I had some private conversations with people on both sides of the ideological spectrum here after the per-diem debate, and at that time I suggested getting the problem solved by some changes in how legislative salaries are set. Current law says you can fix salaries for the upcoming session, but not your current salaries. As a result there was pressure to increase per diems as back-door salary increases.

So what does our senator Tarryl Clark propose? The worst of both worlds:

Lawmakers could vote next week to ask Minnesota voters to take the job of setting their salaries out of their own hands.

However, they will likely keep the power to increase their per diem and other forms of reimbursements where they now sit — with committees of their senior members.

...If approved, HF 3796/SF 3793 would give the job of setting legislative and executive salaries to the state’s Compensation Council, which now only makes recommendations.

The bills originally would have given the council — which consists of 16 citizens appointed by legislators, judges and Gov. Tim Pawlenty — the power to determine legislators’ daily reimbursement rates for food and other expenses, known as per diem.

But members of the Senate and House Rules and Administration committees, who now set those rates, amended the bills to retain that power.

“The problem isn’t per diem. The problem is salary,” said Clark, who saw her bill through the Senate committee Thursday. She is the committee’s vice-chairwoman. “I believe if compensation changes, per diem will be modified downward.”

No, no, no. First of all, Clark is saying "hey, give us a salary increase and then we'll see if we can reduce those per diem. Trust us." But you obviously don't think we trust you because you could have voted salary increases yourself before. Your rules committees have proven their distrust of the system by not putting per diem rates in the hands of the Compensation Council, which has the power and the knowledge to do this. Under this bill, the Legislature could still compensate itself through per diems if it didn't like what the Compensation Council came up with. It changes no incentives and abdicates responsibility for choosing one's own salary.

I wish she was running this year. "The problem isn't per diem" is a great line when used by someone who gets $96 a day. I'd love a chance to ask her how she spends hers. You really want me to trust you to reduce that once you get your salary?

And notice, she got it not just for the days the legislature is in session, but for all the committee meeting days she took away from the capitol.

Meanwhile, last Friday oral arguments were heard in the case of Citizens for the Rule of Law's suit that we discussed last February. The AG's office is arguing that only it can bring a case against the legislature and that citizens do not have standing to file the suit. That motion should be ruled upon sometime this summer.

Here's the simple solution: Move both salaries and per diems to the Council, and cap the number of days on which per diems are paid to, say, the number of legislative days plus twenty, or some such. The symbolism of the cap would do wonders.

Labels: legislature, Minnesota

I appreciated LL's coverage of the floor debate of HF3149, which passed with an 80-52 vote, including five DFL legislators opposed. The bill, the darling of Tax Committee chair Ann Lenczewski, completely upends the basis of a property tax, in a state where we rank about in the middle of property tax collections.

There is debate whether the Revenue Department's testimony, mentioned by the Taxpayers League, that 69% of taxpayers would see a net tax increase under this formula (because they would lose the ability to deduct state property taxes from their state income tax, which for some will cost more than the property tax relief advertised). I do not find anything on Revenue's website with the 69% number, and if someone wants to point me to that analysis I would eagerly read it. It doesn't sound implausible, however. The state income tax has always been set to tax relatively lightly the "perfect MN family", with a mortgage, kids in school or day care, etc. Single renters making more than $35,000, I've always thought, don't get treated so well. As I mentioned when I filled out #1's taxes last month, if you don't have itemized deductions in Minnesota, you tend to pay in at fairly low income levels.

There's also the removal of the circuit breaker on local property tax increases. Part of the property tax refund that HF 3149 repeals is to shield homeowners from sudden increases in property taxes from, say, new levies passed by local government. But you still had to pay some (I make it as 64% of a property tax increase stays with you, the state refunding the remainder. The House Research analysis makes no mention of the income tax recapture.) That 64% is enough to keep some people from voting for your new local project, which makes local governments unhappy. Now, however, if you end up with taxes greater than 2% of your income because of a levy, every last dollar is relieved from your property tax: It is paid by the state out of its income and sales tax revenues. It is an attempt to tear down the barrier to greater government spending -- the Truth in Taxation statement that tells you "vote for this, and your taxes go up." The DFL, along with the LGA booty it distributes under this bill, takes a brake off of local spending.

But the truly most bizarre portion of this thing is the premise Lenczewski is using for the bill, that your property tax depends on your income. Why do we tax property, anyway? Property provides us with a stream of income, much of which is not realized. My recuperation from surgery this week has helped remind me I live in a nice house, in a great neighborhood. Many of the services I receive are non-monetary, and many of them are the result of the city of St. Cloud's public expenditures, such as the paths behind our houses that travel up from Whitney Park through the old airfield that pre-dates the development I live in. The city provides flowers that I am walking by along that path. It provides these services to everyone living in this area, true public goods. Since I am receiving that benefit as the result of the property I own, should I pay for it by a tax on property or a tax on income? We tax property precisely because the flow of its benefits are non-monetary. And the removal of the circuit-breaker says we can increase benefits to all property owners -- who will enjoy those in equal share -- but that we will tax only those who have non-property income, labor income, in excess of what the Minnesota DFL decides is "enough".

Labels: legislature, Minnesota, taxes

Arthur Laffer and Stephen Moore have issued a study through the American Legislative Exchange Council on which states are rich or poor. Minnesota ranks 26th for 50 states for economic performance and 35th for economic outlook. Performance is a combination of income and employment growth plus net domestic migration. Outlook is a "forward-looking forecast based on the state’s standing (equal-weighted average) in the 16 important state policy variables." The study runs through 2006. Minnesota fares worst in corporate tax rates (45th of 50), rising tax burdens (43rd), and marginal personal income tax rates (39th). So far, it doesn't appear those numbers have been changed so perhaps backsliding in other states will improve Minnesota's score for 2007.

The report emphasizes that progressive personal income taxes exacerbate the cyclicality of state revenues. During booms, the states spend too much:

The analysis and case studies discussed in this chapter have shown that states often find themselves in fiscal trouble because they spend far too much during economic expansions. They are like the scorpion that is carried on the back of the frog across the river that then stings the frog causing them both to drown. “Why,” asks the frog in his dying breaths. “I couldn’t help myself,” responds the scorpion. “It’s in my nature.” It seems that overspending when the coffers are flush is in the nature of state legislators.

The most advisable path to avoid future fiscal crises is to keep spending and tax receipts at a manageable and justifi able rate, usually population growth plus inflation.

Minnesota's population grew faster than the national average between 1992-2000 (10% vs. 8.8% nationally). The additional families created demand for government services but also more revenue. Their analysis suggests the state received a windfall of $701 in revenue per person, above and beyond the revenue needed to keep real per capita tax revenues constant. Only three states had higher "excess" revenue taken from taxpayers: Michigan, Vermont and California. For the country as a whole, state tax revenues above inflation and population growth rose $108 billion between 1992 and 2000.

As Governor Pawlenty and the Legislature both look at tax reform, these trends should be considered. Laffer and Moore are fans of the Colorado tax limitation amendment (TABOR) which may not fly here. But weaning government off its addiction to income tax revenues does provide a more stable tax revenue stream. Now would be a good time to start.

Labels: economics, legislature, Minnesota, taxes

On August 14, 2007, there was $4.486 billion in state general obligation bonds outstanding; on Feb 1 this year the level stood at $4.339 billion. The government has to service these bonds (i.e., pay interest and principal) and this was currently forecasted for 2008 to be at the level of $409.4 million, up from $353.7 million in 2006, a rate of increase of 7.5% per year. The growth in the next biennium adds another $50 million in debt service costs. The maximum that was set for this year was $885 million, and with today's actions on line-item vetoes by Gov. Pawlenty we spent $777 (the $717 million today and the $60 million in the transit bill.)

Also worth noting: That bill obligates the state to issue bonds going forward of an additional $1.8 billion. While it has gas money dedicated to its expenditure, the state also has a guideline on debt service as a share of state personal income, which is unlikely to rise as the result of tax increases. It's not yet the binding constraint of the state's debt management policy, but any slowdown resulting from higher spending on fuel could cause the state to graze that 3% limit. Limiting the bonding bill to the lower figure chosen by Gov. Pawlenty today will give the state at least a little breathing room.

Labels: legislature, Minnesota, Pawlenty

A commenter on MDE says the governor is just announcing the bonding bill will be vetoed in toto. I should have taken the bet with Michael on the air Saturday, dang it!

Now the question is: Will the DFL try to override (which I'm told will fail in the House, but I've heard that before)? If they fail to override, will they offer a second bill? Will Keith Langseth pay a price for his $925-or-bust strategy?

Should make for more good show material!

UPDATE: I had heard the rumor he might cut down more than the $825 million limit, but my God!

Gov. Tim Pawlenty has signed a borrow-to-build plan after cutting out projects to reduce the price tag. Pawlenty decided Monday to use his line-item veto authority rather than taking down an entire $925 million bonding bill. The trimmed bill contains $717 million of general state debt.

Among the 52 rejected projects are the Central Corridor light-rail line linking Minneapolis and St. Paul, a Como Zoo gorilla exhibit and the proposed new Bell Museum of Natural History.

"Somebody has to be fiscally responsible. That job falls to me," Pawlenty said.

On the block was $81 million in easy pickings from the Central Corridor rail project and the now infamous gorilla pad at the Como Zoo. All told, more than $102 million came out of the Met Council requests (full list courtesy MPR.) The letter sent by Gov. Pawlenty to Speaker Margaret Kelliher-Anderson was quite emphatic.

I am very disappointed that the legislature ignored an understanding between my office and legislative leadership and my repeated warnings to abide by the state's longstanding debt limit. It is irresponsible to exceed the "credit card limit" that has been maintained by governors and legislators from both parties for the past 30 years. Doing so could jeopardize our state's strong credit rating and low interest rates. The overall limit is $885 million, including $60 million already allocated in the transportation bill. The legislature spent well beyond this figure.

In addition, this bill reflects misplaced priorities. As just one example, I find it inconceivable that legislators would fund a brass band music lending library and yet provide no funding for a much needed new nursing facility at the Minneapolis Veterans Home.

...The legislature should keep in mind that upholding the state's three percent debt service limit guideline is important to our overall fiscal well-being. Debt service is one of the fastest growing items in the general fund. Based on previously enacted bonding bills, the state's debt is projected to increase $239 million from the 2006-07 budget to the 2010-11 budget.

The St. Cloud Times reports that all the local projects survived. Larry Schumacher also speculates at the end of the article that the cuts below $825 million provide a little room for a second bonding bill and that the Governor's veto might indicate a willingness to logroll the legislature for the Veterans Home and Lake Vermillion projects. I doubt that will happen, though. Gary's description of treadmarks on Sen Langseth's back are probably enough reward for Pawlenty's work.

Labels: legislature, Minnesota, Pawlenty

I mean the single-payer health advocates, who probably are cursing into their green tea after reading that Minnesota is the healthiest state in the union.

That's according to CQ Press, which is out with its list of the most healthy and livable states for 2008.

Minnesota supplanted Vermont as the nation's most healthy state, marking the first time since 1999 that Minnesota has come out on top in the annual survey. In its "Health Care State Rankings 2008: Health Care Across America" survey released Wednesday, the publisher examined 21 factors such as access to health care providers, affordability of health care and the general health of the population to come up with this year's list.

New Hampshire came in second followed by Vermont, which won the award as the nation's most healthy state six out of the last seven years. Maine and Massachusetts round out the top five.

Also in the rankings was an emphasis on preventative care. "Congratulations to the very healthy citizens and leaders of Minnesota!" the introduction concludes.

What say you now, Sen. Berglin?

Labels: health care, legislature, Minnesota

The Student Senate at St. John's University has issued a condemnation of the Minnesota Legislature for its override of Governor Pawlenty's veto of the gas tax.

WHEREAS: The Minnesota Legislature raised the Minnesota tax on gasoline and diesel fuels; and,
WHEREAS: This increase has an enormous financial impact on people with fixed and low income; and,
WHEREAS: Students are a major demographic of people living on limited budgets; and,
WHEREAS: This tax will only affect students negatively when they are traveling within the state for internships and trips home; and,
WHEREAS: This will place an additional, undue burden on families who are scrapping to make tuition payments; and,
WHEREAS: This is a wholly avoidable tax levied against the students of the state; and,
WHEREAS: If the Minnesota Legislature is going to make claims that it will stand in support of its student constituents, it must understand that this tax is contradictory to any such notion; and,
WHEREAS: Saint John’s University and the College of Saint Benedict rely on diesel fuel for inter-campus transportation; and,
WHEREAS: This transportation fee is paid for by student dollars
NOW, THEREFORE, BE IT RESOLVED, THAT WE, THE SAINT JOHN’S UNIVERSITY STUDENT SENATE, do hereby condemn the Minnesota Legislature for raising the gas tax to levels so high that student mobility is threatened.

Will other student governments follow suit?

Labels: gas, legislature, Minnesota, taxes

Craig Westover points to the flaw in thinking about the bonding bill.

The emphasis is on “How much CAN we spend?” not “How much MUST we spend?”

I spoke this morning to a group of about fifty bankers, social workers, financial counselors and others on strengthening financial stability. In the process of doing this I was looking at materials we use to teach economics to kids in K-6 and 7-12 education. (My strategy is to reach the parents through the kids.) There were worksheets on how much of what we spend is discretionary versus mandatory, how much is fixed versus variable, etc. This is all pretty standard fare for teaching financial literacy. (I grabbed most of what I used from the Fed's education site.)

Now what about that logic applied to government? Craig's right -- we have both sides of the political debate agreed to borrow -- to "put on the credit card" -- 3% of what government takes from us. And we will be expected to pay the bill on that credit card. All that we teach in getting new families, families in financial distress, about financial literacy is contradicted by what their government does. Imagine if an employer were to take a share of your labor; he has signs around the plant announcing that you should be willing to pay more for a better Minnetaxco, Inc. He then announces that he is borrowing and additional 3% of what he has taken from you to "make investments" in Minnetaxco. To repay that loan, he will have to take a slightly larger share of your labor. There's interest to pay. But no worries, he is allocating those borrowed funds to help you produce more (which, of course, he can get a share of.)

Government doesn't calculate investment returns. At best, if it followed Craig's advice, it would do a cost-benefit analysis. But it has so many decisions to make about who's benefits count, and whose costs count. You cannot expect a government to calculate investment when it has no conception of risk of loss. It bears no risk. You do.

Craig continues:

If the bonding bill at that point is a mere $600 million, then that’s the appropriate and legitimate level of state bonding. If indeed everything on the list is both constitutional and necessary and the total is $1 billion, well, then we have to look for other sources of revenue – first eliminating extra-constitutional or unnecessary expenditures elsewhere in the budget.

To say we must know how much we have to spend before crafting a bill is simply indicative of the political division of spoils that is the bonding bill.

And that really is the issue here. The 3% is not a fund for investment in infrastructure; infrastructure is the vehicle to which we attach a spoils system that sees you as the source of the spoils. It only uses roads and bridges as a means of keeping you acquiecent.

Labels: legislature, Minnesota

Others are focusing on the Survey USA result that the State Legislature has a 28% approval rating. There's also the result that half of voters said they would be less likely to vote for those legislators who voted for the transit tax.

But, 58% approve the Governor's plan for closing the budget deficit. The crosstabs indicate a 55-28 lead with independents, and the plan is only opposed by self-identified DFLers by a 40-48 spread. The DFL plan has yet to be found.

Attempts to dent the Governor's popularity so far have not succeeded.

Labels: legislature, Minnesota, Pawlenty

Former St. Cloud Mayor John Ellenbecker wants to ding Republicans (especially local state Rep. Steve Gottwalt) for Governor Pawlenty's budget proposal. In it he demonstrates a flawed understanding of government spending.

...please read the Saturday report and note that while he cuts spending on children's health care and colleges, Pawlenty also proposes to increase spending on the state's 150th birthday party and proposes a "$14 million guarantee for local organizers raising cash for the Republican National Convention in September."

Before Gottwalt again decries the spending requests of the evil liberals, he might want to first take a closer look at the spending requests of Pawlenty.

State spending on both the state's birthday party and the GOP convention should be the very first cuts made by the governor and the Legislature.

Both can be funded completely by private donations, or not at all.

In fact, the national GOP convention is being funded by private donations. The $14 million guarantee is a back-up, expected to spend no money whatsoever. It does not cost the state a penny unless donations come up short. Who, by the way, is paying for security at the convention? The federal government, funded by a bill passed by the Democrat-led House. And that's real money, not just a back-up guarantee. For $14 million -- hell, you can't barely buy a do-over primary for that!

The sesquicentennial? Maybe half a point there. According to the governor's budget plan, that item is within the "other initiatives" for $11 million. Small beer. I wonder how the Speaker's husband will feel about this attack on spending on MN history?

UPDATE: Link to letter added, sorry!

UPDATE 2 (afternoon): This article from last December reminds that the Governor's original proposal was for a $2 million allocation for the Sesquicentennial.

Labels: legislature, Minnesota

The Club for Growth has been seeking congresspeople who will take a pledge to forgo earmarks. Rep. John Kline announced his decision to forswear pork last July. A list the Club put up in January included members of Reagan 21, a group of Republican legislators who commit to Reaganite principles including the ending of all earmarks. One of the legislators on the list is Rep. Michele Bachmann of Minnesota, who is a member of Reagan 21. I had not seen any press release on this pledge and I had asked before about it, receiving a noncommittal answer. Last night I asked again about this, as there had been no correction on the CfG page when they updated it this week. This morning I received an email from her office confirming that she has in fact taken the pledge to forgo making any earmark requests "while fighting to reform the broken system."

For supporters of limited government, this is great news.

Labels: earmarks, legislature

From the local paper, a supporter of the transit tax (and a very good friend of mine). I think he'd like to blow kisses to the Override Six, but it turns out kisses weren't the coin of the realm. Here are the 22 lines:

9.21(e) Of the total appropriation under this
9.22subdivision provided to the Department of
9.23Transportation's district 7, the commissioner
9.24shall first expend funds as necessary to
9.25accelerate all projects that (1) are on a trunk
9.26highway classified as a medium priority
9.27interregional corridor, (2) are included in the
9.28district's long-range transportation plan, but
9.29are not included in the state transportation
9.30improvement program or the ten-year
9.31highway work plan, and (3) expand capacity
9.32from a two-lane highway to a freeway
9.33or expressway, as defined in Minnesota
9.34Statutes, section 160.02, subdivision 19. The
9.35commissioner shall establish as the highest
10.1priority under this paragraph any project that
10.2currently has a final environmental impact
10.3statement completed. The requirement
10.4under this paragraph does not change the
10.5department's funding allocation process
10.6or the amount otherwise allocated to each
10.7transportation district.

BTW, while reading that I found a point that refutes the claim that no money from this bill goes to transit (that Chris' letter makes):

9.16(d) Of the total appropriation under this
9.17subdivision, the commissioner shall use at
9.18least $50,000,000 for accelerating transit
9.19facility improvements on or adjacent to trunk
9.20highways.

and

2.29

Subd. 2.Multimodal Systems

2.30

(a) Transit

0

1,700,000

2.31This appropriation is from the general fund.
2.32This is a onetime appropriation.

2.33

(b) Rail

0

250,000

3.1This appropriation is from the general
3.2fund for a grant to the Northstar Corridor
3.3Development Authority to fund advanced
3.4preliminary engineering, updated
3.5environmental documentation, property
3.6appraisals, and negotiations with the railroad
3.7to extend commuter rail service on the
3.8Burlington Northern Santa Fe rail line
3.9between Big Lake and Rice. This is a
3.10onetime appropriation and is available until
3.11spent.

Labels: legislature, Minnesota

...about per diems. I support her idea to pay more salary and reduce per diems, even if it costs more money.

Labels: legislature, Minnesota, Mrs. S

Courtesy Larry Schumacher -- whose second blogiversary was last week, so stop by and give him a nod -- I read my state representative's latest letter. Rep. Haws argues for asset preservation and job creation as guiding principles for the bonding bill.

For a better future we need to balance care for what we already own and what we would like to build. Sustainability, assets preservation, maintain care of existing buildings, renovate before building new, reduce the back log…all are foundation criteria for well-developed bonding bills.

Rigorous maintenance priority schedules will help guide our choices as we make our way through this bonding year at the State Legislature with a shared commitment to make effective use of tax dollars and ensure safe state building and schools. With this in mind, I carried a number of asset preservation bills...

I'll spare you the list; as you might guess, they are all local projects. He goes on,

These projects often have a Rodeny Dangerfield syndrome… "They get just no respect". But they need to be put high on the list for they will have, pay back in efficient, safety for citizens and employees, and jobs ready to go.

"Jobs ready to go." I'm not real sure about the beginning of that last sentence -- the commas look wrong, but it appears he means that maintenance jobs provide jobs ready to go. Gary disagrees with this, and he might be right. But let's think about the next sentence,

Overall, in 2008, every project considered for inclusion in the capital investment bill will be looked at in terms of the potential to create jobs as soon as possible.

So how is it that jobs are created ASAP that are also maintenance jobs, jobs that preserve assets? Constructing new items uses lots of building materials, tools, equipment, etc. There's a great maintenance project going on in my office building on SCSU's campus: They are painting the walls of the hallways, the first time I can remember them doing this since we moved into the building in 1988. (I travelled off campus most of the early 1990s, so I could be wrong, but ten years for sure.) Total employment? One person. One guy who works on my campus anyway. He's been working for about three weeks, and he seems to be about done. (Just in case he reads here: Great job. Place looks wonderfully new and clean.)

We've had a problem here in construction, and there have been declines in employment in that industry. If you wanted to create jobs ASAP, you'd want them to go back to work. But do construction workers do? They construct; they build stuff. People good at constructing can probably also do maintenance, but they aren't the same jobs and they aren't the jobs those workers are best at doing.

I have no problem with either goal Rep. Haws is choosing, but he's trying to strap one on to the other. Does he really want preservation and is bootstrapping a job-creation argument to it, or does he want job creation and bootstrapping preservation because those are the projects he thinks have the best chance of getting into the bonding bill (for him to receive credit for)? I'm not sure. But that letter looks held together by Red Green's favorite tool. And you know how those projects turn out.

Labels: legislature, Minnesota

...it appears that we are going to be headed for a showdown between the governor and legislature again, because this deficit is too big to fix with reserve funds and other legeredemain. You either have to cut spending or raise taxes, and the battle will be for probably $500 million or so between the two.

From the summary document, a couple of interesting points relating to the discussion just below on the possibility of recession in the state:

Projected individual income tax receipts fell by $313 million from November’s estimates. The decline in the personal income tax is due to slower growth in wages and declines in non-wage income. The forecast includes a small decrease in capital gains realizations in 2008. Declines in portfolio income, which includes interest and dividends as well as capital gains, explain about 75 percent of the decline in projected individual income tax receipts since the November forecast.

So most of this is because of stock market concerns. The forecasting firm Global Insights not only is calling therefore for a lower stock market, but it is also imputing a larger decline in Minnesota for key driver variables -- the forecasts that are used to generate the revenue figures -- than is expected for the country. They forecast employment to shrink -0.5% in 2008, which is a slump, not a pause. The detailed report has a projection of a 23,400 job loss 2007:III to 2008:III (see p. 23). Wage and salary income rise 2.5% for MN in 2008 versus 3.6% in the nation; any reasonable guess for inflation would lead you to conclude that real wage income in Minnesota is expected to decline. I think the forecast is a driven very much by the housing situation,

Housing is critical to the Minnesota outlook. Construction is expected to lose approximately 13,500 jobs in 2008. This forecast assumes housing permits bottom out in the second and third quarter of 2008. In 2007 it appears that job losses in construction lagged the decline in building permits up to 3 months, thus a “catch up” period is anticipated in the forecast. If the housing slump continues to deepen, however, it is unlikely that Minnesota’s economy will perform as expected. (p. 28)

...and I wonder if this is perhaps a bit too pessimistic. Total MN employment in construction was 112,432 in December 2007, down almost 6,400 from that time in 2006. You are telling me that you expect the rate of decline in the housing sector to more than double?? I sincerely doubt that, as it would drive down the level of employment in construction to 1997 levels. Tom Stinson said last week at the St. Cloud Economic Outlook that he thought prices in housing had to come down another 20% to reach equilibrium. Again, I'm not seeing why this figure is enough to lead to a double digit decline in construction, which has already shrunk.

Regardless of whether this figure is a little too high, it's unlikely we get to mid May without some adjustment of taxes (who knows, maybe they will tax clothes now.) Governor Pawlenty says he will use spending cuts but not in K-12 education. Expect the Legislature to talk more about tax loopholes (that's a technical term for "income the government doesn't currently tax but wants to".)

Labels: economics, legislature, Minnesota, Pawlenty

In some places, people look at the budget they have and make choices of what they can and cannot provide. Take for example the Bureau of Labor Statistics. I got a postcard this morning from BLS indicating that they were not able to mail any more paper reports due to unexpected budget issues. No big deal, I thought, since I get The WSJ economics blog writes that a rather valuable survey may have to go away because money is needed for updating other surveys. I think it's a hard choice to have to make, but notice that the Bush Administration is at least making choices. That's what they do in the big leagues.

Meanwhile, our minor league Legislature has decided to have you pay rather than choose.

Taxpayers are going to see a significant bump in their tax burdens now that the Governor’s veto of the Transportation Bill has been overridden.

That’s good news if you think that the bonding bill should devote significant resources to Polar Bear exhibits, hiking and biking trails, convention centers, and other local projects instead of high-priority roads and bridges.

“Legislators had an opportunity to demonstrate their commitment to prioritizing State spending by making local projects compete with roads and bridges. Instead, they chose to raise taxes and place the burden of making hard choices on citizens instead of on State Legislators,” said David Strom, President of the Minnesota Free Market Institute.

“Governor Pawlenty was absolutely right when he proposed using General Obligation Bonds to fund roads and bridges. In fact, we believe that he should have gone farther and proposed to use State bonds for State roads, and requiring that all bonding projects have cost-benefit analyses to demonstrate their worth,” Strom said.

“Now that Legislators have decided to raise taxes the bonding bill will have plenty of room for pork-barrel spending, as it always has,” Strom concluded.

Victory for universities, too. Met your match? Sure you will -- every time you fill up. And don't drive less! You'll just cut down their revenues, and they'll raise your taxes again.

It's not the size of taxes that describes government extortion. It's the size of government spending.

Labels: legislature, Minnesota, taxes

As we continue the discussion of the transportation budget today -- liveblogging going on at Let Freedom Ring and Ladies Logic capturing everyone's attention (UPDATE: The override passes) -- it's worth pondering some points that have bothered me. I find as I go through this debate to find confusion on the terms public provision and public financing, about transportation versus transit, and over whether some people have plans. Let's pose this as a series of directed questions.

1. Does Minnesota need more money spent on transportation? Now it is popular for many to focus on where the money we already budgeted was spent: "MVST was supposed to be a fix, but it isn't." "The Legislative Auditor tells us we built too many new roads and maintained too few existing ones." "Our bridges are falling down." "You should have spent less on bike trails." None of these points is now relevant. They are sunk costs. The question before us is simply, should we budget for building new roads and bridges? Since Gov. Pawlenty proposed bonding for bridges, he certainly wants more spent. The House caucus has repeatedly said there's a compromise available, which surely means more to be spent. So the argument isn't over whether to build more roads and bridges. That's been agreed to by all parties. You want to punish for past decisions on bike trails or MVST? There's an election for that. As Mitch pointed out, you had a chance last time.
2. Are we buying the right roads, bridges, etc., or is this another transit boondoggle? The MnGOP has been labeling this the transit tax. Probably so, but how many of the legislators live in the seven county area? If you wanted to stop the transit boondoggle, the only way would be to stop awarding Senate seats by population, and switch to one vote per county or some other geographic division. The next apportionment in 2010 will probably move more legislative districts into the second ring suburbs -- what do you suppose that does to demand for rail projects? So my point is that outstate will always be in the minority on transit; the governor's veto only requires the Legislature to hold party ranks together and to bribe a few legislators -- which they've done. That's not extortion or coercion, that's plain old logrolling. Some payment is already in HF 2800, and others will be forthcoming in the bonding bill that the Legislature will now re-write; after all, there's money to spend!
3. No, but really, are they in the right place? But that doesn't mean we bought the package of roads and bridges that we should have bought. The problem with government provision of public services is that it provides goods in return for political support, not for places where benefits exceed costs. If you want the latter, don't expect government to do it for you. Governments have no profit motive and thus no assurance that what they spend will have the value provided for. Jim Fedako writes at the Mises blog:

   The difference between government and business is the chain of taxation versus the dollar vote. The public school district taxes regardless of value produced. Once the bond issue passes the voters, the bill must be paid, to be enforced by the long, strong arm of government. On the other hand, the entrepreneur must face the consumer every day, product in hand, hoping to make a sale. The consumer can as easily bypass as enter his store, based on a whim if he so chooses. The taxpayer? Well, just try to hide.

   Did we build bike trails that provide too few benefits for their cost? Are we paying for trains that have low ridership? When private firms do this, they fail. Government passes another tax.
4. How would we prefer to pay? Public finance students are given a set of lectures on the benefit versus ability-to-pay principle. I have argued before that since many people will use the roads a generation from now it made sense via the benefit principle to bond for those roads and bridges. The Legislature, seeing the bonding bill as an opportunity for other transfers of public money to political constituencies, chose instead to use something closer to a current benefit principle rather than future benefit. The gas tax is preferred by some for roads because people who buy gas use roads, so they are the ones benefiting from their construction. But when goods are shipped to us in Minnesota we now either pay for transporting them from out-of-state or we get fewer goods. And sales and excise taxes are usually seen as being regressive both on firms and on households (any wonder why the big hitters in the Chamber of Commerce like this bill? It's anti-competitive.) Indeed, the three most regressive taxes in Minnesota are the cigarette tax, the gambling tax, and the motor fuels excise tax. At least one might make the argument for the first two as reducing bad behavior. Does the DFL think driving is a bad?

The argument was not about past decisions. It was not about whether to build roads, and it was not really even about transit versus roads and bridges. Those decisions were already baked in the cake. The decision was over who will pay. Now we know. The question will be whether anyone has enough votes to demonstrate this was not the politically optimal solution.

Labels: gas, legislature, Minnesota, taxes, trains

While the rest of the Minnesota blogosphere was watching the MN House Transportation debate in either gleeful fascination (tax consumers) or horror (tax producers), I was hunkered down with a presentation to do last night at the Kelly Inn for the Economic Education Winter Institute's Economic Outlook. It's the 12th year we've done it, the fourth for me. The local newspaper report leads with my remarks. I notice at the time of this writing that the article drew over 200 comments. I don't have time to read them -- I'll explain more in a minute. But state economist Tom Stinson was also on the panel, and the paper's reports of his remarks bear noting:

Some of the big factors that are causing the decline are in the housing industry and the credit market, Stinson said.

New housing starts have been the lowest since World War II and have declined 25 percent during the last year.

"We're not making a dent in the (housing) inventory," Stinson said. "We have an 11-month inventory, we would like to have a four-month inventory."

Senior loan officers also are tightening standards of all types of credit in the commercial and home markets, Stinson said.

The state's diversified economy hasn't allowed it to become recession-proof, he said.

"Minnesota is going to have another slow year," Stinson said.

While his and my definition of slow might be different, notice that he DID use the word "slow". Slow could mean slow growth. As I said last night, the growth rate of jobs in Minnesota has to expand enough to absorb new workers. Tom Gillaspy, the state demographer, reminded the audience that this is the year the first of the Baby Boom generation turns 62. It's therefore not clear whether this will slow expansion of the labor force. This and 2009 represent also the last of the boomlet of students graduating high school. Nonetheless, it can easily turn out that Minnesota grows at a very sluggish rate rather than slumps (declining state GDP), and this would lower revenues somewhat below forecast as well as see a rise in unemployment. I don't think Stinson rules that possibility out, and after reading that I conclude his and my forecasts are closer together than I had previously thought. (I'm probably still a little more optimistic than Tom, but that's a pretty normal state of affairs.) We'll have to wait for the forecast on Thursday for more precise figures, but that's my read of what he was saying.

While I would have liked to have stuck around more last night and then discussed the transportation transit tax bill today, I went to my secret life today. I am confessing to being a basketball junkie, particularly when it is Littlest at play. Her school plays in a tournament in New Ulm each February, and this is her last year in the school so our last tournament. I suppose I could have had someone drive her down but I would not miss this for the world. Watching 10-14 year olds from very small schools -- hers has less than thirty students for K-8 -- play co-ed is pretty neat. Watching your Littlest chug up and down the floor with a huge smile on her face, one that does not vary if her team is up 10 or down 20, and seeing it on all the other kids too, is a world I will miss escaping into as she heads to high school next year. She will try to continue playing for her next school -- she can score and she's a ferocious defender, though probably has to move from point guard now -- but I don't think HS will be the same. We were within two with two minutes to go but lost by six today and out of the championship. Momentary sadness, then the kids realized they were here for the rest of the day to play around and have another game tomorrow, and the usual frantic buzzing of tweens and teens resumed.

Janet is kind enough to sit in for me tomorrow on Final Word, and I will not hear the show as her next game -- the last they will play here -- is at 3:15 for a consolation prize. If they win there'll be a small trophy, but regardless there'll be pictures and memories. And for a weekend, not a care about the soft economy or your silly transit ripoff.

I've just been called to pizza.

Labels: blogging, economics, legislature, Minnesota

The MN House passed a transit bill today, 89 to 44 in favor. This bill is not for roads, 75% is for "other" transit (read more light rail that will NEVER pay for itself), trails, etc. This bill is not for the metro area where 60-70% of the state's population resides. This bill is for special projects - it is a TRANSIT bill, not a transportation bill. Very little will help the Metro congestion problems.

The bottom line is that MN taxpayers who rank 11th in tax burden, will be gouged, again. - for what? The legislature could not even wait for the budget to be presented. No, the DFL club had to rush this bill through, the third day after the current legislative session started. What do you think these part time legislators were doing during their off-time? We're supposed to have a part-time legislature. Looks to me like this DFL club is far too eager to "need a year long session" to "get all the work done" - at our expense. They have gotten so busy doubling committees, spending our money on committees, and trying to find more ways to put their hands in our pockets, that they forgot, WE voted them in. Perhaps it's time for us to start finding ways to vote them OUT.

This political behavior of Democrats in general, and some guilt-ridden Republicans who think it is their duty to make the rest of us pay for their dreams is nuts. I'm reminded of this quote by Vernon Howard (word in parentheses is my paraphrase):

Permitting your life to be taken over by the (government) is like letting a waiter eat your dinner. (You pay, he wins.)

It is time Minnesotans say, "Enough is enough. Stop letting people gorge themselves at the government trough; stop spending MY money for unnecessary, irresponsible pet projects because you don't know how to say 'no'."

Labels: legislature, taxes

The battle over the budget deficit -- with a revenue forecast still ten days away -- is heating up and before we even get to that the Minnesota Legislature is trying to salt away some money for transportation. I talked a little below about a corner of that debate, but let's get some additional information together.

The big news today is that the Legislative Auditor produced a report on transportation that said several things. I'm reading the report in bits, so don't consider this a thorough review, but what I have gleaned is this:

1. "After 2003, inflation-adjusted revenues from Minnesota motor vehicle and fuel taxes declined, and the state made substantial use of debt financing to support the state trunk highway system." According to the last Tax Handbook, Minnesota collected $650 million on the gas tax in 2005 and $646 million in 2006. Which will of course lead people to think we aren't taxing enough, but consider the reasons offered: people are driving no more miles than before, in no small part because of more efficient vehicles and rising gas prices causing a reduction in the amount of gas used. Now I doubt we've raised the price of gas to the point where it's elastic in demand -- which would mean the gas tax revenues would fall for an increase in gas tax rates -- but it's almost certainly true that it's more elastic than previously estimated, so that a proposed 42.5% increase in the gas tax rate will not increase the amount of gas tax revenue raised by anything close to 42.5%. Yet it appears from reading the research summaries on the transportation bills that the DFL intends to spend more than $300 million per year on transportation, immediately freeing up that amount from the bridges to make pork.
2. "Since 2002, the ride quality of state trunk highways has generally declined. The structural condition of bridges has generally improved." Call me paranoid if you must, but I think that second sentence isn't going to appear in news reports. MnDOT uses some qualitative measure of ride quality and for principal highways aims for 70% of them in good or very good condition. It looks like we're at 66-67% rather than 70%: Not very good, but we seem to be exerting a lot of effort for 3% improvement. Expected remaining years of useful life of the roads has indeed declined, but this was not enough of an emergency for the Legislature to pass anything more than a lights-on transportation bill. If the highways are in such dire condition, why is the Legislature this year threatening to not fund transportation unless their one bill is passed?
3. We've spent more on highway expansion than on highway preservation. OK, that one looks real, though in a state where population is moving so dramatically away from the west to the east, do we really want to spend money preserving roads in places the people have left? 21.5 per 100 in-migration to Sherburne County, with large gains also in Isanti and Morrison counties. Name a western county, and you will see population decline. I find the LA's analysis, though correct, a little too macro-oriented. But because the Legislative Auditor isn't thinking that way, the office is arguing for much greater spending on highways.

So with that in mind, look at where we are. The DFL leadership came out with a press release today decrying the lack of money and that we need the tax increase. Not that it will do a thing for the deficit if it comes forward -- indeed, my argument is that the DFL is hurrying this bill along because they fear the revenue forecast will suck all the air out of this plan, forcing them either to pass more tax increases for that or cut spending, in which case nobody will be able to support both a tax increase for a budget deficit AND THEN a tax increase for transportation. But if they can pass the transportation tax increase first, they can pretend that didn't happen while fixing the budget.

Meanwhile, Governor Pawlenty continues to say he's going to veto the transportation bill.

Brian McClung released a statement in response to the DFL news conference. In his statement, McClung said:

"We appreciate the legislative auditor's report. It contains many helpful suggestions that we expect MnDOT to implement. Regarding the DFL press conference this afternoon - it appears DFL legislators are determined to pass a massive and overreaching $8 billion tax increase that the Governor has said he would veto. Just recently, DFLers increased the overall amount of their gas tax hike to 8.5 cents, in addition to license tab tax and sales tax increases. They are essentially disregarding the Governor's concerns and appear to believe they have the votes to override a veto. We'll soon find out the answer to that."

The governor's red veto pen is going to be challenged early, and while I am not sure this is more than a wild goose chase, the DFL is undoubtedly trying to buy some votes somewhere. (At least AAA's girlfriend got a good meal.) It's easy to have it both ways as Drew Emmer suggests -- you could have six GOPers vote for the bill but then vote to uphold the veto (they'd've voted for it before they voted against it.)

The Governor is taking an ax to the state payroll, implementing a hiring freeze. Now, there are some folks who are trying to make an argument that savings by budget cuts are just as harmful as tax increases. The logic is pure Keynesianism: if you cut spending by a dollar there's a dollar less of aggregate demand, but if you increases taxes by a dollar some taxes are paid out of savings, so aggregate demand only falls by the part that is funded by reduced consumption. It's part of those bad principles of macro courses where the instructor teaches the students government spending and tax multipliers. But, the story is always told using lump-sum taxes. For it to be right, the taxes must be taken from the public in some way that doesn't change the return on labor, capital, land or entrepreneurship, or alter the relative prices of goods purchased. (A head tax would be one example.) If the tax change DOES change the return on any productive resource, then the tax increase will decrease the supply of output and has an effect that could be more harmful than a spending cut. Increasing income taxes would be one example of a tax that changes the return on productive resources. It's an empirical question, as I often say, and the devil is in the details. Don't be fooled by simplistic explanations.

Still working on some other items so this post tonight might have to substitute for more over the next couple of days. We'll see. 80 days down for the Legislature (including the one in Special Session), 40 to go.

Labels: gas, legislature, Minnesota, Pawlenty, taxes

While the debating on how to fund transportation continues unabated (and apparently unsuccessfully, as it appears the bill is going forward with little change -- though the indexing of the gas tax might be pulled?), it's worth noting what the Legislature wants to fund instead. From the Anoka County Watchdog (thanks to Drew Emmer for posting), vote for that transportation bill and you will still get all that bonding money, now diverted to such wonderful items as

• A hockey arena in Hallock;
• An orchestra hall for Minneapolis;
• Upgrades to the John Rose skating rink in Roseville;
• The “Prairie Ecology Center” in Jackson County;
• An ATV trail in Kittson County;
• The Thief River Falls multi-events complex;
• An ice arena for Crookston;
• A senior center in Mora;
• The Hinkley Fire Monument;
• Expansion of the Saint Cloud Civic Center;
• The Pine Grove Zoo in Little Falls;
• The Northwest Hennepin Family Center;
• The Austin Area Success Center;
• Improvement to the Duluth Convention Center;
• The Voyageurs Heritage Center;
• The Alden Community Center;
• The Blazing Star Bicycle Trail;
• A snowmaking machine for the Battle Creek Recreation Area;
• Heritage Village Park in Inver Grove Heights;
• The Mayo Civic Center;
• The Southern Minnesota Women’s Hockey Exposition Center;
• A community Center in Pemberton.

So it's worth understanding this -- these pieces of pork, these dollops of cream for legislators looking for a ribbon-cutting ceremony to occur, oh say, around October, are part of the inducement to pass an $8.4 billion transportation bill. To achieve these ends the DFL leadership seems prepared to go to any length, even to crippling the reconstruction of the I-35W bridge.

Make no mistake -- it is not only DFLers asking for these bits of largesse. Indeed, the bills introduced by Republicans are little more than offers to sell out some bit of the resolve the House GOP had last session in return for a photo op. As a companion to the earmark reform cry that may be a centerpiece of the McCain national campaign, I hope the Minnesota GOP leadership will ask each member of its caucus to withdraw these requests and refuse to put any more in this session. And refuse to vote on ANY bill on the floor until the Transportation Contingency Advisory Committee releases the money for completion of the I-35W bridge reconstruction. Like the U.S. House Republicans over FISA, just walk away from the floor until the money is passed over to MnDOT.

No pork: Bond for bridges.

A house that lasts 50 years is paid for over 30 years. A bridge that lasts 50 years doesn't have to be paid for in two. Let those who will benefit in the future share in the cost.

Labels: legislature, Minnesota

Congress and President Bush appear to have settled on a budget. How many months did Congress stall on this basic need of our citizens? Oh, well. I have another point to make.

Many of our youth have very little concept of numbers. As stated early on, I give my college students a 50-fact multiplication test (50 seconds) to attempt to drive home the phenomenal processing speeds of computers.

Related to little exercise is a requirement that all numbers on papers include the zeroes. For example, gross sales of $46.5 billion is not allowed; it must be shown as $46,500,000,000.

Back to the US budget. A $3.1 trillion dollar budget has little impact but $3,100,000,000,000, that's another story. Maybe elected officials just might become more responsible with our money if they realized just how much of it they spend.

Labels: legislature, politics, taxes

At a recent local political meeting, one of the MN House representatives made some astounding comments of how the MN DFL legislature is spending our money. Not only did the DFL give themselves a "hidden," tax-free pay raise in the form of increased per diem moneys, they also keep trying to raise our taxes. So far, the Republicans have been able to stop this nonsense. However, the DFL will continue to pursue "more money for ____" which needs to be interpreted as more money from us so they can control us. If we lose control of our earnings, we have lost, period. Uncovered recently is another hidden method the DFL has used to increase its power, perception of prestige, etc.

In 2007, the House DFL expanded the number of standing committees from 27 to 36, an increase of 33%.

To fund that expansion, the House DFL almost doubled the budget for committees, from $324,000 to $646,000.

The number is uncertain, because their make-up and titles shift. If one goes with the conservative number (98), then one might note that Minnesota has 98 legislative panels, 85 House DFLers, and only 87 counties.

This last comment means that there are now more committees, etc. than there are DFL legislators and MN counties.One has to wonder what these people are doing with our money. The actual cost will not appear until January of 2009, two months after the election. One would hope that Minnesotans would wake up to this abuse of our money before then

Like President Bush said in his State of the Union Message (I paraphrase): "If you are so eager to raise taxes, the IRS accepts checks and money orders from you. There is no reason to force others to pay for what you desire." The real issue is control, of us.

Labels: legislature

Many years ago in New Hampshire there was a scandal of legislators staying in the capitol, Concord, for days upon days. The state law at the time said they were paid $3/day and if they could stay longer, they made more. Article 15 of the state constitution was changed in 1889 to say you could make only $200 per two-year term. Later on, the constitution was changed to limit the number of days legislators could take mileage (to a 90-day limit in 1960, t0 45 days in 1984, where it remains.) The Legislature of the state may call itself into special session by petition of 2/3 of each house if it wants, but there is not a dollar to be earned for the bother.

I would suggest that Speed Gibson take this then as a model for a new constitutional rule to Sen. Lyndon Carlson: We'll fix your pay, no per diem, and no extra money for staff, limited number of days for mileage, and in turn you can have special sessions on your own time as often as you can get 2/3 majorities in both houses to sign for them.

The very thought should be enough to get Rep. Tschumper to hug his cows rather than chasing his per diem.

Labels: legislature, Minnesota

Governor Pawlenty's bond proposal came out this morning, and the St. Cloud Times headlines what is not in the bond:

It does not include requested state dollars to expand the St. Cloud Civic Center or to remodel and expand the National Hockey Center at St. Cloud State...

...two major projects local leaders have had on their minds for quite some time. How long until we hear Sen. "No-no-no", who has in the past pumped for more for the hockey center, has another fit about Governor Pawlenty's thrifty ways?

SCSU is proposed for money for Brown Hall, an old classroom building that has laboratories as old as me. (Rep. Steve Gottwalt told me about touring the facility and the faces of the legislators as they walked through; I think they keep one lab particularly antiquated and nasty-looking for the tour.) In the note from the faculty union reporting this to us, the lobbyist noted,

Concern over neglected transportation infrastructure is causing transportation funding to squeeze other segments of the capital investment bill. This means we have a stake in the outcome of the gas tax debate—if roads and bridges are funded out of a gas tax increase it would mean more bonding authority would be left over for projects such as higher education projects.

I wanted to emphasize this point: The gas tax for funding transportation is not used instead of bonds (or in the slang used by DFL legislators, "the credit card") but in addition to bonds. We will pay just as much interest either way -- we'll just have less private investment increasing productivity with which we pay off those bonds with our future taxes. The gas tax makes government bigger; the discussion of the means of funding is just smoke. And it is highly unlikely the Legislature adjourns and the House goes to the voters without a bunch of money spent on bridges; the demand is still there.

There's plenty not to like about the governor's bond request -- I might start with $70 million more down the Central Corridor rat-hole -- but funding of bridges through bonding is certainly something to like. The "benefit principle" of public finance says that the people receiving the most benefit from a public good should be the ones that pay. That's one reason why we ask people to pay fees to enter state parks, for example. The alternative principle is "ability to pay." But in either case bonding can be the preferred option. Bridges last 30-40 years or more, and there is no reason why we should expect the current taxpayers to fund the driving of individuals using the bridge a generation from now; bonding assures that those driving the bridges are paying for them. And if investments in infrastructure like bridges are to increase state productivity, then the income of future generations will be higher than those in the present. If it is enough higher, the tax burden will be lighter on future than current generations, again arguing that some of the cost be shifted forward. Under any reasonable assumptions about the value of future Minnesotans' utility or satisfaction versus the value of present Minnesotans' utility, it is good public policy to use bonding. (Of course this may be controversial, as we've been arguing for some time over the rate of discount of future generations in the global warming debate. You'd have to work the math a bit to convince me it matters here.)

Now part of the problem, in my view, stems from what appears to be a formula that translates the size of the state budget to the size of the bonding proposal (which would put the amount planned here at about 3% of the biennial budget.) I had Rep. Larry Haws while I guest-hosted on the KNSI Morning Show a couple of weeks ago in which he made some reference to this; about the only sense I could make of this -- assuming there is some formula they use -- is that it keeps the rating agencies happy so that the interest cost of debt stays predictable. But one could easily imagine that cost-benefit analysis could be applied to the bridges to argue for an amount of bonding above this formula, as long as the return on investment was sufficient to cover the opportunity costs. Much like Nixon-to-China, it may be up to the DFL to come up with a way to use cost-benefit judiciously to make the case for a larger bond.

UPDATE: Lileks wonders about light rail. See moreover this from the LA Times (h/t: Peter Gordon):

Paradoxically, the MTA's rail projects, which required fare increases and reduced bus services, have cost the transit system riders. Using MTA data, our analysis indicates that they produced a drop in train and bus ridership of more than 3 billion boardings from 1986 to 2007.

Although we've now gotten back to 1985 levels in terms of public-transit use, the county population has grown by more than 2 million since then. That means, on a trip-per-capita basis, the transit system is still not performing -- by 20% -- as well as it did 22 years ago.

Labels: cost-benefit analysis, economics, legislature, Minnesota, Pawlenty

So another biennium begins in the Minnesota State Colleges and Universities system, and the first semester ends without the faculty having finalized a contract with the system. Some faculty walk around with buttons that indicate their salary demands (about 15% increase over the two years). Word around the campus is that if we get even remotely that amount, the schools do not have enough money to pay those salaries and so there will have to be cutbacks.

The union -- the Inter-Faculty Organization -- delves into the details and discovers one reason why the money might not be there:

At the last MnSCU Board of Trustees’ meeting MnSCU officials revealed a little more detail than has been supplied in the past on how they plan to spend the $62.8 million increase in technology money this year. MnSCU is increasing expenditures on technology from $21,500,000 in FY2007 (last year) to $46,355,000 million this year—a 115% increase in one year. They are proposing an additional $4.7 million increase in system level technology expenditures next fiscal year. MnSCU currently has 140 system level technology positions, 20 of which are vacant. They are proposing to add an additional 55 new technology positions.

MnSCU received essentially block grants from the legislature of $666.8 million in FY2008 (this year) and $689.3 million in FY2009. The biennial increase in appropriations was 12.6%. The increase in appropriations this year to the MnSCU system as a whole was 10.6% The increase in appropriations sent out to the campuses by MnSCU was only 3.3%.

Faculty have complained that MnSCU is spending too much money on central office growth, particularly on system level technology, and not sending enough of the state appropriation out to the campuses, where education takes place. The amount of money MnSCU is spending on “Systemwide Set-Asides” is increasing from $58.9 million in FY2007 to $85.8 million in FY2008 (a 45.6% increase) and to $90.8 million in FY2009 (another 5.8% increase). At the last IFO Budget Committee meeting, Tom Fauchald, Budget Committee Chair, presented an analysis of the growth in state appropriations from MnSCU to the state universities as a percent of the university operating budgets. Here is the biennial growth by university:

Bemidji	2.50%
Metro	2.92%
Moorhead	2.18%
Mankato	2.71%
Southwest	1.93%
St. Cloud	2.62%
Winona	3.20%

The data is easily available by reading through the system's budget documents. While I have plenty of beefs with the union, they have exposed a very important problem in the system.

When this was discussed at the town hall in Waite Park, most of the suggestions focused on why do we have a system office, and what does it provide? Why would a system office need to suck up almost a sixth of the state's appropriation? Why do we have a huge St. Paul office with more employees than any of the colleges and universities in the system save two? Is it really more efficient and better for SCSU that it is a system board of trustees in St. Paul that hired President Potter to our campus last summer, rather than a St. Cloud board of trustees? If there was, wouldn't that board provide the resources he would need to pay the salaries he was negotiating? You certainly would not get this situation where the state appropriates 12% more money to the system, but only 3% reaches the place where the students are.

It's a strange world, this MnSCU. I got the impression that more scrutiny of this spending pattern might come from legislators. It's long overdue.

Labels: legislature, SCSU

See if you can spot the flaw in Senator Tarryl Clark's latest press release?

Our state is like a car stalled on a cold winter morning. We have the jumper cables out, but the governor is choosing to just drive by and wave.

How is it that there are two cars? What car is the governor driving?

Any government spending must be paid for by taxes. Any additional employment created by the government is offset by the loss of income to those workers who used to receive the money now collected by the government in taxes.

There's only one car, and Clark, Pawlenty, and you and I are all in it. To use her metaphor you would have to connect your cable from your own to battery to your own battery. I'm dumb enough to have tried that once. The car did not start.

h/t: Larry Schumacher

UPDATE: My further thoughts on the DFL plan to "create" jobs at the Minnesota Free Market Institute. Craig Westover notes as well,

“Clark’s government job creation proposal is interesting in that just two paragraphs earlier, she writes – ‘Small business and a strong middle class are the real engines that drive and sustain job creation and retention. It’s the aspiration (emphasis hers) to acquire wealth to pay for college, vacations or retirement by building a business or working hard at a job that spins the economic engine.’

“Well, okay – What better argument for a progressive tax scheme that takes more of the marginal dollar as a person acquires wealth and moves into higher tax brackets, not to mention the benefits to our aspiring, wealthy wannabe of state government raising taxes and taking investment money he or she could use to expand a business and using it to compete in the labor pool with our guy or gal by building tourist centers and hockey arenas when he or she could be using the investment capital and labor to build a factory and ‘spin the economic engine.’

Labels: economics, legislature, Minnesota, Pawlenty

The new revenue forecast is out, and the news is not too bad.

A weaker U.S. economic forecast has changed the state’s budget outlook. General fund revenues now are forecast to fall $739 million (2.2 percent) below end-of session estimates, while spending is projected to be $66 million (0.2 percent) higher. A budget deficit of $373 million is now projected for the biennium. Previously a balance of $294 million had been expected.

The forecast notes strong second and third quarter growth but, relying on a forecast for the U.S. economy for 2.2% GDP growth in 2008 and 2.3% in 2009. The revenue reductions come mostly in corporate income tax and sales tax revenues. As we've noted, the decline in corporate profits is already ongoing.

There are two points worth noting. First, the budget reserve is $653 million and the cash flow account has another $350 million. (There's a small pot of money for Human Services funding untapped, too.) So one could easily carry on spending at projected levels without any increase in taxes. So news reports that "this might be "the tip of the iceberg" or that tapping the reserves might hurt our credit rating are pretty thin gruel. It's probably also not the time to make major spending cuts; I don't see those as necessary on macroeconomic grounds. (I would favor them on efficiency grounds, but that's a different story.)

The reason takes me to the second point. The use of Global Insights as the forecast driver (meaning their national numbers are being used to project state revenues) puts us on the low end of the economic forecasts out there. In the November WSJ Economic Forecasting Survey, GII's Nahraman Behvaresh put in a forecast of 0.7% for first quarter 2008 vs. 1.9% average for the survey, 1.6% vs. 2.4% for Q2. Following up on something I wrote yesterday, if you set those growth rates low, they have substantive impact on growth for the rest of the biennium, as they push down revenue generation for 3/4 of the period, not just those two quarters. (GII isn't far off the average survey for the rest of the survey.) Now it may be that Global Insights and, by extension, the Finance Department are right on this forecast. I'm already on record making the probability of recession up here in the local area around 40%. GII is not forecasting a recession as its baseline, but has an alternative blended model with a weight of 35% on a national recession scenario. Most economists in the recent NABE Outlook do not foresee a recession. Today's weak consumer spending report has made some revise their estimates downward, though.

Revenue forecasts tend to be pessimistic, because the costs of errors are asymmetric -- nobody minds finding extra money under the stocking five months before the end of the biennium, but a shortfall causes pain. Not to suggest that Finance is writing something gloomy (even if people do think Tom Stinson is sobering and careful), but it's a very brave forecaster who would have bucked Global's negative outlook ... and I'm not one of them either. Still, it will be hard to imagine the story getting much worse than this forecast unless there's some additional shock to the system. The biggest risk would be oil prices staying higher than $80 a barrel through next year.

Labels: economics, legislature, Minnesota

My friend Dave Aiekens at the St. Cloud Times sends me a link to an interview with state economist Tom Stinson in the new MinnPost. I commend it to my more conservative friends; as Dave pointed out in his email, I'm not the only person who's a bit pessimistic about the state economy. Given Stinson is writing up the new budget forecast as we speak, we cannot look at this interview and figure there'll be much glee.

Stinson responds to a question

MP: There has been a lot of debate about whether this is because of a lack of investment in government or a refusal to pay taxes, or, on the other side, too much taxation hurting the business climate. How much of a factor are these things and how long does it take before these decisions are reflected in economic performance?

TS: There is not much you can do in the short run to stimulate a large economy like the State of Minnesota's. Typically it takes awhile for a cumulative impact to be noticeable. But one of the large changes that may have occurred is that the production of defense material has become more important in the U.S. economy than it was five or 10 years ago. And that is not an important sector in Minnesota. So to the extent that the growth in the U.S. economy is coming from defense production, Minnesota is bound to grow more slowly.

Another place where we have to be concerned is our investment in new technology. We are not talking about just the state government's investment, but the broad range of investments in research and development. The identification of new products and new processes and new ways of doing things has slumped significantly in Minnesota compared to what it was 20 or 30 years ago. It could be that part of our underperformance economically is that we just haven't been investing enough in r&d compared to the rest of the country.

I wonder if Tom has seen my note on the new study on Minnesota's place in acquring international patents. Now try to square that with the latest press release from St. Cloud's own state Senator Tarryl Clark:

Sen. Clark said the Legislature must focus on passing a new bonding bill, a transportation finance package to fix the state’s roads and bridges, as well as a new tax bill aimed at spurring job growth and reducing property taxes soon. Many other strategies to promote growth in the emerging bioscience and renewable-energy industries should be examined, according to Sen. Clark.

What in this would fix the Minnesota economy? The tax bill being discussed raises taxes on some in order to give others the possibility of a property tax break. At best that's sloshing money between households. If you raise taxes on rich individuals, from where do you get the money for private investment? As Craig Westover points out, "Talk about how ‘we’ distribute the resources ‘we’ have easily becomes talk about how ‘we’ distribute the resources ‘you’ have."

Gary Gross provides a reminder of what the Senator wanted to use to fix our economy last year. Leo suggests the taxing will continue until morale improves.

It's no use pretending the problem of a softening economy isn't there. The