A WORD FROM THE SPEAKER
Dec 28, 2008 News
As House Speaker Kelliher communicated to the Governor:
“Budget unallotment is a blunt instrument that reflects the
difficult budget crisis confronting our state. It is important to identify the priorities that will ultimately make Minnesota stronger. That is one reason why the House wanted to ensure that resources continue to flow to our classrooms. While it is important that he spared K-12 education, his cuts to higher education may hurt our ability to build the highly skilled workforce our state needs.
“We are concerned about the impact of significant cuts to health and human services. The financial stability of our community hospitals, as well as the education and training of badly needed primary care physicians are both at risk as a result of the Governor’s $73 million cuts.
“Going forward, it is important that all options remain available as state leaders address the larger budget deficit. It is simply not enough to reach agreement on the bottom line. We must also fundamentally change the way we do business in our state so we can avoid a similar crisis in the future. Solving our budget deficit is much more than just a math problem.
“We have asked Minnesotans to send their best ideas to the Capitol. The Minnesota House of Representatives has set up a webpage at house.mn so citizens can have a say in how we confront Minnesota’s projected budget deficit. In the meantime, the Legislature will continue to focus on job creation and innovation as we work our way back to prosperity.”
A Budget Solutions Hotline is also available for Minnesotans without Internet access.
Minnesota Budget Solutions
Minnesota House of Representatives
470 State Office Building
100 Rev. Dr. Martin Luther King Jr. Blvd
Saint Paul, MN 55155
Greater Minnesota: 800-685-8907
Metro Area: 651-297-8185
WHAT DO WE DO NOW?
Dec 28, 2008 News
Along with the immense financial and emotional toll job losses take on individuals, families and communities, there is a significant economic impact on state government and ultimately taxpayers.
Several economists have studied the cost of unemployment on government. The most recent being a 2008 study by Lawrence Summers, the newly appointed Director of the White House National Economic Council.
Looking at the available data, we can estimate that every Minnesota job that is lost will cost our state, and taxpayers, $10,000. To put that in larger context, the 10,500 jobs we lost last month created a $105 million hole in our budget. And if State Economist Tom Stinson is correct in his projections of 77,000 more job losses in 2009, Minnesota will be dealt another $1 billion blow.
Unemployment is particularly damaging to our economy because the state budget is hit on both the revenue and spending side. Less revenue comes in the door due to the loss of income and sales taxes while more is going out for unemployment benefits and other government assistance programs for the unemployed. The $10,000 figure is a conservative estimate because it doesn’t include several indirect costs such as more crime, higher incarceration rates and increases in various health care related expenditures.
Ultimately, we have a jobs problem in Minnesota and it is our jobs problem that is causing our budget deficit problem. That is why a solution for our state budget deficit problem that doesn’t address our jobs problem is not a solution that benefits Minnesota taxpayers. Job protection and creation must color every decision we make as we work together to responsibly address our budget deficit. By making jobs a top priority, we can put Minnesota back on the right track to economic prosperity.
Two Studies
Lawrence H. Summers, “Unemployment.” The Concise Encyclopedia of
Economics. 2008. Library of Economics and Liberty. 17 December 2008.
The Summers study focuses on the cost both on the state and federal level, but we can roughly extrapolate the cost on the state level.
“For an individual who work for $15.00 an hour….taxpayers as a group paid $8.25 in unemployment benefits for every hour the person was unemployed, and got back in taxes only $1.49 on this benefit. Moreover, they gave up $3.85 in lost tax and Social Security revenue that this person would have paid per hour employed at a $15.00 wage. Net loss to other taxpayers: $10.61 ($8.25 – $1.49 + $3.85) per hour. Multiply this by millions of people collecting unemployment, each missing hundreds of hours of work, and you get a cost to taxpayers in the billions.”
At the state level the maximum hourly cost is $6.76 an hour, which would overstate the tax impact to the state. At $6.76 per hour, the cost for a year would be $13,500.
This is from 2001 data from Missouri. It assesses the cost for Missouri at $5,700 per job. I want to check if we are on the level to say that once you factor in inflation, Minnesota wages and how our state delivers unemployment the figure of $5,700 per job would be closer to $10,000. (MISSOURI’S COST OF UNEMPLOYMENT,PAVLINA R. TCHERNEVA JUNE 4, 2005)
“…. the cost to the state per unemployed individual is $5,764, which includes the direct cost of paying unemployment insurance and the opportunity cost of foregoing $2,935 in income and sales tax revenue.”
The study also states that this is a conservative estimate because:
“Also note that when we calculate the cost to the state we do not account the foregone revenue from loss of collection of local and other taxes that may be imposed in different cities, counties and districts across the state. However, since the loss of state revenue is subsumed in our overall COU-MO measure, these costs are already implicitly accounted for. What we do not account for is the increased expenditures of Medicaid and TANF. Neither are we able to measure the “untold costs” in terms of higher crime, incarceration and divorce rates, as well as health problems and other factors, which we alluded to in the section about indirect costs.”
The Ownership Society and Our Current Economics
Dec 26, 2008 Economy, Middle Class Amendment, News
The Bush administration promoted a new vision for how we ought to see ourselves in this country called ‘the ownership society’ and it is my belief we have just been witnessing the dark side of what that vision means from the Bush reaction to New Orleans to our current financial struggles all across the country.
The idea of the “ownership society” was supposed to make individuals responsible for their own choices in health care, investments, and pensions so they could take responsibility for their own safety net. This would free the government and taxpayers from having to take care of other people. Perhaps based on that conservative notion that giving someone a helping hand only weakens their ability to fend for themselves. It is a sin of the weak willed that lead only to a softer nation of dependents. It allows politicians to make government run efficiently and pay for just the essentials, which seems to be an argument for keeping the war machine going.
It is supported by a belief that the free market is what keeps the wheels of the economy turning and the more stimuli we give to those at the top the more growth they will create. But what this current financial collapse has shown us is that treating the financial sector as wealth engine concentrates wealth in one sector and puts everyone else at tremendous risk. The rest of us can’t create enough growth if the wealthy hoard their money.
In a review of Peter Gosselin’s “High Wire: The Precarious Financial Lives of American Families,” Robert M. Solow writes (Trapped in the New ‘You’re on Your Own’ World):
When the Bush-Cheney administration proposed to replace Social Security with a system of individually accumulated, individually owned, and individually invested accounts, my first thought was that its goal was to take the Social out of Social Security. It took a few minutes longer to realize that it also intended to take the Security out of Social Security.
But efficiency is not the issue here, at least not the main issue. The transfer of risk from social and private institutions to individuals transfers a burden, mainly from the strong to the weak. That is primarily an issue of equity. It will surely become more urgent in current circumstances, perhaps urgent enough to be seen as a central political issue. Suppose that the best way to relieve that burden is by sharing the risk through universal social insurance. The premium then has to be a tax, a tax on work or enterprise, or some productive activity, and such a tax is a distortion, a source of inefficiency, a true cost to society. What then? I know what Gosselin would say: a society that won’t pay a small cost to preserve equitable and fair treatment of, among others, the sick, the old, the unemployed, and the victims of natural disaster is not much of a society. Is that a minority view?
Can we afford the ownership society? I keep thinking about the much-needed reform to bring down the cost of our health care system. Most politicians talk about solutions that either cut government spending by pushing the cost on to individuals (you own it – it’s your problem) or they want to cover everyone at great cost to the government by continuing to pay private insurance companies to provide access through their cost bloated system. Insurance companies may employ excellent people who do their jobs efficiently but the companies they serve are expensive rationers of health care and add administrative costs creating a perverse payment system. They collect premiums that they pool into immense sums and decide how to dole out after paying CEOs excessive salaries, while denying patients access to the care they need.
To me it looks like we avoid a state run insurance plan because it looks like socialism in order to provide welfare to extremely greedy and inefficient corporations. Can we afford to continue? An analysis of what is keeping these expensive HMOs going is that they now are kept afloat by government contracts to manage public plans. I think it’s time to consider a change and finally figure out how we pool the money to serve everyone and not just a few. It may mean we save lots of money and won’t have to throw people out of their jobs to balance the budget.
As Jack LeMoult a writer and retired attorney, says in the Xenia Gazette,
Even though universal health insurance under a single-payer system would provide all Americans with medical, dental, eye care, and psychological treatment at a cost substantially lower than what we now pay for private insurance, we don’t care. We have been brainwashed by conservatives in the Bush Administration and in Congress who claim it would be “socialized medicine.”
Such thinking is shoddy and immoral. We have had Medicare for decades and it has not led us into socialism. On the contrary, the medical profession has thrived in under Medicare. Now it is time for Americans to start caring about one-another and provide Medicare for all of our people.
You might also find the link to this blog on tax fairness interesting.
Or this one on the decline in state revenue.
Here is a comment on state spending.
Renewable Energy Payments Conference
A conference about a new way to create jobs and encourage renewable energy in your community.
Sponsored by the
Institute for Local Self-Reliance
January 9, 2009 at Buntrock Commons, St. Olaf College, MN (click on names for directions)
To register click here: 
To organize and inform decision makers via a one-day conference to highlight the significant economic, environmental, and community benefits of a feed-in tariff policy in contrast to existing policy; to highlight the particular importance of dispersed and locally-owned energy generation under such a policy; and to envision the impact of widespread state and federal adoption of feed-in
tariffs.
Who should attend: state legislators, environmental and energy advocates, renewable energy industry representatives, local government officials interested in green job economic development, nonprofits and foundations committed to a renewable energy future.
THE SHORTFALL AND THE FUTURE
Dec 24, 2008 News
Gov. Pawlenty believes that the State of Minnesota still spends too much money and again wants to swallow the idea that we can solve our budget shortfall without increasing revenue. We have to live within our means, he says.
He’s worried about the habit we have of living off our Federal credit card and so wonders if he should say no to federal money that would help soften the blow and put people to work. Marshall Helmberger puts it this way in the TimberJay:
Look who is suddenly born again on the hazards of deficit spending.
It’s the same party that has maintained for almost two decades now that deficits don’t matter— a dubious lesson they learned from their holy mentor, Ronald Reagan.
Minnesota’s own governor, Republican Tim Pawlenty, would rather see thousands more Minnesotans out of work next year than accept stimulus funding from the feds. We have to watch that deficit, after all. Three months ago, we had $700 billion available for the CEOs on Wall Street, but when it comes to $25 billion to save as many as a million blue collar jobs, many of them union, suddenly we can’t forget the deficit.
So the Governor will hold back funds for cities counties, cut post secondary institutions and cut the health and human services budget and set the stage for another cutting spree in the coming session. In his speech to the public announcing his unalottment proposal he tried to pre-empt those who might try to propose other ways of solving our problem by saying history shows those other solutions just don’t work. It is hard to know what history book the governor has been reading as he did not give any hard evidence to support his claim. The Governor doesn’t like to have to explain himself so I guess we’ll just have to take his word for it and assume he knows better. Not.
Rep. Rukavina did offer up a suggestion from the Minnesota History books as he described the last
Democratic Governor to hold office:
In 1983, facing our highest unemployment and the worst economic downturn since the Great Depression Governor Rudy Perpich responded with the Minnesota Emergency Employment Development Act, an innovative plan to create new jobs for Minnesota workers.
The MEED program worked like this. Employers were given a six-month, $4 per hour subsidy for every new job they created for Minnesotans who were out of work. If the employee stayed on the job for more than 18 months, the employer never had to reimburse the state. The program exceeded expectations and was a critical element in the economic recovery, creating more than 21,000 permanent unsubsidized jobs.
Fast-forward 25 years. Minnesota is again faced with rising unemployment and a struggling economy. Just last month we learned of 7,500 more lost jobs and most economists believe it could get worse. We must approach our current situation with the same innovation and sense of urgency in which Perpich identified the core problem we must address – jobs for Minnesotans.
Contrary to what Gov. Pawlenty says, Nobel Prize winning economist Paul Krugman says in his opinion piece “Deficits and the Future”:
But the deficit worriers have it all wrong. Under current conditions, there’s no trade-off between what’s good in the short run and what’s good for the long run; strong fiscal expansion would actually enhance the economy’s long-run prospects.
The claim that budget deficits make the economy poorer in the long run is based on the belief that government borrowing “crowds out” private investment — that the government, by issuing lots of debt, drives up interest rates, which makes businesses unwilling to spend on new plant and equipment, and that this in turn reduces the economy’s long-run rate of growth. Under normal circumstances there’s a lot to this argument.
But who would argue these are normal circumstances. Local economist David Emery is concerned we may be in for a long recovery and he uses a medical analogy. “When specialists dealt with the anthrax scare they knew they had no cure so they concentrated on keeping the patient alive by treating the symptoms. In similar fashion Obama is right to keep the economy alive until the down turn passes. History tells that it may take ten years before there is a full recovery. But there is little else we can do.”
No one has a crystal ball here but it seems clear that we need to keep the patient alive.
A JOBS FILTER
Recently I was in a meeting with several legislators who got some advice from former Gov. Arne Carlson. He said we have two problems: one, the budget and the second, job creation. He urged us
to be as creative as we could about the latter. He echoed the words of State Economist Tom Stinson who said, we face a revenue problem not a spending problem and we need to be cautious about how we reduce spending in this climate especially when it comes to how it has impact on jobs.
First consider job creation is a revenue enhancer – people pay more taxes when they are working, and secondly protecting jobs is easily as important as job creation. Right now government is the only sector in our economy with real potential for stimulating growth. So we should be wary of both cutting spending and cutting jobs.
In good times one can think about increasing efficiency and encouraging government workers to look for work elsewhere if there are jobs out there for them to pursue. But the reality is that in our current situation there are no other jobs. In fact the private sector is cutting back at a faster rate than the government is. So to cut jobs at this time actually throws people into a situation where they will almost certainly go from being a taxpayer to a burden on the system. This means we temporarily save on spending but also cut back on revenue and incur greater spending with the lay off. So really it is one step forward and two steps back.
We need to look at all of our proposals through the filter of jobs. What will this proposal do to over all employment? We cannot let unemployment grow in a time like this. We need to figure out ways that we can take one step back that results in two steps forward. Shrinking the size of government when it is the only sector with any hope of providing needed growth is a huge mistake.
So again we need to put JOBS at the top. That’s job creation and job protection first. Cut spending where it either does not hurt jobs or allows us to spend elsewhere to help create jobs. The Governor is simply wrong in thinking that the private sector can be encouraged to grow through tax incentives at this time. Making government smaller at this time will only make the recovery more difficult.
In this vein I would like to suggest that just as we have put in place an environmental impact statement in front of some projects, we should implement a jobs impact statement for the various budget proposals that come forward. So that we know what the impact on jobs might be if we implement this or that policy. It may not be the final determinant in whether or not we choose a certain policy but at least we will have asked the question. It also encourages us to continually look at how we are doing and puts in place a way to change the way we look at this difficult problem we face. It is important that we not only look at how much money we are saving through cuts as we have done in the past. But look at what will happen if we make these cuts as opposed to some other policy and insists that we take a look at the long-term impact of the choices we consider.
ASKING THE RIGHT QUESTION
Dec 23, 2008 Economy, Middle Class Amendment, News
(A series of blogs on our current economic situation)
When you ask the wrong question, you get the wrong answer. That bit of wisdom certainly holds when we face budget deficits measured in the billions of dollars and growing by the day.
Here’s what I mean.
The question we most often hear is this: “How can we cut enough jobs and public services to make ends meet?” All of those jobs and public services support Minnesota’s middle class. The more we ask this question, the more we will come to the wrong answer: “Minnesota can no longer afford a middle class.”
The right question is this: “How can we keep our middle class strong and growing?” When we ask the question this way, we might just come to a very different conclusion. We might decide “Minnesota can no longer afford a hoarding class”.
The very, very wealthy have done remarkably well during the past few decades. As the economy grew, wages stayed stagnant and the incomes of the super rich grew by leaps and bounds. Over 20 percent of the country’s income and wealth are now in the hands of one percent of our citizens.
It hasn’t always been this way. In the mid-1970’s, the top one percent held ten percent of wealth and income, less than half of what they do today. In fact, there has been only one other time I can think of when the fortunate few did so well—1929. We all know what happened shortly after that.
As we scour the globe for governments willing to loan us money for economic stimulus packages, or, worse yet, start printing more money backed by nothing but hollow promises, we must ask this: “Can we afford to have so much money hoarded by so few people?” I don’t think so. If we must choose, I will choose saving the middle class.
Money hoarded by the top one percent doesn’t get spent on consumer goods the way it would if it was in middle class hands. Think about it: the average wealth of the Forbes 400 is over four billion dollars. Could you really spend that much on cars and houses? I know I couldn’t.
This hoarded wealth is protected by incredible tax breaks. Last year’s tax incidence study showed the percentage of income paid by the wealthiest Minnesotans for state and local taxes was lower than that paid by just about everyone else. How much sense does that make in a time when we are cutting
public services that grow the middle class?
I don’t have all the answers for what to do about a budget shortfall larger than anyone has ever seen. No one does. But this I do know—we won’t get to where we need to be by asking “Can we afford the middle class?” We must ask, “Can we afford the hoarding class?”
“My Spirit Sings of Wondrous Things”
Dec 10, 2008 News
I recently attended the St. Olaf Christmas concert and was reminded how moving the choir performances can be. It was a rich selection from a variety of cultural backgrounds of Lutheran and Christian music performed by the various choirs and orchestra. In addition to a number of folk tunes from across the globe I was pleased to hear two hymns by Bishop Grundtvig of Denmark.
Grundtvig was the ideological father of the Danish folk school, though his own ideas on education had another focus. He believed the university should educate its students for active participation in society and popular life. Thus practical skills as well as national poetry and history should form an essential part of the instruction.
The two pillars of his school program, the School for Life (folk high school) and the School for Passion (university) were aimed at quite different horizons of life. The popular education should mainly be taught within a national and patriotic horizon of understanding, yet always keeping an open mind towards a broader cultural and intercultural outlook, while the university should work from a strictly universal, i.e. humane and scientific, outlook.The common denominator of all Grundtvig’s pedagogical efforts was to promote a spirit of freedom,
poetry and disciplined creativity, within all branches of educational life. He promoted values such as wisdom, compassion, identification and equality. He opposed all compulsion, including exams, as deadening to the human soul. Instead Grundtvig advocated unleashing human creativity according to the universally creative order of life. Only willing hands make light work. Therefore a spirit of freedom, cooperation and discovery was to be kindled in individuals, in science, and in the civil society as a whole.
Grundtvig’s ideas were born out of a time of hardship, as Denmark who sided with Napoleon was thrown into economic and psychological depression after his defeat. He searched for something to bring his people to a more positive perspective. You can here this yearning in the two hymns chosen for the choir, “Bright and Glorious is the Sky,” and “O Day Full of Grace.”
Some years ago I wrote a paper celebrating the memory of the Paracollege (St. Olaf’s experimental college I attended in the early 70s) in which I mentioned Gruntvig’s ideas as not only evident in the spirit of the Paracollege but also in St. Olaf itself. I learned in that community about the importance of wisdom, compassion, creativity and sense of civic duty and public service. I listened to the hymns hearing not only their Christmas message but also Grundtvig’s promise to his people that there would come a better time for them and reminds me that we have reason to hope as well for a time that will be filled with more promise.
With joy we depart for the promised land,
And there we shall walk in endless light.(“O Day Full of Grace” — Grundtvig)
Minnesota’s Budget Forecast
Dec 7, 2008 News
State Economist Tom Stinson reported this week about Minnesota’s economy and the current budget deficit. According to Stinson, Minnesota is facing the longest and deepest economic recession since 1942. Having already lost 30,000 jobs over the last twelve months, Stinson predicts Minnesota will lose an additional 77,000 jobs by this time next year.
The international economic crisis has taken a direct toll on Minnesota’s state budget. The state’s leading economists have estimated a $5.2 billion shortfall that must be resolved in the upcoming legislative session.
Stinson stressed this is not a spending problem but a revenue problem brought on by lower income receipts from sales, corporate, and other state revenue sources. Significant spending cuts will have to be made to resolve what experts are now calling the largest budget deficit in Minnesota history.
To resolve the deficit responsibly in the coming weeks and months, we as legislatures must take a comprehensive look at the budget and prioritize government spending from the ground up. We hope to fundamentally rethink the way state government operates and take swift, strategic action to rebuild our lagging economy.
Throughout the coming legislative session I encourage you to contact me with your input as we work to resolve the budget deficit and put our economy back on track. The challenges ahead will not be solved overnight. We are facing some difficult days ahead. But by working together with bipartisan resolve, Minnesotans can emerge from this recession stronger than ever before.
