphasized this particular point:  Forget about the housing issue; track manufacturing.  If it does well nationally, Minnesota will be OK.  If we can get some forestry employment back that's better, but that's likely to come later, when the housing surplus nationally comes off the market.

If you wanted to use state policies to try to move the economy forward in Minnesota, providing for productivity increases in the goods sector -- by allowing capital development to face light taxes, for example -- would be much more productive than scapegoating.

Labels: economics, Minnesota

Next week the local public television station will carry a documentary on "Minnesota's progressive Republican tradition." Joe Kimball says it's a history project.

You wouldn't lump the current state Republican administration into the progressive camp, so they're talking more about the likes of former Govs. Al Quie and Arne Carlson, as well as retiring Congressman Jim Ramstad.

The show, called “Minnesota’s Progressive Republicans,” was co-produced by Growth & Justice -- the economic policy group headed by former Strib and Pioneer Press reporter Dane Smith ...

Al Quie, progressive? I listened to the talks at the Center for the American Experiment surrounding Mitch Pearlstein's new biography of Governor Quie, and I wouldn't have put him in the category of progressive. I guess if you ever supported a tax hike -- even one in a period where the budget deficit dwarfs the news -- you're a 'progressive'.

Not that this is necessary. Mitch mentions a proposal from Senator Geoff Michel and Rep. Laura Brod to privatize the airport. That's hardly progressive; its mother is Margaret Thatcher. The British took in $40 billion from privatizing state industries and council houses; the Japanese, $100 billion for just two state industries (airline and telephone monopolies were sold off.) Michigan, long suffering from overspending in its state budget, has 97 state parks, leading one group to suggest selling a few off. Now who's more progressive? Governor Pawlenty, who has fought for a new state park at Lake Vermillion? (Think he might like to have that $20 million back?)

But G&J seems to equate progressive with tax-raising. I wonder if this is because, when looking at their staff, economists are few and far-between at this "economic policy group".

Labels: Minnesota, politics

My friend Sue Jeffers sends a link to a "progressive idea" -- having more money set aside in case government runs short.

One of the most obvious ways to avoid this situation in the future is by building up a strong budget reserve fund which could make similar situations in the future much less painful to deal with. There are a number of steps I would propose to build a strong reserve fund.

The cash flow fund and the budget reserve fund are set at $350 million and $653 million by law. If the government has more money than that it can either send back rebates or pass a law to spend the extra. Send the money back? Liberals think this is a terrible idea.

So their answer is, while the budget is in bad shape, to increase the cap so that when the Minnesota economy turns around you don't get any more Jesse checks?

I would propose increasing the cap to 15 percent of projected FY revenues, for the 2010-11 year that would be $5,141,896. If we had that kind of reserve fund built up we simply would not have to make dramatic changes in services depending on the economic conditions which is not something that is healthy for our state.

That is, the next $4 billion or so -- I don't know if the writer is counting the cash flow account in her calculation of the cap -- won't go back to you, and won't be spent on anything that might give you some benefit (like, God forbid, an extra lane on I-94 past Rogers!) It would just sit there in an account waiting so that when the next revenue shortfall hits AF$CME and Education Minne$ota don't quake in its boots worried about their salary steps. And just in case that's not enough, this 'progressive' will make sure the beatings continue to at least 2.5% of revenues:

In addition I think we should set a floor for the minimum we should aim to have in our reserve fund. I would propose setting that at 2.5 percent of FY revenues ($856,982 for FY 2010-11). We would not be required to keep it above that but if it fell below that and we had a projected surplus of more then 2.5 of FY revenues then half of that surplus must go into the reserve fund until the floor is reached. It should also be a non-binding policy goal to keep it at the minimum but not legally required.

So get that? It would be just a suggestion. If our 'progressive' wants to spend a few more dollars that drops you below that amount they could do that, but if they give you tax money back? Oh no, you don't!

On top of all that, our 'progressive' thinks if they ask pretty please you would vote a constitutional amendment for a rainy day fund. She thinks you would would be "overwhelmingly in favor of smart budgetary practices," but with the government's budget, not yours.

Labels: legislature, Minnesota, taxes

Gary Gross notes in a letter to the editor today (expanded upon in a blog post) that the state budget shortfall isn't a revenue problem but a spending problem.

In 2007, the first budget that the DFL passed was vetoed by Gov. Tim Pawlenty. Thankfully, the House GOP sustained that veto. The vetoed budget would have increased spending by 17 percent. The budget that we’re operating under represents a 9 percent increase.

...Now Wolden would have us believe that we’ve got a revenue problem. Nonsense. We’ve got a prioritization problem.

I think that's only partly right. There is a revenue problem -- it fluctuates too greatly with changes in state economic activity. I don't know yet of a study that has some measure of elasticity (the change in state revenues per 1% change in gross state product or gross state disposable income) but the last few budget cycles have to make this quite large.

In his 2008 State of the State address, Governor Pawlenty said this tax system is outdated and needs to be fixed. The commission he created at that time should be reporting to governor and a second one to the Legislature next month. There will be a temptation to cast those aside in the rush to fix the present budget shortfall. That would be a mistake; now would be an excellent time to reduce the degree to which revenue fluctuates with the business cycle.

Public choice theory teaches that surpluses seldom are held over for rainy days like our current economy. It's in no elected official's best interest to do so. When the budget generates excess revenue during an economic boom, it's going to be spent. And there's nothing in the budget process that forces legislators to look at the out-year spending ("the tails", as budget wonks say) so that $88 million of the next biennium's deficit is the result of the transportation bill. They knew this in May, dear reader. They didn't even talk about it in October.

We are now on the downward slope of that curve. It would be wise to do something before allowing us back up the hill, because government spending is set by the red line, not the blue. And no, Governor, that's not a hockey analogy.

Labels: DFL legislature, Minnesota, Pawlenty, taxes

Gary Gross, in his canvassing board liveblog says the Minnesota State Canvassing Board has voted to not consider rejected absentee ballots. This was to be expected of course; Gary notes Chief Supreme Court Justice Eric Magnuson saying the board is not an adjudicative body. This was merely a prelude to the court case in which the Franken campaign will seek to get more ballots counted.

But the board decided at the end to provide some guidance to county election officials. In short, if an absentee ballot was rejected without there being a reference to why it was rejected in state statute, it was to be placed in a "fifth pile" (there are four reasons to reject an absentee ballot, listed here.) Itasca County (48-38 Franken) has gone so far as to identify three absentee ballots that appear to be fifth-pilers, and proposes to reconsider them on Monday. Since this appears to be extra-legal, it is possible that one of the two campaigns (hard to say which at this point -- may be in court this weekend to stop that process until a judge decides if state statute permits this. One is entitled to wonder why the three ballots come up now -- wasn't that the process contemplated by the law to happen between Election Day and when counties certified their results to the state? It reminds me of trying to undo the ending of the Pittsburgh-San Diego game a couple weeks ago, not least of which because I had $20 on the Steelers to cover. At some point the end of the game is the end of the game, but some people always think the line is fixed.

For the game here in Minnesota, the decision today means, most likely, we're headed for a second overtime in a courtroom, soon.

Labels: Coleman, elections, Franken, Minnesota

I often refer to St. Cloud as the biggest small town in America.  Everyone knows everyone; I've been on the faculty of the local university for 24 years and been active in public speaking for about the last five.  So it was only natural that when the local economy began to go a little wobbly last winter that I would get calls asking about whether or not we're in a recession.  Long-time readers of this blog know I was reluctant to use that word last winter and spring, but over the summer and into fall I thought all the signs were there except one -- we still hadn't had the drop in employment that we would expect.  True, employment growth was anemic, but you'd expect a recession to be marked by a decline.  If you said we were in recession and someone said, "But Professor, isn't local area employment still up?", I'd have no real reply.  (We would of course have to have the discussion of seasonality of local employment statistics, but even based on that correction you wouldn't have seen it.)  By September, however, we started to get the decline we expected, and last month I said "we are most likely in recession now, but that it did not start until sometime in summer. July, if I have to pin a month. The more severe recessions, like this one probably will be, last about five quarters, putting the end sometime in the fourth quarter of 2009." 

A couple of weeks ago I repeated that line to a local Rotary Club as a breakfast speaker, and word spread.  The local paper's business editor called to ask about it, and I told her I was speaking again yesterday (managed to squeeze this in between fits of laryngitis and dizziness from my early winter cold.)  She and her managing editor came to hear the talk, and the report made it to the front page of this morning's paper.  My phone is ringing now with all other kinds of reporters.  (I understand comments to this effect that I made on WJON last week showed up in a public radio report, but I never heard it, only people saying they heard me -- I haven't spoken to a reporter from MPR or any other public radio station for several months.)

The reaction to my public comments confirms to me what I had felt about using "the R-word" all along:  that there is good reason to be cautious.  Writing for the local area as "the town economist" -- which is weird because there are plenty of others, not least of which is my QBR co-author Rich MacDonald, who's been doing this longer than me -- is only worth my time if in fact people are using this information for their planning at home and at work.  The managing editor, I was told, went back to the Times' office and in a meeting repeated my remarks.  And when he does, it changes how people behave.  Markets are subject to mood swings, after all.  Whether I like it or not, in a smaller market like St. Cloud, what I say about the local economy matters because people respond to the pronouncement.  Never more so, in fact, than in a period of such great uncertainty.  Such an effect is an honor, but humbling and not just a little bit fearful.  (When the RSS feed from the Times listed the entry as "Banaian:  Numbers say area in severe recession"*, I admit to a lump in my throat.  I was truly scared that would be the headline this morning in the print edition.)

I would think most people could have realized we were in a recession now without waiting for someone official to say it.  I suspect for most -- and this is true based on the people who've spoken to me in the last few weeks -- I am only confirming of what they believe to be true.  But that confirmation influences behavior by reducing uncertainty, which can influence planning for investment and hiring.  Which makes my public speaking more cautious.

*--Small correction to that header:  The 'severe' part isn't a numbers thing really; that's more my informed guess.  I think I said that yesterday, but the RSS headline writer obviously wasn't there.

Labels: economics, Minnesota, St. Cloud

Minnesota 2020 is back again, peddling its Made in Minnesota silliness as a recession cure:

Minnesota 2020, a St. Paul think tank, wants local consumers to buy Minnesota-made goods from area businesses and retailers, such as Mr. B. Chocolatier, to boost the state's economy.

"We would actually not be suffering the effects of the recession if people were doing it," said Matt Entenza, founder and chairman of the nonpartisan think tank Minnesota 2020.

If Minnesotans spent 25 percent of their holiday shopping budget on Minnesota-made products, it would infuse $2 billion into the state's economy, according to a 2007 report by the nonprofit.

Along with the story is a picture of chocolates made by a Willmar-based chocolatier which has a store here in St. Cloud.  I can testify the chocolates are great. I can also testify that they aren't cheap -- good chocolates seldom are. Other, larger chocolate manufacturers might learn how to lower transportation costs and permit a chance to buy great chocolates at a lower price. Am I not allowed to have that money as a local consumer?  What if I gave that money to the Salvation Army or United Way?  Or what if I used it to improve my own family's finances, or bought my child a bigger Christmas gift?  Would that be a bad thing? 

As I pointed out last year when they ran this same story, this whole idea of defining who gets our dollars and who does not strikes me at least as an example of mercantilism.  It could be in fact something more insidious, a decision that I should not do business with strangers, or people who live in different states, or people who look different than me (like those suppliers of goods to WalMart.)  It is unlikely to solve a recession for me to spend more for the same good just to be sure someone who doesn't live in Minnesota doesn't get my money.  It's also weird to think that the guy who sells me something for less doesn't deserve my money.

Labels: economics, Minnesota

The StarTribune last week posted a note suggesting that John Lott's analysis (noted here) did not add up. It had entirely different numbers than John's analysis had had. I assumed John had seen it, and indeed he did. It turns out the data included in the StarTribune report held information on two precincts (Richfield W3 P1 and Alexandria W1 P2) that had not reported any presidential results at all. The StarTribune analysis tried to include these data to show that the changes in the Franken-Coleman race and in the Obama-McCain race were comparable. Having established that the Richfield and Alexandria entries were the source of the difference, John writes (reprinted here with his permission):

[M]y piece makes it very clear that I was writing about corrections of typos, not slightly late reported results. The point of these numbers was to measure the corrections made that could possibly have been due to fraud. That does not include counties that simply reported their results very slightly after the time you set as the cut off.

My son, who is working at Fox News this fall, called the auditor of Douglass county, where the Alexandria precinct is located. The auditor said that there had been a network malfunction and so the numbers were not sent until Wednesday morning. The auditor said he thought this change was very different from those that other counties had in correcting typos.

So, the fact is that among precincts that had successfully reported results, Obama gained just 106 votes. Franken gained 435 votes. Those are the relevant numbers for trying to get an idea if any fraud may have occurred.

If you wanted to evaluate something different from what I did, fine, make it clear. But don't accuse someone of getting it wrong and imply that you have no idea where the numbers came from. Explain your reasons for your approach and why it is better. Assuming that you didn't understand what I had written and didn't see that my piece was talking about correcting typos, I suggest that you try to contact me or other authors when that happens.

I trust that you all will now correct your piece.

Nobody believes that zeroes were the right entries for those two precincts for president. But the StarTribune has run a confusing story here with very little thought put into it and in the process allowed some "editor for computer-assisted reporting" to engage Dr. Lott claiming "[h]is numbers are simply wrong." The editors do not come off better for it. I hope John isn't waiting for a correction though. They aren't too good at that sort of thing.

As I stated last week, it's not a question for statistics to answer if three typos are the stuff fraud is made of. To be blunt, we just don't know and you wish you had better reporting. I had one correspondent (who has asked to remain anonymous) reported to me that rural precincts in Saint Louis County faxed rather than called in their results. That would make some sense, as a fax leaves a trail that can be verified. Why isn't this sort of thing being reported? How about if the StarTribune did that rather than passing off interoffice email musings as editorials?

We are expected to take these typos on faith in the good behavior of election officials. Most of them are good people; I know one, and his life this month has been a living hell. I hope that both the Coleman and Franken campaigns can remember to treat those officials as human beings. We invest in an automatic system of reporting in part to not have aspersions cast on these good people. As I told that election official, the one thing you want is assurance that, at the end of the day, we all agree that we got the best count we could get. It would be nice if the media would help.

Labels: elections, Minnesota

One aspect of the creation of a leftist electorate has been the insistence of some legislators on creating environmentally friendly schools. One such leftist is DFLer Jeremy Kalin of North Branch, who is now flying around the country to create green school movements in each state.

Kalin, who has a background in building-design work, was the chief author of last year’s Energy Efficiency and Conservation bill, which set a goal of 1,000 Energy Star-certified and 100 LEED-certified commercial buildings in Minnesota by the end of 2010.

His green credentials caught the attention of the USGBC, which invited him to participate in Fifty for Fifty.

The program will provide state legislators with, among other things, “up-to-date information and developments” in green building trends, cost-benefit studies, and networking opportunities with other legislators around the country.

In Minnesota, green school advocates in the Legislature will work to make sure every new school building is working as efficiently as possible, Kalin said.

But existing schools are also a concern. Many districts throughout the state have antiquated boilers, leaky roofs and windows, and other energy-related flaws. In some cases it might make sense to renovate, but in other cases it might be more economical to build new, Kalin noted.

Kalin notes, alas, that Governor Pawlenty seems to be buying into this nonsense. I wonder how much these programs cost. In Nevada, they had similar requirements but the Legislature voted to repeal them when they realized how much these tax breaks cost. It ended up creating a row in that state. In a period where we may face $3-$4 billion in budget shortfall in Minnesota, should we be giving away money for building these green schools that do not meet the market test? And with them, you will get education programs that promote greenness. Yet construction firms and architects -- beneficiaries of public dollars -- are promoting this. How long before they realize that they are being duped into a program that will end up saying all building is bad unless it is public building of green, smart cities?

(In a related development, Littlest has picked up my copy of The Fountainhead.)

Labels: economics, education, Minnesota

"...and I had more important things to do than re-write it."

Minnesota uses an optical-scan balloting system that makes the entire process more secure. Not only does this allow for voters to catch unusable ballots before they leave as well as to automate the counting process, it removes human error from the vote reporting to county election centers. The counties of Minnesota spent a lot of money on these systems and explicitly selected the modem option for that purpose.

The machines have wireless modems that have to be pre-programmed with a specific IP address to securely transmit those results directly to the election centers. For some reason, the machines had the wrong IP address entered on the cards. The cards would have needed to be reprogrammed to correct the error, and with a few hundred precincts in Hennepin (which includes Minneapolis), that would have taken a significant effort. However, with eleven days to accomplish this, the failure to take corrective action for a national election is mystifying. The source to whom I spoke said that county officials were aware of this by October 23rd in a meeting with elections officials, and possibly earlier.

Why would Hennepin County refuse to correct such a fundamental failure of the elections process eleven days ahead of what everyone expected to be a close Senate race, let alone a presidential election? To answer this, I spoke with Michelle Desjardin, the elections manager for Hennepin County. She said that the county did know of the failure at about October 23rd, but that they didn’t have enough time to reprogram the 860+ memory cards and meet statutory deadlines for public testing — seven days in advance of the elections.

But here’s the strange part. Desjardin confirmed that the electronic transmission system worked in the primaries. The cards did not get reprogrammed, and the destination IP address did not change from the primaries. There was no reason why the transmission cards should have required reprogramming at all. Desjardin acknowledged that the failure of all 860+ machines to connect was a mystery, but that they have higher priority statutory deadlines to meet before they can begin investigating the failure.

Here's a report indicating how much money has been spent on a system that seems to not work, and that isn't getting fixed. The Wall Street Journal's editorial page also weighs in.

The Coleman team is demanding the tapes from the voting machines on election night, and that's the least [Secretary of State Mark] Ritchie can do. The Secretary of State should also investigate miraculous discoveries like the "forgotten" 32 car ballots. (also from Hennepin County --kb) He needs to show voters, the press and the Coleman team that he's running a transparent process that focuses on previously counted votes, rather than changing the rules after the election is over.

Indeed.

Labels: Coleman, elections, Franken, Minnesota

We have heard so much about the impact of young voters on the margins Barack Obama earned in winning election last week. Less heard is their impact on down-ticket races. Take for example school levies.

Students at three colleges and universities helped St. Cloud school district prevail in an effort to pass a property tax increase that will provide $5.9 million a year for the schools.

Supporters and volunteers working to pass the vote emphasized the campuses by targeting students who might be enthused to vote in the presidential race.

When the votes were counted, students in five of what are considered college precincts near or at St. Cloud State University, the College of St. Benedict in St. Joseph and St. John’s University in Collegeville racked up margins that made the difference.

“They were huge. We looked at the three area colleges associated with the students that really proved to be the margin of victory,” said Barclay Carriar, who was one of three people who led the volunteer effort to pass the vote.

The five precincts included those with polling places at St. Cloud State, City Hall, Southside Boys & Girls Club, Kennedy Community School in St. Joseph and Sexton Commons at St. John’s in Collegeville Township. Those precincts supported question 1 by 3,663 to 1,381 — a 2,282-vote margin. Question 1 was decided by 2,122 votes (24,299 to 22,177).

The margins in the five college precincts were wider than any of the other 66 precincts in the district, even those in neighborhoods of elementary schools.

A table was set up inside our classroom and office building to "provide information" about the levy. I believe one of the school board candidates was at that table. Dave Aeikens, the author of the article above, interviewed someone at that table.

Students do not pay the property tax (certainly not in dorms at SCSU, and any tax built into apartment rents is returned to them by our state's renters property tax rebate system.) Of 600+ graduates of my department over the last fifteen years, less than a hundred still live in St. Cloud. So most of them are voting to raise taxes on someone else. As a school with a large school of education, those students could even have been seen as voting to fund future employment. The number paying zero will grow under an Obama Administration.

Labels: education, Minnesota, St. Cloud, taxes

I would like to believe this story isn't true, but school officials are backing a student she was assaulted election night for wearing a McCain-Palin button.

An Augsburg College student says she was assaulted on campus on election night and was called a racist by four young women because she was wearing a McCain-Palin button.

Annie Grossmann says she suffered blurred vision and may have had a concussion from a punch in the eye, but she declined medical attention.

Grossmann says she had been watching the returns with a handful of fellow Republicans, and was attacked while walking back to her dorm.

The school says it's unlikely Grossman's assailants were students (after all, their diversity statement says they are "promoting cross-cultural learning and understanding so that we at Augsburg grow in our capacity to create a hospitable learning community"), but "they have no reason to doubt" the attack. An SCSU student told me he "was afraid my car was gonna be vandalized with the [McCain] sticker on it." Luckily, he drives a beater "on its last legs".

Labels: higher education, Minnesota

It appears to me, and I think as well to John Hinderaker (see bottom of Scott's post) that there may have been three typos, or two typos and an example of the old children's game 'Telephone', that accounts for most of the decline in the vote margin for Norm Coleman. The graph to the left shows the declines. You see three distinct drops. Based on the data I have by precinct (three snapshots, taken Weds morning, Sunday afternoon and last night), I see three major changes.

1. The Two Harbors Ward 1 dispute (that John Lott brought up yesterday) appears to be an input error. The total Franken votes was initially entered as 27 and then updated to 273, a difference of 246. Seems quite possible someone simply forgot to put that '3' at the end. That's the first drop down that you see in the above graph. Given the number of votes and distribution in other races, that seems quite plausible if you assume the input of data is human.
2. John reports that he thinks the 200 votes added because of typos in Partridge Township and Mountain Iron are simply typos. Probably so. In Partridge Twp a leading 1 for 129 was dropped. In Mountain Iron, we're told someone called in a Franken total of 506 but on the other side of the conversation at the county office it was heard to be 406. As John says, nobody seems to be disputing those stories from the Coleman campaign.

If those are three mistakes, then what's the odds three mistakes all go Franken's way? Assuming the odds of a mistake are 50-50, the answer is .125 or 7 to 1. I'm not inclined to call that statistically imponderable.

There is a legitimate question that Scott Johnson asks this morning, which is the admission of a more human element in reporting results than was anticipated. There is supposed to be a secure, automated transmission of results that failed in this case. Secure data transmissions would have prevented these typos or relay errors. In a narrow election, as SOS Mark Ritchie should now understand, these types of mistakes, even though relatively rare and most likely innocent, still give rise to the possibility of misunderstanding and claims of electoral mischievousness. The reason you have these things automated is to avoid blaming "exhausted election officials." If the system wasn't working before the election, didn't someone have the obligation to make it right before the biggest election in Ritchie's term?

There are other errors that need clarification as well, including the ballots in a HennCo official's car, or some other changes (I still haven't seen a good account of the Coon Rapids W2P1 revisions for example; though they are reductions across the board, the net effect is a 34 vote reduction in Coleman's margin; there were also key errors in Brooklyn Park P5 netting 30 to Franken and 25 for Franken in St. Paul W3P3.) But I think for the most part it behooves those who support Coleman to turn away from the larger errors as being a source of the problem and focus on ballot security and answering the qui custodiet custodiens problem that's about to face them. (For one thing, who chooses the canvassing board that will hear the disputed ballot arguments?)

UPDATE: While I was writing, so was Ed:

I spoke directly with this election judge, who elaborated on this information. The county actually knew about the failure four days in advance. The election judges alerted the county to the problem, but they declined to reprogram the cards with the proper IP address. Election judges have to go through training on how to use these machines, and one can understand the frustration this person had at being told to just forget it all.

One point should be emphasized. The ballots got conveyed to the county facilities by one person. Before the advent of electronic transmission, ballots were almost always guarded by two people to avoid the appearance (and the reality) of ballot tampering. In fact, that’s the reason why states and counties went to electronic transmission of ballot counts — to keep human hands off of the tallies as much as possible.

Hennepin County issued no written instructions for the processing of ballots in the failure of electronic transmission. It looked to this judge like they simply made up the process as they went along. That failure is itself unconscionable. The county should have already had a back-up plan, and certainly should have had a written process for safeguarding ballots and results within the four days that they knew of the programming failure, especially if they weren’t prepared to reprogram the precinct machines — which the election judge told me would have been a simple thing to do, and easily accomplished in the four-day window.

Regardless of the outcome of this election, the Ritchie Secretary of State's office has been shown to be careless in assuring clean elections, which was the centerpiece of his campaign in 2006. Ed is calling the Ritchie office for comments. I believe this is not just the case in HennCo. The Moountain Iron case, while perhaps innocent of malfeasance, also admitted of human error when a tape was available for transmission:

Officials say the Mountain Iron voting discrepancies may have occurred on election night, when city election officials called in the results to the St. Louis County seat in Duluth. Because St. Louis County covers more than 7,000 square miles and some precincts are three hours away from the county seat, the county allows local election officials to call in unofficial results ahead of official tallies.

Why? Could not the optical scanners in Mountain Iron have sent that data by modem?

Labels: elections, Minnesota

...on the recount is Nate Silver. Key observation:

If, for instance, 25,000 votes or about 0.9 percent of the total are reclassified during the recount, than Franken's odds of winning are only about 7 percent. If only 0.5 percent of the total vote is reclassified, then his odds of winning are not much more than 2 percent.

Silver argues for why more of the misclassified votes should go to Franken than Coleman (he assumes in the above that misclassified votes are equally likely to be Franken and Coleman.) Maybe so, maybe not. But the thing to remember is that .9% would mean that nearly every ballot that had no Senate vote recorded had some way of knowing voter intent. (Plus you'd have to add machine error, a rate which is very, very small. In 2006 a Supreme Court primary recount found only 0.02% of ballots uncounted. That only changed 7 votes out of over 400,000.) He notes:

In Minnesota, the vast majority of counties have such precinct scanning systems, but they may be applied inconsistently -- it appears that in most precincts, for instance, the machines were programmed to alert the voter to an overvote, but not to an undervote. If a precinct scan check is not applied, or the poll worker is too busy or distracted to alert the voter, error rates using optical scanning systems be at least twice as high.

That is my experience, since I usually do not vote the judicial races when there is no challenger to the incumbent (or when I have no knowledge of any of the candidates.) I've never had the machine flag an undervote. I have seen it flag the overvote.

Labels: elections, Minnesota

John Lott writes today about the Minnesota "pre-count".

This all has occurred even though there hasn’t even yet been a recount. Just local election officials correcting claimed typos in how the numbers were reported. Counties will certify their results today, and their final results will be sent to the secretary of state by Friday. The actual recount won’t even start until November 19.

Correcting these typos was claimed to add 435 votes to Franken and take 69 votes from Coleman. Corrections were posted in other races, but they were only a fraction of those for the Senate. The Senate gains for Franken were 2.5 times the gain for Obama in the presidential race count, 2.9 times the total gain that Democrats got across all Minnesota congressional races, and 5 times the net loss that Democrats suffered for all state House races.

Virtually all of Franken’s new votes came from just three out of 4130 precincts, and almost half the gain (246 votes) occurred in one precinct -- Two Harbors, a small town north of Duluth along Lake Superior -- a heavily Democratic precinct where Obama received 64 percent of the vote. None of the other races had any changes in their vote totals in that precinct.

The Two Harbors point is new to me, and I'm seeking clarification from Lott. So too is the relative size of the gains and losses. Political Animal tweets an update: "Coleman has lost 65 votes; Franken has gained 456 votes and Barkley had gained 82 votes since Wednesday; my guess is that the difference is those 32 votes in the Hennepin County car. It may be that the Senate data is getting closer scrutiny (which reduces some of your faith in other results, yes?) and we again should note that there are basically two typos and a misreport that account for most of this gain. Typos are not subject to statistical analysis; most of my post on Friday regards the one or two vote changes we see. An error in the hundreds place is one random change, not one hundred changes. Still, they are rather large errors.

Indeed, the 504 total new votes for Franken from all the precincts is greater than adding together all the changes for all the precincts in the entire state for the presidential, congressional, and state house races combined (a sum of 482). It was also true that precincts that gave Obama a larger percentage of the vote were statistically more likely to make a correction that helped Franken.

Curiouser and curiouser. Just got another change, putting Coleman at +238. This is becoming like New England weather -- if you don't like the vote count, wait a minute! (Oddly, the SOS website doesn't seem to have that number.) Crap, read the time but not the date, that was last Friday. My mistake, sorry.

People are guarding the ballots now in a volunteer effort (Mrs. S has volunteered, though the Stearns County ballots appear to be secured.) One election official I spoke to called this the longest week of his life; he's going to have a few more.

Lott also says this about voter intent:

Voters themselves insert their ballot into the machine that reads and records their votes, and if the machine finds that a vote isn’t recorded, voters can either mark the race that they forgot to mark or didn’t mark clearly. Or if voters “overvoted” and accidentally marked too many candidates, voters can also get a fresh ballot. There should be no role to divine voters’ intentions. If a voter wanted a vote recorded for a particular race, the machine tells him whether his vote in all the races was counted.

The law now allows for manual recount, which sounds great but allows for those squinting eyes "divining voter intent".

UPDATE: Ironman has a new tool, useful when we get to the recount process.

Now we can ask something about those absentee ballots. Using the numbers above I'm going to surmise that of the 32 absentee ballots found under some HennCo worker's McDonalds' wrappers, 21 went for Franken and four for Coleman (using the difference between John's numbers and the update.) Franken took just about half of the votes in the county. What are the odds that a batch of ballots drawn randomly -- or rather, sitting randomly in someone's car for a several day joy-ride -- are of the same type as the rest of the county? About 2.5%. More interesting, what are the odds that there would be only four Coleman votes in the batch of 32? About 0.3%. Curiouser and curiouser.

Labels: elections, Minnesota

...about the effect of the smoking ban on charitable gambling.

Most pull tabs are sold in bars, and a Minnesota Gambling Control Board study released in March showed gross receipts for lawful gambling decreased more than $40 million in the last three months of 2007 compared to the same period a
year earlier. The ban took effect Oct. 1, 2007.

Updated data through the first seven months of 2008 show gross receipts down 13.7 percent, according to the gambling board. Ultimately, that could amount to a decrease of $95 million to $105 million a year, according to a March 31 Star Tribune news report.

She asks whether it was the intent of smoking ban proponents to starve the charities, and if not what should be done.

Labels: economics, Minnesota

In a comment on Janet's post, Ironman points out a statistical study of the King County recount and its effect on the gubernatorial race in Washington, where we saw a recount reverse a previously announced result. Ironman provides a calculator to test the results of this change from the recount which, it is argued, is just a resampling of the ballots. (Indeed, there's a test audit being done of the Coleman-Franken vote already, using 202 of the more than 4000 precincts in the state, which is simply part of the state's quality control.) The error rate on machine read ballots is reported to be about 0.2%, or two in a thousand. That's why we recount with a margin under 0.5%.

The calculator works for a binomial distribution. What complicates this is the presence of Dean Barkley as a holder of 15% of the ballots that are being sampled. So it's drawing from a bag with three different colored balls, not two different colors. (I'm sure there were third-party candidates in the Gregoire Rossi '04 race, but I doubt it would have made much difference.) If you assume no change in the Barkley votes, however, you still get a less than .005% chance that a recount would flip this election to Franken, even with that .2% error rate. If the erroroneous ballots are random and the population of ballots are divided roughly fifty-fifty, the probability is like flipping a coin say 5800 times and getting 236 more heads than tails. As you flip the coin more, the probability converges on 0.5 quite quickly. But again, that makes some assumptions about the distribution of the errors regarding the inclusion of Barkley, and to be blunt I'm not a good enough statistician to think that part through. Ironman, back to work!

And to the rest of you, spreadsheets please if you have running totals for any county. You can potentially look for the problems with recounting that with a good formula and those sheets.

Labels: Coleman, economics, Franken, Minnesota

We noticed on the air last night that in both CD3 and CD6, the Independence Party candidates were doing better than expected. Bob Collins argues that this helps Republicans. Interestingly, however, the final StarTribune exit polling shows that an even percentage would have voted for Franken or Coleman had Barkley not run in the race. (I don't think that asks the right question, because there would have been a different IP candidate had Barkley not run. The question seems to suppose no IP candidate.) Barkley voters supported Obama 52-39; 14% of Coleman voters voted for the President-elect.

Collins also notes that there were perhaps 25,000 voters who simply did not vote that race. Like commenters, I'm surprised there are not more undervotes. That's the kind of stuff that gave us hanging chads. The recount battle will be grist for the Final Word mill for the next few weeks.

Labels: Coleman, Franken, Minnesota, politics

At the national level at least, most pollsters who projected the large Obama turnout were correct. In Minnesota, where we were told to expect 80% turnout, the current statistics are for 77.8%. Remember that in MN, that number includes first-time voters and those registering at the polling stations as having moved from previous districts. There were over half a million such folks yesterday. I do not know a single person that did not vote yesterday, despite many saying their early visits to the precincts were greeted with much longer-than-normal wait times. (I did not wait at all voting at 8:45AM.)

I think pollsters had the Bachmann-Tinklenberg race about right. Probably a little too pessimistic on Erik Paulsen, whose race ought to be a lesson to most people that walking and knocking on every door in your district still works. As to the Coleman-Franken race, that race was probably tighter than most expected. Given the national trends on Senate versus House, I see the possible storyline being that Obama's vaunted turnout machine did exactly what was advertised -- in heavily Democratic districts, they turned out their voters in larger numbers than in the past. I'll work up a spreadsheet on that for MN in a day or two.

And as commenters noted correctly, the whole Bradley effect discussion turned out to be completely wrong. President-elect Obama did not over-poll.

Labels: elections, Minnesota

My friend Tony Garcia and I have been watching this contract on InTrade with fascination today, and tonight I'm practically watching every trade.

For the technical broker side of me, here is a little more analysis on the MN Senate Contract. For Franken the first price floor is at 48.0 with an almost equally strong ceiling at 55.0. Going below 46.0 would take an increase in volume of almost 400%. For Coleman the strong price floor is at 47.0 but would only take less than a 200% increase in today's volume to reach that. There equilibrium in volume on the price ceiling is at 85.0. This all means that there is not much confidence in either of them losing, there is some resistance to the idea that Franken will run away with the race while there is not similar resistance to the possibility that Coleman can win early. So, the only thing that will be worth staying up for tomorrow night (the only suspense) will be the MN Senate race and the MO President race. MO is important only because it has gone to the winner in each
election since 1960 (12 in a row).

Tony and I read the InTrade results as being very pro-Obama, unlike the latest reports from Fox's Carl Cameron.  The Missouri contract has strongly moved towards McCain lately, which might account for the deployment of Palin to the state today.

Worth noting:  there's no action on Barkley.  It's a two-person race, and voting for Dean is as if you didn't vote at all in that race.  Exit question (to borrow an Allahpundit bit):  Has the loss of many US traders due to UIGEA caused InTrade to be less predictive?  Chris Masse is instructive:  Don't oversell. 

Labels: Coleman, economics, elections, Franken, Minnesota

(h/t: Michael)

The SCSU Survey, directed by some of our faculty but managed by SCSU students, reports that Barack Obama leads John McCain in the state by five percent. The poll had 509 voters. SC Times reported Larry Schumacher reports that the poll included cell phones (the report says 130) for the first time, but that they did not screen for registered or likely voters "because of Minnesota’s same-day voter registration laws."  The report shows that there's little difference in either margin when you use a registered screen, voted in 2006 screen, etc.  Read the survey for the evidence.  I find that result -- the screen didn't matter -- the most interesting part of the survey.

Interestingly, the party ID questions showed initially a 30-24 split for Democrats with 37 percent not identifying with either party.  When pushed by the surveyer, the party ID gap for Democrats widens to 42-34.  

The survey's margin of error at this size is +/- 4.6%.

I know one of the survey directors, Department of Political Science chair Prof. Steve Frank, reads this blog from time to time, so questions you put here may be answered by him rather than me.  

Labels: Coleman, Franken, McCain, Minnesota, Obama, politics

I wrote to Renee Zeman, chairman of the College Republicans at St. Kate's, where a scheduled speech by Bay Buchanan was prevented from speaking.  It was her group that gave the invitation to Buchanan that its administration quashed.  The StarTribune poll at the time I'm writing this indicates that 55% believe that Buchanan should have been allowed to speak because "colleges must be open to exposing students to a range of thought."  Zeman agrees.  Here are my questions (in italics) and her answers:

1. What did you hope to learn from Bay Buchanan's lecture? 
  The opportunity to hear Bay speak would have been a great motivator not only for me but for all of the students that would've gotten to hear her. It is always a challenge to get youth excited and passionate about elections and about politics in general that I think she would've been someone who could put a lot of enthusiasm into the college community. Besides that, she's a woman right out of the history books. The opportuntiy to hear from anyone that has had a prominent role in the white house would be a very educational and valuable lecture.

2. Do you support the administration's position that there should not be partisan speech during the election campaign? Why or why not?
  It doesn't make sense to me that a college is trying to ban political speech during an election year. I always thought college was when you were supposed to develop your ideas and opinons based off of educated and inteligent points of view. Why on earth a college would ban partisan speech does not make any sense to me. I don't see other colleges doing it, I don't know why St. Kate's feels that they have to. I guess i should add that if the administration is actually trying to ban political speech from campus they should try stepping into a classroom and listen to the professors "not be political". It's also completely contradicting to what they have literally shoved down our throats since I have been there. I had to take a whole course my freshman year about being a strong, active, intelligent, reflective woman. Now by their actions they are telling us what we can and cannot listen to on campus. I wouldn't even mind if they brought some speakers from the other side to campus to talk. It's all about getting an education and learning what it is exactly that you believe in.

3. What did you believe were your free speech rights when you came to St. Kate's? Was there any indication during your recruitment to the school that academic freedom was subject to restrictions due to St. Kate's Catholic basis?
   There have been a lot of thing about St. Kate's that I wasn't expecting since I was recruited. It's like they have a whole different idea of what being a Catholic school is. St. Thomas is practically a brother school to St. Kate's and is just as much, (I'd say probably more) Catholic than St. Kate's is. They don't seem to have a problem letting partisan speakers on campus. Niether do the rest of the colleges around the Twin Cities. 

I note that the new St. Kate's spin is that it also barred Hillary Clinton and Al Franken from speaking. This is wrong as well and inconsistent with a university's mission and statements about academic freedom and its encouragement to become, as Renee puts it, "a strong, active, intelligent, reflective woman."  Students should be exposed to all views, not hidden from them in a vain attempt to provide "balance".  High school seniors who are beginning their search for a college should investigate the actions of their prospective schools, as well as their words.

Labels: higher education, Minnesota

A local party organization endorses a candidate.  That candidate has some ethical baggage on him, enough that others suggest they'd rather have someone else be the party's nominee.  That person respects the endorsement and does not run for the office, but the efforts of others put her ahead of the ethically-burdened endorsee in the primary.  

Now, in most cases that would be it, wouldn't it?  You would think the party leaders who endorsed the loser would be rather chagrined that their choice lost to someone who didn't run a campaign.  And you would think they'd tell the loser it's the people's will, and thanks for the memories.  When said loser decides he wants to run a write-in campaign, you would think they'd whisper to him this was a bad idea, wouldn't you?  

Not if you're the SD 16 Republican BPOU.  If you're them, you endorse the loser.  As a write-in.  Against the Republican.

Can someone from the MNGOP explain to me how a BPOU can even hold an endorsement convention after a primary has already taken place?  I would like to know if this has ever happened before.  (Brodkorb, I'm looking at you.  You always know this trivia.)

Labels: Minnesota, politics

A local electrician's union is suggesting that it will only support a school levy in St. Cloud if the school district promises prevailing wages on its construction sites:

At a meeting of labor leaders Thursday, St. Cloud school levy campaign volunteer Pat Welter was told St. Cloud schools might get more support for a proposed property tax increase if the school district committed to paying prevailing wages for school building projects.

The labor leaders said electricians are having trouble finding work.

It wasn’t a deal Welter was in a position to make, but it exemplifies the difficult climate supporters of a proposed $10.25 million property tax increase are confronting.

The higher wages that the electricians demand price out the younger workers, those who are gaining experience. The proposal says, we will support you if you will help take dollars from taxpayers and give them to our membership. Who wouldn't like that deal? That which robs Peter to pay Paul...

Labels: Minnesota, St. Cloud, unions

Should local governments spend more in an economic downturn? Yes, says economist William Melton and Twin Cities area mayors.

Now is the time for cities to invest. If they have buffer funds, they should get ready to draw from them and spend as a way to protect assets and stimulate the local economy. If they have no reserves, well, the federal government should supply a brief spurt of aid, he said, adding: "There will be enormous budget pressures."

Mayors already know that part. Minnetonka's Jan Callison wanted clarification: "So this is a good time to spend, and that means raising taxes or spending reserves, if you have reserves?"

Upping taxes on citizens whose savings have been decimated in recent weeks may be an impossible sell, Melton and the mayors agreed, but investing is still important. Bloomington's Gene Winstead made the point that his city — and other inner suburbs — enjoyed a big growth spurt in the 1950s and '60s. The problem now is that lots of infrastructure is aging at the same time.

"You're going to see us dipping back into reserve funds," he said. "We think a steady course is needed. It's important not to fall behind on maintenance. We'd rather not defer; we'd like to continue to pay as we go."

Edina's Jim Hovland agreed, even suggesting the option of borrowing through use of a bond issue. For cities with good credit, as Edina has, borrowing can be an incredible bargain just now, he said.

How wrong is this? Let me count the ways:

1. A buffer fund is for smoothing spending through a cyclical downturn in tax receipts or intergovernmental transfers ('round these parts we call that LGA). This is very likely to happen in the next budget cycle. At some point assessed values will have to be marked to market, and raising mill rates to compensate will be difficult for city councils. That's what you have a buffer fund for, not to accelerate spending.
2. Note the words "impossible sell". Does this mean that if they could find a way to sell it, they would? We already have a presidential candidate contemplating tax increases in a recession. Can't see why we'd want the mayors to join in the frivolity.
3. Cities must balance their budgets since they can't print money. Borrowing means increased debt service costs immediately and the overhang of repayment later. This removes an incentive for private citizens to borrow and invest, since their future after-tax returns on investment will be lowered by local government borrowing.
4. Increased local government spending is only helpful to the extent the money is spent locally. Money given to new city employees will often be spent outside the city -- there is a leakage. Some employees in suburban cities will not live in those cities but in nearby ones. How exactly do we imagine this will help, then?

All around, a bad idea.

Labels: Minnesota, taxes

I will be with Minnesotans for Employee Freedom at 1pm at the State Capitol.  We hope that Mssrs. Franken and Melendez will join us.  It will not be nearly so much fun without you fellows!

Labels: Minnesota, unions

The nation's financial crisis hit home for Minnesota colleges and universities this week when an investment fund used by several to pay short-term expenses said it would close and cut off nearly all access to cash.

The move prompted David Laird, president of the Minnesota Private College Council, to warn the state's congressional delegation Monday that some of the group's 17 members would not be able to make payroll Tuesday.

Source. The money was with a fund operated by Wachovia Bank, who restricted withdrawals on Monday. Those who yearn for the no-Fed days will note that this was a common practice of banks at that time.

News of the Short Term Fund's demise this week made Mike Sullivan, chief investment officer at the University of St. Thomas, feel like he had dodged a $40 million bullet.

That's the amount of St. Thomas' money he had tied up in the Short Term Fund until about 1 1/2 weeks ago when some troubling signs convinced him it was time to move the money into Treasury bills.

"It was a hunch I played, an absolute hunch," Sullivan said. "That's money we will be using over the next two to three months. That is money we'll be using to make payroll, pay bills ... This is a very, very big deal in higher education right now. What are colleges going to do to make payroll?"

...While St. Thomas dodged the Commonfund bullet, Sullivan's not sure he'll always be so lucky. The credit crisis has become so pervasive, it's hard to tell where money will be safe.

"I am almost prepared for something out there in this liquidity crisis and confidence crisis to go against us," he said. "There is just so much happening out there."

None of the MnSCU schools are reported to have been in this fund, so SCSU readers should relax.

Labels: economics, Minnesota

Tom Petters is a St. Cloud guy, owns a holding company that includes Sun Country, Polaroid, and the remainder of Fingerhut (at one time St. Cloud's largest private employer before Petters bought it.) He appears to be in some trouble.

Late Friday afternoon the federal government revealed what FBI, IRS and other federal agents were looking for Wednesday when they raided the Petters Group headquarters and Tom Petters' home.

They were seeking evidence of a scheme to lure investors into funding a company based on tens of millions of dollars in purchases and sales that never occurred.

MPR has a copy of the warrant, and includes these details:

The primary method of effectuating the fraud scheme involves PETTERS, his employees, and his associates creating fictitious documents and then providing these documents to potential investors as evidence that PCI is buying and selling substantial goods and merchandise which PCI will then resell. In many instances funds from investors are sent directly to the purported supplier of the merchandise, NIR or ENCHANTED {companies controlled by Petters --kb}. In turn, NIR or ENCHANTED direct the funds to PCI (less a commission) without any merchandise. PETTERS and other persons then fraudulently pledge the non-existent goods and merchandise as security for the investments.

Sun Country says it will continue to operate as usual.

Petters is well known in the area as a philanthropist who recently gave $8.3 million to a fundraising campaign recently completed at the College of St. Benedict (and $3 million some years ago.) CSB has an auditorium named after him and a center for global education. He has always dressed as a successful guy who came up from humble roots here. I gauge local community reaction here as varying degrees of shocked. They have a cooperating witness in the case who was involved in the scheme, who appears to have worn a recording device in meetings with Petters, so it looks bad. But many here will hope this turns out not to be true.

Labels: Minnesota, St. Cloud

Today, Laurie Coleman (U.S. Senator Norm Coleman's wife) stopped by to visit some of our friends and neighbors. I've met Laurie before, heard her talk but it's something special when politicians (or their spouses) come to your home. She discussed raising kids in a family where dad is dedicated to public service. Tips: when little, keep the kids from seeing the trash the opposition throws at their dad; hide the papers; turn off the television. As they got older, Laurie worked with them to help them deal with opponents who know no bounds on attacking you, your family, etc.

She talked about this campaign in particular - anyone following the current US Senate campaign has seen some of the horrible attacks on Norm Coleman and it is expected to get worse, a lot worse. The Democrats have set aside over $6,000,000 to attack Norm. Then she took questions.

Sometimes you wonder if these kind of events are valuable. They are - some attendees were not sure about voting for Norm. After hearing Laurie today, they realized, "Hey, these people are like us. I'll support Norm."

I've watched Norm in small groups over the past few weeks. He really cares about Minnesotans, values, the US, kids, education, and MN history. I have my problems with some of his positions, and I call his office to voice my concerns. But the bottom line is this: he's no millionaire, he did not marry money, he works hard, and yes, he does care.

Continuing disclosure: As I have noted in the past, I am the elected Chair of Minnesota's Second Congressional District Republicans, a volunteer position in Congressman John Kline's district.

Labels: Coleman, Minnesota

The Wall Street Journal reports:

Federal prosecutors have opened separate criminal probes into possible price-fixing by major egg producers and California tomato processors, the latest in a series of U.S. investigations of alleged collusion in food and agriculture.

The investigations, which have not been previously reported, add to concerns that beyond the rising cost of fuel and feed, a hidden factor may be driving food prices higher: collusion among farmers, food processors or exporters.

...The Justice Department wouldn't disclose how it believes processors manipulated the prices of egg products. There's no indication that the department is looking into the larger market for fresh eggs, where prices have increased more than 40% in a year.

But producers of fresh eggs have coordinated their efforts to raise prices, according to industry participants and a Wall Street Journal review of industry documents.

Fresh-egg farmers acted together through a series of export shipments, organized by United Egg Producers, an industry cartel whose 250-plus members include virtually all of the nation's big egg producers. By removing a small fraction of eggs that would have been bound for U.S. sales and arranging instead for their export, United Egg helped tighten domestic supply and drive up the price of eggs across the country, according to newsletters and other documents that United Egg sent to its members.

After three years without significant exports, United Egg shipped nearly 100 container loads, or 24 million dozen fresh eggs, to Europe and the Middle East at the end of 2006 and early 2007, industry participants say. Each member was required to provide a share of the sale, prorated by flock size. The orders were sold at below the prevailing U.S. price for fresh eggs, United Egg said.

Two Minnesota producers are included in the investigation.

Golden Oval Eggs and Michael Foods — noted in filings with the SEC this spring that they had been subpoenaed by the U.S. Attorney’s Office in the Eastern District of Pennsylvania.

The subpoenas requested documents for the period between Jan. 1, 2002 through March 27, 2008 relating “primarily to the pricing, marketing, and sales of our egg products,” both companies wrote in their 10-Q filings.

Farmers have always had scope to engage in coordination of marketing through a series of antitrust exemptions. Interesting that the Bush Administration is choosing to test how far those exemptions go.

Labels: economics, food, Minnesota