Say then, my friend, in what manner does tyranny arise? --that it has a democratic origin is evident. -- Plato, The Republic.

I guess I had thought it was pretty well known that legislators trade votes and seek favors. Rentseeking has been around for centuries. Ever since James Madison wrote of factions in Federalist #10, we have known that we cannot remove the causes of special interests without removing liberty itself, so we have to control its effects.

Madison wrote, "When a majority is included in a faction, the form of popular government, on the other hand, enables it to sacrifice to its ruling passion or interest both the public good and the rights of other citizens." This is the situation in which we find ourselves today. The majority in the Senate prefers to gain control of the health industry, as it would any other if it found a pretense. This is the tyranny of the majority. So why did Madison think this would be nevertheless a good form of government? This is why he preferred a republic to a democracy, because a republic could better infuse the minority position into the legislative process:

In the next place, as each representative will be chosen by a greater number of citizens in the large than in the small republic, it will be more difficult for unworthy candidates to practice with success the vicious arts by which elections are too often carried; and the suffrages of the people being more free, will be more likely to centre in men who possess the most attractive merit and the most diffusive and established characters.

It must be confessed that in this, as in most other cases, there is a mean, on both sides of which inconveniences will be found to lie. By enlarging too much the number of electors, you render the representatives too little acquainted with all their local circumstances and lesser interests; as by reducing it too much, you render him unduly attached to these, and too little fit to comprehend and pursue great and national objects. The federal Constitution forms a happy combination in this respect; the great and aggregate interests being referred to the national, the local and particular to the State legislatures.

That last bit, "State legislatures", of course refers to the fact that Senators at that time were to be appointed by the state legislatures and not by popular, direct election. It seems highly unlikely that, if they were so elected today, that Sen. Ben Nelson would have an opportunity to be vote #60. But that's not how we pick them today, even though I believe it means senators do not have enough "acquaintance with all their local circumstances." A couple of paragraphs later,

It will not be denied that the representation of the Union will be most likely to possess these requisite endowments. Does it consist in the greater security afforded by a greater variety of parties, against the event of any one party being able to outnumber and oppress the rest? In an equal degree does the increased variety of parties comprised within the Union, increase this security. Does it, in fine, consist in the greater obstacles opposed to the concert and accomplishment of the secret wishes of an unjust and interested majority? Here, again, the extent of the Union gives it the most palpable advantage.

Madison clearly understood the ability of legislative leaders to vote-trade, as Harry Reid and Ben Nelson and the rest of the Democrats have now done. I don't think we should be surprised by it. Colbert King tells us to simply get over it: "My friends, dry your eyes, suck it up, and get on with it." And truly, Mr. King is right that the temptation to trade votes and to place pork in legislation is a temptation to which their has been bipartisan surrender and failure. This shock that Sen. Nelson has engaged in vote trading is a bit disingenuous. Challenge the constitutionality of the language of Nelson's bribe, or that of the binding of future Senates not to change the actions of the Independent Medicare Advisory Board. And sure you can point out who got which thirty pieces of silver. But let's not pretend this doesn't happen. It is the nature of government to logroll and always has been. (More on this in the preceding post.) James Joyner concurs:

This doesn�t mean we shouldn�t shine a light on these abuses. By all means, we should. But let�s not pretend that they�re a recent invention.

But it would be a good outcome if his most brazen legislative language -- how often do we explicitly name the state who gets the goodies? how often do we get a Senate Majority Leader so unashamed that he accuses those who don't get pork as having failed? at least Dodd had enough shame to drag a stick behind his tracks as he snuck off with $100 million for U Con -- reminded our populace of how voting out one set of pork-consumers doesn't mean you get clean government. Sometimes you get hungrier pork-consumers.

Boettke and Rogers, in a wonderful (and wonderfully thin) volume The Beginners Guide to Liberty (whole thing at that link), remind us of a story:

There is an old tale that many economists use to set up the discussion of how well the market works in comparison to government policy. A Roman Emperor is asked to judge a contest between two singers. After hearing the first contestant sing, the Emperor awards the prize to the second singer under the assumption that surely the second cannot be worse than the first.

The point of the story is that even when markets fail -- and the authors acknowledge that they do -- governments can fail too. When government failed in the second Bush Administration, people chose a different government. Perhaps next time they'll realize that when markets fail, the answer is to use markets to solve the failure.

Labels: health care, legislature, Obama, politics

Good grief, the man who gave us Sen. Obama to become Pres. Obama might be even more annoying than his student.

�Maybe God got it right with the Ten Commandments and their brevity.� -- Sen. Dick Durbin.

What does he mean by this? That "people who are too bitter to read 1000 pages cling to their guns and Bibles?" Because seriously, I didn't understand what he meant by that.

I'm thinking I need to write the chairman's mark of Leviticus. "Leave some of your field for the poor. I'm God, also known as Senator."

Labels: legislature

Many years ago I was in a debate with some other (then-young) economists over the concept of rational expectations. The discussion was about whether market participants would have enough information to make expectations about inflation, for example, that reflected all the relevant information available. The answer, I argued, was that it wasn't necessary for everyone to have the same information. James Tobin's disparagement of "yeoman farmer econometricians" (a model of firms used, for example, in Ball and Mankiw [1994]) was that the average person didn't have the information or analytical skill to enforce rational expectations over the price of corn. But what matters is not the average but the marginal farmer. As I had understood Hayek then and now, a world with dispersed knowledge requires only that the farmer with the relevant information has the capacity to act in the marketplace; her actions influence the price, which communicates that knowledge to the others in the market without that information.

I have always thought this applies much more broadly than the price of corn. Thus I think the argument we see today about plain language versus legislative language in the health care debate ignores the very real fact that what rules us is legislation and we only need the marginal analyst to tell us what really matters.

Sen. Thomas Carper (D.-Del.), a member of the Senate Finance Committee, told CNSNews.com that he does not �expect� to read the actual legislative language of the committee�s health care bill because it is �confusing� and that anyone who claims they are going to read it and understand it is fooling people.

�I don�t expect to actually read the legislative language because reading the legislative language is among the more confusing things I�ve ever read in my life,� Carper told CNSNews.com.

Carper described the type of language the actual text of the bill would finally be drafted in as "arcane," "confusing," "hard stuff to understand," and "incomprehensible." He likened it to the "gibberish" used in credit card disclosure forms.

If it's gibberish in the credit card disclosure, why does Congress insist on them? We know why, because the newspapers have consumer affairs reporters who find experts that help us understand that gibberish. This takes a little time. So too would the legislative language. When Congress says it cannot provide time to us because we wouldn't understand it anyway, this misses the point. I don't want to see it myself -- Carper and the other Democrats are probably right that I can't get through it in three days. But I want someone who is expert in reading health care legislation who is not a member of the majority to read it. Such people exist at think tanks up and down Washington, from a Keith Hennessey to a Bob Moffitt. Their input is vital to those of us who believe in checks and balances, and I believe it to be antithetical to good policy for either party to jam through legislation as consequential as this without time for review. At the margin, it's the analysis of the experts from the other side that provides the most information.

Labels: economics, health care, legislature

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 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

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

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

In Pat Kessler's paean to departing Override Sixer Neil Peterson, we get an interesting definition of a maverick, and a refutation of that status:

Two days after losing his seat in a primary election, Neil Peterson's at the Capitol packing up. He was targeted by his own Republican Party because he's a political maverick.

'Who is an independent thinker, thinks for themselves, does what's right for public policy and moves on,' Peterson said describing a maverick.

Peterson is one of six Republican mavericks who broke with their party to override a governor's veto, passing a transportation funding bill including a gas tax hike.

He said he'd do it again because of how bad the congestion is in his Bloomington district."

That's not a maverick; that's someone who brings home pork. At least in his case he was successful -- other guys not so much.

So maybe the Peterson definition of a maverick is "someone who brings projects home to his district regardless of the cost imposed on those outside the district." Hardly a profile in courage.

Labels: legislature, Minnesota

Bob Collins seems confused by Rep. Seifert's use of the term "Smurf village". Think about this a minute: all Smurfs are one color (sky blue), Smurf dialogue uses the same word, 'smurf', over and over. Thus, they look all alike and talk all alike. Sort of like this.

Sort of like Democrats. Don't believe me? Let's ask an astute, outside observer, Gerard Baker, most certainly not a right-winger.

It's hard to know what's worse - expressing condescending views about the working class or pretending to be one of them. The Democratic campaign is simply disappearing in the enveloping vapidity of the candidates' making.

The economy's a mess; the US is bogged down in Iraq and Afghanistan. Instead of seizing the opportunity to present a convincing vision of an alternative way forward the Democrats are fumbling. When they are not scrapping about each other's street cred they are falling back on the old verities of left-wing dogma: class warfare on taxes; irresponsible (and unredeemable) promises to pull out of Iraq in an instant; a protectionism that makes a mockery of their claims to want to restore America's standing in the world.

Amid this sorry spectacle of cynical opportunism and atavistic dogmatism, the Republicans have contrived somehow to select in John McCain the one candidate in their party who might actually have a shot at winning the election.

Which could pull along some House candidates and make the DFL, well, blue.

Labels: legislature, Minnesota, politics

Remember the story last month about Minnesota passing tax benefits for filmmakers, with the purpose of getting the Coen Brothers to make a movie here? Massachusetts has done the same thing, and now is having a little bit of buyers' remorse:

But a new government study suggests much of the money will go to high-paid Hollywood actors, raising questions about the value of the incentives.

The analysis by the Department of Revenue this week estimated that at least half the film-industry payroll spending will go to out-of-town residents, mainly actors, directors, and producers commanding salaries of more than $1 million each. The Revenue Department assumes they will spend only a fraction of their paychecks in Massachusetts, limiting the benefits to the local economy.

"It's not the best use of taxpayers' money," said Representative Steven D'Amico, Democrat of Seekonk, who requested the study. "I don't think it's good business to be subsidizing the salaries of rich movie stars."

Dang those leakages!

(h/t: Newmark's Door)

Labels: economics, legislature, Minnesota

Ramsey County District Court Judge Kathleen Gearin has rejected the lawsuit filed by Citizens for the Rule of Law, arguing that per diem raises were within the purview of the Legislature and should not be counted as pay raises.

St. Paul restaurateurs rejoiced at the news.

Labels: legislature, Minnesota

When you talk to people familiar with the state legislative process, a term you hear often is "the tails". This refers to the impact of a decision about this year's budget on the projected spending and taxation and surplus or deficit for the next biennium. (Projections are not provided beyond that.) It is what allows legislators to discuss the possibility of needing additional cuts in the next Legislature, or the possibility of new spending programs.

After the budget compromise of last week was announced, one thing that was said to me was that "they chopped the tails", meaning the reduction in spending (or the removal of the foreign operating corporation exemption -- the tax increase that dares not speak its name) had made a good deal of progress in reducing the size of the FY2010-11 deficit. I said to those people I would wait to see the evidence when someone released the fiscal impact report.

The report is now out from the House research staff, and the tails barely got nibbled.

You will hear that we cut out $268 million from spending in this biennium and $340 million from the next. True enough. But the additional LGA monies and the money to K-12 education take back $137 million in this biennium and $428 million in the next. The net changes are thus $131 million reduced for 2008-09 and $88 million INCREASED for 2010-11. The total reduction in the next biennium's defict is only $137 million, of which the FOC exemption removal is estimated to bring in $140 million. This is what happens when you pay for $935 million in the current deficit with $617 million in reserves and fund shifts.

Here's a summary of where the money goes and comes. Most of that additional $88 million is the impact of the transportation bill (HF 2800) that was enacted over Gov. Pawlenty's veto. Here's that bill's tracking sheet -- notice that $86 million of spending in the next biennium for that bill is not paid for by any of the tax increases the DFL enacted. At a minimum, one would have thought the Legislature that gave us that additional spending would have come up with a way to pay for it before it went back home for the year. But as well, that calculation should make it plain that the only progress made on the tails was the result of a tax increase. I know the governor's office doesn't want to call it that. I'll simply say been there, done that.

But a majority of the blame has to go to legislators who cannot even clean up their own mess after passing HF 2800. Our discussion Saturday on the Final Word with Sen. Geoff Michel and Rep. Steve Gottwalt indicated they were also concerned about the next biennium's budget. With the reserves depleted, can there be any doubt that another tax increase lies on the horizon if the current DFL majority gets a veto-proof margin in the House?

Labels: legislature, Minnesota, Pawlenty

Over this week I'll post thoughts on the rush to end the Legislative session. Gary has posted liveblogs of the Pawlenty and DFL leadership fly-arounds if you want the snippets. But here's my first thought.

I hate levy limits.

Not so much because there are incentives to always raise your taxes to the cap. Not that they are wrong about this, but that it's not the only reason I would oppose them. (It would be simple to amend that to say that you can raise 3.9% in the first year, by 7.8% over the two-year-ago level in the second year, etc., if that was the only problem.) And not because they are getting $60 million in return for the cap through a new LGA methadone injection. The problem is a local control issue, as St. Cloud Mayor Dave Kleis notes:

We have our own policies limiting the increase to growth and inflation. As a legislator, I've always believed strongly it's a local control issue... you have local elected officials, elected by members of the community and they should make those decisions.

For the very same reason I've always hated term limits. You want to keep sending the same wastrel back to Congress every two years? It's your right to do so. I dislike Rep. Oberstar's views, but it's none of my business if his district thinks he's a wonderful provider of bike trails and sends him back every two years; the most I can do is send donations to his opponents as an expression of my free speech and maybe write a letter or two to his district newspapers.

If a city wants to tax its citizens an additional 7% in a down economy and if those citizens return those city councilors and mayor back to office, they get what they want. Why the DFL and Pawlenty think they can make this decision better than the municipalities can, is beyond me.

Labels: legislature, Minnesota

MinnPostToasties runs a long, gushing review of Sen. Tarryl Clark, repeatedly bringing up "she could be governor". It does its best to portray her as moderate; I've heard her "my daddy was a Republican" pitch before. Those of us familar with her views on taxes, what bills we try to pass in response to a bridge collapse, stadium taxation without referendum, or denying access to a business development tool preferred by businesses in her own district, might not be as in awe of Clark as the Post is.

Labels: legislature, Minnesota

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