MN2020

Minnesota 2020 Journal: “Truth Will Out”

Fri, 24 May 2013 11:00:40 +0000

By John Van Hecke, Executive Director & Fellow

The 2013 Minnesota legislative session pleased and disappointed me. I’m not alone. Many progressives feel shortchanged by some of the session’s public policy outcomes. Yet, it’s important to keep the big picture in mind, celebrating, perhaps with a tight smile, the sea change. We’re better off with the changes than we are without them. The alternative—continuing conservative policy direction—is a downward, state-defeating spiral.

Minnesota, like the nation, has been on a conservative policy trajectory for the past 20-30 years. “No new taxes,” as activist rallying cry and as tax policy, facilitated a structural shift in state tax policy. We moved away from the Minnesota Miracle’s progressive tax framework, dramatically increasing service cost burdens on communities.

Before proceeding, let me quickly explain the Minnesota Miracle. At one, simple level, it was an expansion of state taxation but stopping there not only misses the point, it misleads Minnesotans. Following post-World War II economic expansion and population growth, Minnesota reached the limits of infrastructure investment under property tax-reliant revenue generation models. Financing long-term projects like roads, bridges, schools, buildings, airports, and the growing demand for education, healthcare, public safety, public health and life-engaging services required more money, collected more efficiently, than twice-a-year paid property taxes. Plus, property taxes are inherently regressive and less efficient than income taxes.

The Minnesota Miracle increased Minnesota’s reliance on progressive income tax but also increased consumption taxation’s range. In return, Minnesota created a sales tax distribution mechanism that shared state sales tax with communities. With this new revenue stream, Minnesota decreased its reliance on inefficient, regressive property taxes. The Minnesota Miracle, in short, helped expand infrastructure investments while simultaneously buying down property taxes. Today, this revenue sharing program is called Local Government Aid.

So to recap, the Minnesota Miracle is a restructuring of revenue generation to facilitate community service expectations and economic development strategies. And, it worked. Minnesota continued growing and prospering. Our state evolved from an extractive industry, manufacturing and mercantile economy to its current, diverse, stable condition. As a result, we’ve become a higher tax, higher cost, and higher income state. We pay more than, for example, South Dakota but we get much, much more in return.

Not everybody likes this. Principally, conservative activists don’t like it. First, it violates conservative insistence on small government. Second, progressive taxation slows wealth’s concentration into fewer hands. I think that first objection is mostly a rationalization of the second but in order to convince a great swath of Minnesotans to act against their economic interests, a philosophical assertion is necessary.

Idealized conservative small government might provide for greater happiness if reduced community services’ burdens were shared equally. That’s not the case in practice, just in theory. The “too much government” chant resonates only until crime rises, educational achievement falls or a tornado sweeps through. Under conservative “no new taxes” policy, the outcome isn’t fewer, lower taxes, merely a reordering of revenue generation. The Minnesota Miracle’s efficient, effective structure was traded for a less efficient, regressive taxation mechanism that concentrated government’s benefits into fewer hands.

Conservative activists developed a communications strategy that tried to convince people that the pain they were feeling wasn’t pain at all. And, it worked for a while. From 2003-2012, Minnesota largely pursued conservative policy initiatives. Eventually, however, truth will out. Conservative communications strategy stuck with “no new taxes” even as policy outcomes revealed the policy shift as “take from the poor and give to the rich.”

Minnesotans, measuring results against rhetoric last November, chose a different path. Minnesota’s 2013 legislative session must be interpreted through this lens. Yes, I’d have preferred broader ranging legislative achievements but reversing a decade of poor policy can’t be realized overnight.

Minnesota is returning to wider prosperity. We’re expanding investments in people, not taking them away. The K-12 budget allocation is larger. So, too, is the higher education budget. Minnesota’s healthcare insurance exchange is on-track, not derailed by conservative activists. The legislative session didn’t tilt from one conservative social agenda-driven crisis to another. Instead, policymakers worked with less drama than it did a year ago.

In the process of reaching a balanced budget agreement, legislators didn’t force another pointless, costly state government shutdown. That’s a noteworthy achievement. It tempers my frustration with what didn’t happen.

This legislative session reminds us what happens when state policymakers focus on what really matters, jobs, schools, healthcare and growth. Minnesota moves forward. That’s a better, stronger outcome than the conservative alternative. Ten years of data taught us that conservative policy wasn’t working. Today, Minnesota is on the right path.

Streetcar Desire Heats Up

Thu, 23 May 2013 11:00:43 +0000

By Conrad deFiebre, Transportation Fellow

It's been nearly six years since I last posted about Minneapolis' plans for a streetcar revival, but except for a short park ride at Lake Calhoun, no trolleys are clanging in the Mill City. These things take time.

A century ago, Twin Cities newspapers heralded the imminent construction of a subway line between St. Paul and Minneapolis. Obviously, that didn't happen. Next year, finally, the Metropolitan Council's Central Corridor light rail project will link the downtowns with trains running above ground.

Meanwhile, both core cities seem to be getting serious about establishing modern streetcar service in selected locations. With tax-increment-style financing authorized by the state, Minneapolis hopes to begin laying a 3.5-mile starter segment along Nicollet and Central Avenues by 2015. Running from Lake Street to S.E. University Avenue, it's estimated to cost $35 million to $50 million to build. Outgoing Mayor R.T. Rybak said he will do "everything possible to deliver a financing plan" by the time he leaves office at year's end.

St. Paul is getting on board, too, conducting a feasibility study through the end of the year. This early planning stage is devoted to identifying corridors with the best streetcar potential and prioritizing where to start. Financing plans will come later.

Working streetcars haven't been seen in these parts for nearly 60 years, since the old Twin City Rapid Transit Co. burned some, sold some to other cities and replaced them with buses. Similar changes occured across the country in the 1950s and '60s, leaving only a handful of legacy rail transit systems such as San Francisco's cable cars in operation.

Starting in Portland, Ore., in 2001, however, a growing number of U.S. cities are bringing back sleek new versions of bygone trolleys. The list includes Sunbelt cities Charlotte, Dallas, Fort Lauderdale, San Antonio and Tucson as well as rustier places such as Baltimore, Cincinnati and Kansas City.

"Suddenly streetcars ... are among the hottest and most coveted components of public transit's future," Jeff Turrentine blogged at OnEarth.com. "What big city in America wouldn't want to inject just a little of San Francisco's charm or Portland's uber-hipness...?"

He also noted the amazing economic boost Portland got from its $103 million downtown trolley: $3.5 billion in private residential and business development within three blocks of the tracks, most of it dense and mixed-use. This has helped cut area residents' carbon footprints to barely a third of Portland suburbanites'.

Turrentine, however, is no full-bore believer in streetcars.

"Streetcars can't transform the cultural character of a city or single-handedly pull one out of a national recession," he added. "And unless they're structurally connected to a much larger and thoughtfully administered mass transit system, they can't even make much of an impact on greenhouse gas emissions or climate change. But if they're done right, they can leverage their unique attractiveness to get people out of their homes and into stores, restaurants, cafes, sports arena -- or even offices -- without having to get into or out of their cars so many times."

This is a worthwhile goal, as well as a powerful magnet for "creative class" folks yearning to breathe car-free. Minneapolis and St. Paul already have attracted lots of these economic dynamos, and many of their historic neighborhoods can match America's coolest urban locales.

With smart planning and sensible financing such as the "value capture district for transit" newly passed as a pilot project for Minneapolis by the state Legislature, the Twin Cities can grow economically stronger, environmentally sounder and culturally more alluring with a return to streetcars as part of a comprehensive 21st century transit system. Here's hoping we're not in the 22nd century before it happens.

VIDEO: Solar Power Turns the Propellers

Thu, 23 May 2013 11:00:22 +0000

By Tom Niemisto, Video Production Specialist

Every spring the Minnesota Renewable Energy Society hosts the Solar Boat Regatta in Saint Paul, where Minnesota high school students put their designs to the test and race solar-powered boats on Lake Phalen. Over weeks and months, students learn the principles of design, applications of renewable energy, and the importance of teamwork.

As Nick Rice, science teacher and coach for City Academy, says, it's all about experiential learning outside the classroom to inspiring excitement for engineering in the next generation.

Check out City Academy's team website to see students constructing the boats.

Activated Voices: Arts for Social Change

Wed, 22 May 2013 11:00:05 +0000

By Tom Niemisto, Video Production Specialist

Recent passage of marriage equality in Minnesota resulted after months of statewide grassroots organizing and activism. Countless volunteers worked behind the scenes working to enact social change.

For Activated Voices we talk with Linda Her, a student at Metropolitan State University, who has a self-guided major in arts activism and grassroots organizing. She uses spoken word and poetry to reach out from within the Hmong community to help shape public policy from the ground up.

Looking Ahead: Fiscal Reforms Left Undone

Wed, 22 May 2013 10:59:59 +0000

By Jeff Van Wychen, Fellow and Director of Tax Policy & Analysis

Yesterday’s Minnesota 2020 article noted the significant progress made during the 2013 legislative session in enhancing revenue adequacy, budget stability, and tax fairness in Minnesota. However, our work is not over. Several thorny problems have yet to be resolved to assure that Minnesota remains on the path toward fiscal excellence in future years.

Inflation in Future State Expenditure Forecasts

As the 2002 legislative session wound down, state leaders wanted to claim that they had produced a long-term structurally balanced budget, but they did not want to make the difficult decision of increasing taxes or cutting spending necessary to achieve this goal. They resolved this conundrum by adopting the fiscally dubious policy of willfully ignoring the impact of inflation on most state expenditures, while continuing to fully incorporate the impact of inflation on state revenues. The result was to overstate future state revenues relative to future expenditures, thereby creating the illusion of a positive budget balance in the out-years.

In the 2013 February forecast, the State Council of Economic Advisors observed that “The current practice of including inflation in projected revenues but not in spending projections is misleading and not consistent with either sound business practice or the methods of the Congressional Budget Office.” Despite the fact that the Council has made this recommendation in each of its written statements over the last ten years—and despite the fact that the same advice has been given by the non-partisan Budget Trends Study Commission—the ill-conceived practice of ignoring the impact of inflation on state expenditures has remained in place.

This misguided policy has contributed to the repeated budget deficits over the last decade, as expenditures turn out to be higher than officially projected as the inexorable impact of inflation ultimately manifests itself. State policymakers should follow the recommendations of the Council of Economic Advisors and the Budget Trends Study Commission by returning to the policy of fully incorporating the impact of inflation on projected state revenues and expenditures.*

Unfreezing State Aid Appropriations

During the 2013 session, state policymakers adopted important reforms to the city Local Government Aid (LGA) formula that made the distribution of aid among cities more rational and added stability to future state LGA payments. In addition, they provided for significant increases in LGA and County Program Aid (CPA) funding in 2014 (state fiscal year 2015) to replace a portion of the sharp state aid decline over the last decade. However, they failed to complete the job of state aid reform by ensuring that the LGA and CPA appropriations would keep pace with inflation and population growth after 2014.

The property tax relief value of state aid decreases over time as inflation gradually erodes the purchasing power of the dollar and population growth contributes to the demand for increased local government services. In recognition of these increased spending pressures, state aid appropriations should be adjusted annually for both inflation and population growth. In the absence of this adjustment, property taxes will grow faster than the combined rate of inflation and population growth even if local spending grows at the same rate as inflation and population, as explained in a recent series of Minnesota 2020 Hindsight posts.

The claim that the state cannot afford to increase state aid appropriations for inflation and population growth does not hold true. A recent Minnesota 2020 analysis demonstrated that even if city LGA is adjusted for inflation and population growth, the LGA appropriation will still grow less rapidly than projected state revenues for the foreseeable future. This is true, incidentally, regardless of whether the tax increases in the 2013 omnibus tax bill are factored in.

During the 2014 session, the Legislature and Governor should complete the job of state aid reform by ensuring that both city Local Government Aid and County Program Aid are adjusted for inflation and population growth.

Adjusting the State Business Property Tax

The state business property tax levy is adjusted upward each year in order to keep pace with impact of inflation on state expenses. However, the state business property tax levy has been insulated from the effects of population growth on state expenditures. As a result, real per capita state business property taxes in Minnesota have declined by nearly nine percent since its inception in 2002. Over the same period, total local property taxes have increased by 20 percent.†

The state business property should be adjusted each year not only for the effects of inflation, but also population growth. Even with this adjustment, the business property tax will continue to be a good deal for Minnesota businesses, since the tax will still be insulated from other costs that are pushing state expenses upward, such as the aging of the state’s population, which is contributing to rapidly escalating health care costs.

The list of reforms highlighted above certainly is not exhaustive. Numerous other avenues for improvement—such as eliminating unnecessary tax expenditures and simplifying the state’s property tax system—quickly come to mind. The important thing is that progressives not rest on the laurels of the significant tax accomplishments made during the 2013 session. A lot more work needs to be done.

*Fortunately, the effect of incorporating the impact of inflation of projected state spending may not be quite as costly as feared. While the official state budget forecast does not include the impact of inflation on most state spending, Minnesota Management & Budget (MMB) does include an unofficial inflation-adjusted state expenditure projection in each February and November forecast document. As noted in a previous Minnesota 2020 analysis, the methodology used by MMB in these unofficial projections may overstate the impact of inflation on state spending.

†Incidentally, the rapid growth in local property taxes over the last year is not due to rapid growth in local government budgets; real (i.e., inflation-adjusted) per capita city, county, and school district revenue have each declined over the last decade. The growth in local property taxes since 2002 is due primarily to the sharp decline in real per capita state aid.

2013 Tax Bill: Progress on Revenue, Tax Fairness

Tue, 21 May 2013 11:00:58 +0000

By Jeff Van Wychen, Fellow and Director of Tax Policy & Analysis

Yesterday—after nearly five months of proposing, debating, deliberating, and compromising—the House and Senate passed the 2013 omnibus tax bill. While certainly not perfect, the tax bill made real strides toward revenue adequacy, budget stability, and tax fairness.

The centerpiece of the 2013 omnibus tax bill is the new fourth tier income tax bracket, which will affect the top two percent of Minnesota income tax filers by income. After intense deliberations last week, House and Senate tax negotiators ultimately settled on the income tax plan proposed by Governor Dayton, which would increase the income tax rate from 7.85% to 9.85% on the portion of taxable income in excess of $250,000 for married joint filters, $200,000 for heads of households, and $150,000 for single filers. Income above these levels constitutes the new “fourth tier.”

The income tax provisions of the 2013 tax bill—including the new fourth tier and other changes and interactions—are projected to generate an additional $1.14 billion in FY 2014-15 and $1.12 billion in FY 2016-17 and comprise just over half of the total new revenue in the bill.

The tax bill also closes several corporate tax loopholes. Major revenue raisers in this category include repeal of the foreign source royalty deduction and foreign operating corporation provisions, which alone are projected to generate $233 million in FY 2014-15 and $192 million in FY 2016-17. In addition, the bill will count all Minnesota sales of a unitary business group in the apportionment factor for determining the portion of corporate income that is taxable in Minnesota. The bill will also the repeal real estate investment trust dividend deduction and make the research & development credit “non-refundable” so that a business cannot receive a credit that is greater than its entire corporate tax liability.

Combined with increases in the corporate minimum fee (which has not been adjusted for inflation since 1990), the loophole closing and other provisions in the corporate section of the bill are projected to generate $424 million in FY 2014-15 and $331 million in FY 2016-17.

The omnibus tax bill includes a sales tax exemption for counties and cities beginning in 2014. This exemption will reduce county and city expenses and help to hold down property taxes. In addition, the bill will convert the capital equipment refund for businesses into an upfront exemption, thereby reducing administrative hassles and the need to apply for a refund. The repeal of the capital equipment refund in favor of an upfront exemption has been a bi-partisan tax reform goal for several years.

The bill will also extend the sales tax to several business services, although the list of business services affected is minimal in comparison to what was in the Governor’s original budget from last January. Among the business services that would become taxable in the tax bill are warehousing and storage services and electronic and commercial equipment repair and maintenance. In addition, purchases made over the internet through companies with Minnesota affiliates would be subject to the state sales tax. This provision, referred to as “affiliate nexus,” eliminates a competitive disadvantage between main street businesses—which must collect a tax on their sales—and on-line retailers with a Minnesota presence—which frequently do not collect taxes on similar sales.

While the sales tax changes in the bill are significant, the revenue increases in the bill resulting from the sales tax base expansion is largely offset by the tax reductions resulting from the county and city sales tax exemption and the upfront capital equipment exemption. In aggregate, the sales tax provisions in the omnibus tax bill result in a projected net state revenue gain of just $59 million in FY 2014-15 and $83 million in FY 2016-17.

Another significant revenue raiser in the bill is the $1.60 per pack cigarette tax increase, along with the decision to apply the cigarette tax to “little cigars.” These policies have the twin advantages of generating revenue for the state while also deterring tobacco consumption, particularly among price sensitive teens. The total revenue increase resulting from tobacco product tax increases is projected to be $408 million in FY 2014-15 and $439 million in FY 2016-17.

The tax bill will also close loopholes pertaining to estate and gift taxes, thereby generating a projected $78 million in FY 2014-15 and $128 million in FY 2016-17. The estate tax primarily affects only estates of considerable size and value, which is why it is the single most progressive tax in Minnesota. While the revenue generated through the estate tax changes in the omnibus tax bill comprise a relatively small share of the total new revenue generated, they nonetheless have a discernible impact in reducing the regressivity of the overall state and local tax system.

In aggregate, the tax bill will generate a projected $2.12 billion in new state revenue in FY 2014-15 and $2.12 billion in FY 2016-17. However, a significant portion of these dollars will be returned to taxpayers in the form of property tax relief through a sizable expansion in the homeowners’ and renters’ property tax refund (PTR), increases in city Local Government Aid and County Program Aid, and school property tax relief. In total, the omnibus tax bill increases property tax aids, credits, and refunds by a projected $411 million in FY 2014-15 and $760 million FY 2016-17.

The omnibus tax bill not only increases funding for property tax relief programs that have been repeatedly slashed over the last decade, but also restores funding for critical public investments in K-12 education, higher education, public safety, and public infrastructure. Furthermore, revenue in the tax bill will make new public investments possible. For example, the omnibus education finance bill will provide dollars for statewide all-day Kindergarten and early childhood education—both policies that will produce an excellent long-term return-on-investment for the state.

The omnibus tax bill will also balance the state budget in the upcoming biennium in a fiscally responsible way. The budget FY 2014-15 budget will be balanced without the use of K-12 funding shifts or by selling off future state revenue streams for the sake of an upfront one-time cash infusion,* as was the case in the last biennial budget set during the 2011 special session. The 2013 tax bill marks the return of responsible fiscal tax policy to Minnesota.

Finally, the 2013 omnibus tax bill will make Minnesota’s state and local tax system less regressive. While the cigarette tax increase and the corporate tax increases in the bill are regressive,† these will be more than offset through the powerfully progressive fourth tier income tax increase and the estate tax increase, as well as through the reduction in regressive property taxes. The homeowners’ and renters’ PTR increases are targeted to low- and middle-income taxpayers and are particularly effective in reducing tax regressivity.

The 2013 omnibus tax bill will be signed into law shortly by the Governor, marking the fulfillment of promises made by Dayton and other progressives to increase revenue adequacy, improve budget stability, and increase tax fairness in Minnesota. However, the work of improving Minnesota’s tax and budget system is not over. More on this tomorrow.

*Specifically, legislation passed during the 2011 special session sold future state tobacco settlement revenue for the sake of $643 million in one-time upfront cash, which was used to balance the FY 2012-13 budget.

†While corporate income taxes are generally regressive, a large share of corporate income taxes are shifted outside of Minnesota and thus have no impact on tax regressivity within Minnesota.

Tuesday Talk: How did policymakers win? How did policymakers weasel out?

Tue, 21 May 2013 10:00:23 +0000

By Joe Sheeran, Communications Director

Minnesota 2020 warned progressives and policymakers not to overreach this legislative session. Overcoming a decade of disinvestment and divisive policy would take a couple of legislative sessions. That’s pretty much what happened. This session brought Minnesota a greater degree of tax fairness, reinvested in education and communities, and brought wider health care access via a state exchange. Still, there’s a lot of work left. Lawmakers didn’t pass anti-bullying legislation, the environmental bill is underwhelming at best.

What are this session’s winning policy outcomes; and where did policy leaders weasel out?

Five Threats to Minnesota Waters

Mon, 20 May 2013 11:00:58 +0000

By Christina Motilall, Fellow

Even in frozen February, it is easy to see why Minnesota is so proud of our 11,842 lakes (yep, that is the actual number) and our 6,564 rivers and streams. Minnesotans from all walks of life enjoy our waters in a multitude of ways, bringing us together for decades.

Unfortunately, more than 3,000 of our rivers, lakes, and wetlands are impaired. The state designates a body of water as ‘impaired’ if it fails to meet certain water quality standards, which are assigned based on the water’s intended use such as fishing or swimming. If it cannot be used for its intended purpose due to pollution, it is impaired. Fifteen percent of our waterways being impaired may not alarm everyone at first, but the number of impaired waterways grows every year.

A blanket ‘one size fits all’ state water policy does not always work, because many different factors influence each waterway. Various pollutants work their way into our waters in diverse ways, and the overall quality of water in the state does and will depend on how Minnesota and its residents address these 5 threats to our waters.

1) Invasive Species: We’ve all heard about Milfoil, the Common Carp, and zebra mussels, already infesting 150 lakes. Their potential to spread combined with dozens of other invasive species should put aquatic sport-living Minnesotans on alert. Simply put, an invasive species is one that is not native to an area and creates negative effects from its presence. Find out what you can do to stop the spread of these invaders.

2) Non-Point Source Pollution (NPSP): If you see smoke billowing out of a stack, then you can pinpoint that pollution source. But what happens when that particulate matter lands? It is harder to tell where it comes from. Air deposition of pollutants, such as mercury, is just one example of non-point source pollution in Minnesota. Other sources include agricultural runoff, road salt contamination, urban fertilizer pollution, storm water systems, and more. The state has created the Nonpoint Source Management Program Plan to increase what is being done about NPSP, however the problem persists. Adequately developed buffer strips and reduced use of toxic materials (such as road salt and fertilizers) can go a long way in helping our waters to improve.

3) Mining: Sometimes falling under the umbrella of NPSP, mining has always been a threat to water quality in Minnesota. For over a century, mines have been built into our landscape, bringing with it a plethora of jobs and plenty of environmental problems. Current regulations and permits required of mines have been a big step forward in helping to protect Minnesota waters. However, new mining possibilities in the past decade pose new threats. This includes mining for copper and nickel in northeast Minnesota and mining for silica sand in southeastern Minnesota to be used in hydraulic fracturing (used for natural gas and oil wells). As mining increases in the state, we put water quality in jeopardy, both above and below ground.

4) Development/Trash: With a growing state population, development is inevitable. Yet, it comes at a cost. From dredging and filling wetlands to mapping more people to storm water systems, we are taxing our interconnected waters and disrupting the natural flow of things (which cannot always be remedied by creating a new wetland somewhere else). In addition, there is nothing sadder than seeing a plastic bottle or a chip bag in a lake or stream. Minnesotans have a responsibility to our environment and to our fellow residents. Pollution degrades water quality, which can have far reaching effects on human health. So take a minute to walk that piece of trash to the garbage or recycling bin. You are doing yourself, and everyone else, a favor.

5) Climate Change: Just the other day I heard someone say ‘I don’t think global warming is happening, I mean look at this winter!’ This misinformed outlook is sadly more common than one would hope. With scientific consensus that climate change is indeed happening, we are expected to see a 5°F temperature increase by 2050. Five degrees may seem minimal, but with well-balanced aquatic ecosystems, just a few degrees can break equilibrium and completely shift a water body. Minnesota needs to take greater steps to not only reduce our carbon footprint but to also prepare mitigation plans. With groups like the Minnesota Climate Change Advisory Group, we are on our way. But in order to protect our waters, residents and regulations alike need to do more.

This by no means an exhaustive list of the threats Minnesota waters face. That is why we as citizens should play our part in water quality upkeep and protection. Small actions may not seem important at the time, but in the long run we can secure Minnesota’s future through safeguarding our waterways.

The status of our waterways has not tipped to the worst. But without careful planning and maintenance, we are looking at big problems ahead. So clean your boats and stay informed. Our waters are at stake.

VIDEO: The Giant Recycle Sorter in Action

Mon, 20 May 2013 11:00:55 +0000

By Ellen Roos, Media Fellow

The days of separating recyclables is now a thing of the past for most Minneapolis residents, with the city in its final phase of distributing One-Sort Recycling bins. While the program carries upfront costs, city officials hope the change will increase recycling rates and save on other costs in the long-term.

David Herberholz, Director of Waste Management and Recycling Services says transitioning to a One-Sort program was necessary to reduce waste and make Minneapolis greener by putting the burden of sorting on the recycling facilities.

Minnesota 2020 Journal: Building on, not trapped by, tradition

Fri, 17 May 2013 11:00:48 +0000

By John Van Hecke, Executive Director & Fellow

Grain elevators and small towns go together like grain elevators and small towns. They’re inseparable. The one doesn’t exist without the other. What happens to the town when the grain elevator disappears?

The old Walnut Grove-Revere Farmers Elevator is coming down. It will shortly be a pile of wood shavings destined for poultry bedding. It’s an ignominious end to a structure that sustained my hometown. But, this isn’t a romantic reflection on an idyllic past. Even in death the elevator serves the agricultural cycle while highlighting the opportunity for rural economic development that builds on tradition but isn’t trapped by it.

Midwestern prairies hold some of the world’s best, most productive farm land. In the 19th century, this raw potential compelled development. Unlike fur trapping or mining, the agricultural cycle is more deliberate. It requires a growing season, capital and skilled labor to produce a marketable crop. Federal policy guided Midwestern development, creating a framework for railroad-based trade while simultaneously attracting the growers necessary to turn prairie grassland into corn and wheat fields.

Because the federal government controlled huge public lands east of the Mississippi, dating to the Louisiana Purchase, it was able to drive rapid growth and expansion. The 1862 Homestead Act incentivized family farm development. In return for farming and improving a 160-acre claim over five successive years, families received the land title. The policy worked brilliantly. As railroad tracks were laid, farms immediately followed.

Rural Minnesota towns weren’t developed willy-nilly. They were platted according to a land survey-developed formula calculating the distance from farm to town. Towns were service centers but, critically, they were railheads, an intermodal transfer hub for moving commodities from horse-drawn wagon to rail car and delivering supplies from rail to wagon to farm. The grain elevator was the physical manifestation of this exchange. It allowed for the short-term storage of grain, the first link in a market chain reaching around the world.

Grain elevators were built to last, the cutting edge technology of their day. Yet, what worked in the late 19th century is woefully inadequate a century later. Structural obsolescence prompted the Walnut Grove elevator tear-down decision but functional obsolescence arrived 25 years earlier. Recognizing the elevator’s practical deficiencies—too small, insufficient storage, antique equipment, trucks couldn’t enter a facility built for horse-drawn wagons—the local farmers coop built a new, much larger grain elevator between Walnut Grove and Revere. They sold the old elevator to an area farmer. He used it for off-farm grain storage until its limitations prompted tear-down.

Old elevators look cool. Along with the water tower, the elevator is a town’s tallest structure, towering over the prairie’s expanse. There’s a temptation to see an old grain elevator as a historic asset much as a dairy cooperative’s old stone creamery is renovated as a community facility or retail business space. It’s not that simple. As the old Walnut Grove elevator reveals, the structure is exhausted, literally and figuratively. There’s nothing worth saving at a reasonable cost. Building new, as the farmers coop did, is smarter, better and actually creates jobs.

Starting over today, no one would site a small town every seven miles because agriculture production’s scale has changed. While rural communities’ founding logic is immutable, their future is cloudy. The old elevator’s destruction reveals the economic development limitations of growing commodities and shipping them elsewhere for processing. Technological innovation constantly reduces the labor needed to grow and ship a bushel of corn. Take away enough people and small towns lose critical commercial mass. A gas station and convenience store on the highway doesn’t support a community like a grocery store, a bakery, a bank and a pharmacy supports it. Population decline drives away service businesses.

Rural communities still have, however, the assets that drove their creation. They have potential. They have productive land. And, they have people. But, this combination can’t serve a 19th century economic development vision. It must leverage assets, reward capital investment’s risk, and create value.

Rural Minnesota needs a new Homestead Act. No, it doesn’t need a land-giveaway to populate the countryside; that’s already happened. Rural Minnesota needs forward-looking, engaged public policy that sees rural communities as an asset for economic growth, not begrudgingly born cost.

Public dollars didn’t build the Farmers Coop grain elevator, private capital built it. Cooperatives didn’t exist when that elevator went up. They came later as farmers found cooperative means for improving individual productivity and profitability. The same is true, today. Growing rural Minnesota’s economy grows Minnesota’s economy. Grain elevators aren’t iconic images of Minnesota’s past. They’re examples of smart public policy investments. That’s a vision that moves Minnesota forward.

Reimagining Transit

Thu, 16 May 2013 11:00:41 +0000

By Conrad deFiebre, Transportation Fellow

What if public transit operated more like a membership organization than an inexpensive shared taxi service? And what if the riders themselves helped govern it?

David Levinson, a skeptic at the University of Minnesota on all things transportation, asks these interesting, if slightly off-the-wall, questions in a new post on his lively and often counterintuitive blog The Transportationist.

"Membership ... changes the perspective from being a customer to being a member if not owner of the system," he writes. "As a member of a club, I want there to be more members, as it helps spread the costs and raises money for the services provided. I become an advocate for the organizations I join."

In addition, Levinson says, transit systems could adopt the model of institutions like museums and zoos and allow free "admission" with a local pass across the country. They could sweeten the allure with goodies like tote bags, mugs, newsletters and even a vote on governance. But, he adds, "I cannot find an example of a transit system that organizes and treats its riders as members."

These musings followed his suggestion that transit systems should use price incentives to promote the sale of unlimited ridership passes over one-time fares. Metro Transit, for example, offers monthly passes ranging from $59 to $113.50 -- or the $76 full-service Metropass for groups of at least 10 riders -- but barely one in eight trips is paid for like that.

To boost this kind of "membership," Levinson says, transit systems should consider cutting pass prices and raising individual fares: "At a relatively lower price, more people would get a Metropass. Possessing a Metropass would induce me to make more trips by transit (since the marginal cost of use would now be zero) ... People pay for the option of not having to think about price."

As you can probably tell from some of his buzzwords ("induce," "marginal cost"), Levinson relies heavily on economic analysis in much of his work. His blog, headlined "Club Transit," riffs off an earlier blog he co-wrote that examines pros and cons for public transit subsidies from an economics perspective.

I'll spare you most of the dismal-science details there (it's all in the link), but Levinson and coauthor David King come down largely on the anti-subsidy side. "Systems should over time pay for their own operation and maintenance from usage-derived revenue," they argued. "Like other public utilities, transit can and should be able to cover its operating costs from user revenue."

Any subsidies, they say, should be directed to disadvantaged riders from non-transportation revenues. "Perhaps the biggest problem with current subsidies is that they are place-based and not people-based," they wrote. "Why should the entire system be subsidized? Why should a professor pay the same fare as students?"

Further, Levinson and King say transit's initial and recurring capital costs should come in the form of ongoing value capture from properties the system serves -- places like downtowns and the Mall of America. This is a woefully underused policy that Minnesota 2020 supports. A UofM study has suggested eight property-based mechanisms to implement it; Levinson and King offer a different one: a tax on wages at transit-heavy employment nodes. At Minnesota 2020, we'd rather tax capital than labor, but in reality there's little movement here toward any kind of value capture for either roads or transit.

Metro Transit spokesman John Siqveland declined to comment on most of the Levinson-King proposals, but he did note that all Twin Cities transit providers charge the same fares and honor ride passes, which is not always the case in other metropoltian areas. "It's a service to our riders," he said.

As for dreams of a nationwide "transit club," Siqveland added, "numerous political, financial and logistical challenges" stand in the way of linking hundreds, if not thousands, of independent transit agencies in a common fare and pass structure.

For that matter, totally unsubsidized transit is at least as far a reach, especially as long as driving remains supported with many more non-user taxes. "One bad subsidy does not deserve another," Levinson and King wrote. "Just because cars are subsidized is not a reason to subsidize transit. It is an argument to remove the subsidies that exist. Technically (if not politically) it would be relatively easy to charge cars for their full cost via higher fuel taxes (or mileage fees)."

Politically, we know how relatively un-easy that is, with new proof just the other day. But we could have a more productive conversation about how best to finance a multimodal transportation system if the conservative transit-bashers would just acknowledge all the government largesse for motorways.

VIDEO: Paying My Fair Share

Thu, 16 May 2013 11:00:28 +0000

By Tom Niemisto, Video Production Specialist

"I'm willing to pay my fair share!" Those words were repeated by Minnesotans in all income groups to a crowd gathered at the capitol rotunda this week, signaling that our current tax structure is not working to move Minnesota forward.

For too long, strategic investments have fallen to the wayside in the interest of no new taxes and short-term budget gimmicks. The Joint Religious Legislative Coalition, a founding partner of Invest in Minnesota, is calling for new policy that brings fairness back to the tax structure.

For more information go to InvestInMinnesota.org

When Single Industry Towns Work

Wed, 15 May 2013 11:00:06 +0000

By Agata Miszczyk, Undergraduate Research Fellow

Editor’s note: As Minnesota’s Iron Range and wood products regions have learned over generations, single-industry economic dependence can lead to unpredictable, unstable local job markets. However, there are places like Rochester where sector specialization or clustering creates thriving, sustainable local economies, especially around health care. Former Minnesota 2020 Undergraduate Research Fellow Agata Miszczyk explored this topic for her Macalester College honors thesis. Over the next few weeks, we’ll bring you relevant excerpts from that research as the Mayo Clinic embarks on its plans to become a destination medical center.

Mayo’s Indirect Economic Impacts
In the next decade, Rochester expects to see 1,800 new bio-tech jobs, according to John Wade, President of the Rochester Area Chamber of Commerce. Most, he predicts, will result from smaller, innovative, start-up companies influenced by Mayo. Economist and urban theorist, Richard Florida, also points out Rochester as a place of fast growth, specifically in the creative class sector, a term that refers to many professions, including healthcare.

In Florida’s book The Rise of the Creative Class, he forecasts Rochester’s growth to be much higher than in cities such as Chicago or Los Angeles. Based on Minnesota Department of Employment and Economic Development (DEED) data, such a prediction is realistic. DEED estimates health care practitioner jobs could grow by 4,500 in the Rochester region. This would coincide with a proposed multi-billion dollar construction plan that will add thousands of direct hospital jobs and attract thousands of more patients from outside Minnesota.This will have a ripple effect on the wider Rochester area, creating a need for industries and services, including those in lodging.

Rochester welcomes 2.75 million visitors annually, 763,000 of which are patients and their families. The city has a very high number of hotel rooms for a town with 106,769 people (U.S. Census). As of July 2012, Rochester had 5,362 hotel rooms, according to a Post-Bulletin article, second to only Minneapolis. Such demand puts the average Rochester hotel room price at $95, much higher than other greater Minnesota cities. In June of 2012, Rochester hotels were running a 68% occupancy rate. Rochester houses specialty hotels usually not available in a city its size, including many extended-stay hotels, catering to patients with a long treatment time, and some high-end options.

Bruce Rohde of Facility Project Services at Mayo says that the Mayo Clinic does not partner with any private or corporate business in offering patient services that Mayo does not provide, such as accommodation. However, when Mayo sees a need for something they often bring this up to the City. Recently, patients illustrated a need for more high-end accommodations. The Kahler Grand Hotel in downtown Rochester responded by creating penthouses and suites on the top two floors.

Since Mayo patients spur much of Rochester’s lodging industry, many hotels provide shuttles to and from Mayo Clinic buildings, eliminating the need for some patients to rent cars.

As long as Rochester is predicted to grow, hotel development will continue to try to stay ahead of the demand, says Brad Jones, president of the Rochester Convention and Visitor Bureau.

Aside from industries geared towards patient and employee support, Mayo fuels many spinoff ventures.

“Having the Mayo Clinic, IBM, and now the University of Minnesota all located…[in Rochester] has spawned numerous businesses that want to take advantage of the opportunity to be close to global leaders in healthcare and technology. The Minnesota Partnership for the biotechnology and Medical Genomics is an economic development venture between the Mayo Clinic, University of Minnesota, and the State of Minnesota,” according to Olmsted County’s 2010 Comprehensive Annual Financial Report.

Numerous “spinoff” businesses have been started as consequence of the healthcare industry monopoly in Rochester.

Making Sense of State Business Climate Reports

Wed, 15 May 2013 11:00:02 +0000

By Lee Egerstrom, Economic Development Fellow

No need to jump for joy or hunker in despair, but Minnesota either has the fourth best business climate among states in America, or the fifth worst business climate.

These wildly contradictory findings are revealed in a new study, Grading Places: What Do the Business Climate Rankings Really Tell Us?, issued by the Good Jobs First non-profit, non-partisan research organization in Washington, D.C.

Economist Peter Fisher compares data and known methodologies from several state business climate reports and called them “politicized grab-bags of data.” As such, Good Jobs said, these alleged studies have no “predictive value” and shouldn’t be used in public policy formation. While the studies they analyzed set out to collect a wide range of data, they typically boil down to a limited number of tax-related metrics.

States that attempt to make tax systems more progressive, or generally more equitable, are always attacked as anti-business, anti-jobs, anti-family or anti-anything that might resonant better with the public than anti-tax haven.

As if on cue, the (anti) Tax Foundation group in Washington issued yet another state business tax climate report on the same day Good Jobs First announced its finding, intentionally for political purposes and unintentionally for what it also revealed.

First, it identified the 10 worst states in its skewed index that included Maryland, Iowa, Wisconsin, North Carolina, Minnesota, Rhode Island, Vermont, and, in the bottom three positions, California, New Jersey and New York. The 10 best states on its index included Wyoming, South Dakota, Nevada, Alaska, Florida, Washington, New Hampshire, Montana, Texas and Utah.

With a few exceptions that can be attributed to microeconomic factors, what the tax group shows is a linkage between taxes and where businesses want to locate and where people want to live. The “bad” business climate states in general have businesses and people; the “good” business climate states tend to be remote, under-developed states or have resource or other variables that make them anomalies.

There is an undeniable linkage between taxes and the infrastructure and amenities that support business success and quality of life, said Alex Marshal, senior fellow with the Regional Plan Association think-tank in New York. “Businesses go where there is infrastructure and where people want to live,” he said.

That point is driven home in several chapters of his book, The Surprising Design of Market Economies, published by University of Texas Press in the past year. It focuses on the importance of infrastructure.

Measures of such pro-business and pro-quality of life factors are not included in most state business climate rankings.

In releasing the Good Jobs critique, Fisher said his researchers found significant and elementary errors. “We found effects presented as causes,” he said. “We found factors that have no empirically proven relationship to economic growth. And we found scores that ignore major differences among state tax systems.”

Again, ideological organizations selectively use data to produce desired results. The study found Massachusetts ranks No. 1 in one index, 38th in another; Alabama drags in as 49th in one index, 7th in another; and Alaska varies from 4th in one list, 38th in another. As a result, Fisher discovered, 22 states “can brag they are in the top 10” while business lobbyists seeking business tax cuts can claim 24 states are in the bottom 10 for worst business climates.

Representative of this disparity, Minnesota ranks 4th, 10th, 13th, 18th, 35th, 35th, 39th, 40th and 45th on nine different ranking systems. As Good Jobs First said at the beginning of its report, that doesn’t shed helpful light on real business climate conditions.

Kevin Ristau, education director for the Jobs Now Coalition in Minnesota (not related to Good Jobs First), said measures of business conditions are influenced by demographics, uniqueness of business mix, resources and other factors. Even comparisons of basic measures such as state unemployment data can be misleading.

The U.S. Bureau of Labor Statistics shows Minnesota with has one of the lowest unemployment rates in the nation, at 5.4 percent – a drop of 0.3 percent from March a year ago. Texas, for comparison, was at a higher 6.4 percent; Wisconsin was a 7.1 percent, South Carolina was at 8.4 percent, and North Carolina—another state that has battled labor’s rights to organize—had March unemployment at 9.2 percent.

The neighboring Dakotas are anomalies given boom times in North Dakota with the Bakken energy fields, the chronically unemployed not being counted on South Dakota Indian reservations, and continuing out-migration from many rural counties.

What’s more, Ristau said, “Unemployment data count jobs as if all jobs are equal. They aren’t.”

In March, he said, data from the Minnesota Department of Employment and Economic Development (DEED) showed Minnesota job openings were up 127 percent in three years. However, job seekers still outnumbered full-time job openings by four-to-one.

A fourth of all openings were in two industry sectors. Retail trade accounted for 183 percent and hospitality (accommodation and food services) accounted for 224 percent of opening growth in the three-year comparison. The median wage for these two sectors was $8.31 per hour. Cost of Living research shows both parents in a family of four would need to earn $14.03 per hour to meet basic family needs.

This is why Jobs Now and its religious, nonprofit and community organization allies promote increasing the minimum wage law in Minnesota. It is also why lawmakers and people of conscience should carefully examine reports from interest groups on how data is assembled, how it skews results, and if it reveals anything of social or economic importance.

It isn’t enough to ask what the numbers say. We need to know what the numbers mean. Good Jobs First researchers show the latter can mean anything.

State Business Property Tax Revisions

Tue, 14 May 2013 12:06:53 +0000

By Jeff Van Wychen, Fellow and Director of Tax Policy & Analysis

Note to readers: While the particular state business property tax changes highlighted in the analysis below are no longer included in the 2013 Omnibus Tax Bill, the policy ideas advanced in the article can and should be considered in future legislative sessions. Minnesota 2020 will continue to track this proposal.

While the Governor and legislative leaders have worked out the broad outline of a budget deal, many important details have yet to be resolved. One of the decisions that the House-Senate Tax Conference Committee has yet to make involves the fate of the proposed expansion of the state business property tax in the Senate omnibus tax bill.

The Legislature and Governor Ventura enacted the state business property tax in 2001 as part of large scale changes to Minnesota’s property tax system. As part of the 2001 tax act, the share of local property taxes borne by businesses was reduced, while the share borne by residential property and most other classes of non-business property was increased. In addition, the K-12 general education property tax levy was eliminated and replaced with dollars from the state general fund.

The decrease in the share of local property taxes borne by businesses combined with the elimination of the general education property tax provided a massive reduction in business property taxes. To offset this windfall of property tax relief—and to generate additional general fund revenue to help pay for general education*—state policymakers enacted a state business property tax. On a statewide basis, business property was taxed at a uniform rate calculated by dividing the state business property tax levy, which is set in statute, by Minnesota’s total business tax base.†

During the first year of implementation (2002), the business portion of the state property tax was approximately $560 million. In subsequent years, the levy was adjusted for inflation based on the Implicit Price Deflator for State and Local Government Purchases.

Over time, the state business property tax has turned out to be a pretty good deal for Minnesota business. The portion of business property taxes paid to the state was insulated from the effects of the aid reductions that were driving local property taxes upward over the last decade. In addition, while the business levy was adjusted upward each year due to inflation, it was insulated from the increase in public costs driven by population growth. The graph below shows the percentage change in real per capita business property taxes in Minnesota relative to combined residential and apartment property taxes from 2002 to 2013.

Since 2009, business property taxes have increased relative to residential property taxes as a larger share of the tax shifted on to businesses due to a much less rapid decline in business values. Nonetheless, over the entire span of the last eleven years from 2002 to 2013, real per capita business property taxes have grown by only 1.5 percent, compared to 23 percent for residential and apartment properties. The relatively slow growth in business property taxes is in large part due to the nearly nine percent real per capita decline in the state business property tax levy.

The Senate tax bill attempts to capture additional revenue from the state business property tax by increasing the business property tax rate to what it was in 2002—the first year of the state property tax levy. In future years, the rate would continue to be frozen at the 2002 level. This change is projected to generate $49.7 billion in additional revenue in state fiscal year (FY) 2014 and $93.9 million in FY 2015.‡

While the Senate tax bill would allow the state to generate additional revenue through the state business property tax, it is not necessarily doing so in the most efficient manner. A frozen tax rate makes sense for the income tax because the ability to pay taxes increases as income increases. A frozen rate also makes sense for the sales tax because an increase or decrease in tax revenue will be associated with increased or decreased economic activity in the form of consumption of taxable goods. However, the same logic does not apply to ad valorem property taxation. A change in property value is not necessarily associated with a change in either the ability to pay or economic activity.

Typically, property tax rates are not frozen. Rather, the jurisdiction levying the property tax determines the amount of revenue that it needs. This amount is then divided by the known value of taxable property within the jurisdiction to determine a rate. This rate, when multiplied by taxable property value, generates the amount of revenue specified by the jurisdiction.

However, this is not the case when the property tax rate is frozen; a frozen rate will generate less revenue when values decline and more when values increase—although the change in revenue generated will not necessarily be linked to the ability to pay, the level of economic activity, or the jurisdiction’s need for revenue. In short, the principal advantage of the property tax—predictability—is undermined when the rate is frozen.

Rather than freezing the state business property tax rate, policymakers should consider an alternative: adding a population growth adjustment to the existing inflation adjustment to the state business property tax levy. Adding a population adjustment would allow the state levy to grow so as to keep pace with the increased need for state services associated population growth.

A population growth adjustment to the state business property tax levy retroactive to the year of the tax’s implementation—2002—would generate nearly as much revenue as the Senate’s frozen rate in the short term and provide greater revenue predictability in the long-term, while at the same time doing a better job of linking future growth in the levy to the demand for public services.

Due to the real per capita decline in the state business property tax levy over time, the Senate was prudent to include changes to this levy in its omnibus tax bill. However, the goals of predictability and future revenue adequacy could be better served by further adjusting the levy for population growth rather than by simply freezing the tax rate.

*The revenue generated by the state property tax is not formally dedicated to paying for K-12 general education. Nonetheless, the state takeover of general education funding resulted in a significant new general fund cost that the state property tax helps to offset.

†Actually, during the first four years of the state property tax (tax payable years 2002 to 2005), businesses and seasonal recreational property were part of the same tax base and taxed at the same tax rate, calculated by dividing the total state property tax levy by the combined tax base of business and seasonal-recreational property. Beginning with taxes payable in 2006, the business and seasonal-recreational portions of the state property tax were separated into two distinct levies, each with a distinct tax rate; since 2006, the state business property tax rate has been equal to the business share of the state property tax levy divided by statewide business tax base.

‡The amount of new revenue generated in the first fiscal year—FY 2014—is significantly less than the amount generated in FY 2015 and subsequent years because only the first of the two calendar year 2014 property tax payments are included in the state’s 2014 fiscal year. (Fiscal year 2014 begins on July 1, 2013—six months before calendar year 2014.) Not included in these amounts is the additional revenue that the Senate tax bill would generate by imposing the state business property tax on public utility electrical generation equipment; this class of property is currently exempt from the state business property tax. By expanding the state business property tax to include electrical generation machinery, the Senate tax bill is projected to generate another $11.3 million in FY 2014 and $20.8 million in FY 2015.

Tuesday Talk: How will marriage equity make MN more competitive?

Tue, 14 May 2013 10:30:08 +0000

By Joe Sheeran, Communications Director

It appears Minnesota will make history by recognizing same sex marriages, a policy in which the state has trailed the private sector. Many Minnesota companies have been offering same-sex benefits for a generation, feeling it will help them attracts the best and brightest workforce.

From an economic policy standpoint, how will marriage equity make Minnesota a more competitive state?

National Perspective on MN Test Score Gap

Mon, 13 May 2013 11:00:16 +0000

By Caroline Hooper, Guest Commentary

Many education reformers seems to believe, and are certainly content to let the public believe that “…we have the worst education outcomes for children of color in the COUNTRY, in particular for Black children,” as one MinnPost reader recently commented. That is untrue. If it were true, it would be damning, but it simply isn’t true. Using recent National Assessment of Educational Progress (NAEP) test scores paint a different picture.

NAEP exams are one of the few tools that can be used to compare students across the country because students take the same tests at the same time. Using state level exams and tests, or even graduation rates do not provide reliable comparisons. States design their own state level exams and the definition of graduation rate differs from one state to the next, indeed from one school district to the next.

According to the most recent NAEP scores, fourth grade Black students in Minnesota outperform the national average for all Black students in both math and science. In reading, Black students in Minnesota score below the national average for all Black students, but by 8th grade that difference virtually disappears.

Furthermore, 8th grade Black students in Minnesota exceed the national average for all Black students in math and science too. That sure doesn’t seem like the “worst education outcomes for children of color in the COUNTRY, in particular for Black children.” Instead, it seems that Black children in Minnesota generally outperform their counterparts in other states, at least in terms of NAEP scores.

It is true that the test score gap is larger in Minnesota than the national average test score gap, but consider that white students in Minnesota generally score well above the national average for white students in all but one of the aforementioned areas. Still, this test score gap is a cause for concern and should unite Minnesotans in attempting to address and resolve it. That is difficult to do, however in the current climate where teachers are vilified and insulted, where rah-rah reformers bash teachers and trash schools.

Steve Perry, a Connecticut education reformer, recently came to town as part of a series of speakers connected to the RESET education reform movement campaign. Perry claims some pretty dubious stats from his rather selective magnet school. This leads to questions about computing graduation and dropout rates. I wonder how Steve Perry claims a 100% graduation rate while the fact is that many students “drop-out” of his school.

Measuring and comparing graduation rates is not as straightforward as one might imagine. When does a school begin a cohort—kindergarten, ninth grade, or tenth grade? Maybe later? Do we count kids with disabilities or recent immigrant who may have more time to finish? Do we count kids that transfer schools, withdraw, move? Graduation rates, as reported by individual states, are inconsistent to say the least.

Published in 2013, the Building a Grad Nation report is an in-depth analysis of graduation rates that attempts to control for the fact that states compute graduation rates differently. The Grad Nation report puts Minnesota in the solid center with a graduation rate of nearly 77%. The report does show an unusually large 35 point gap between the graduation rate for White and Black students, yet further on the report concludes that Minnesota is in the top ten of states in reducing the gap between Black and White students from 2003-2010.

It seems to me that while we should all be concerned about making sure that all students recognize the value of their education and achieve at high levels, we need also to have an honest discussion. Black students do not do worse in Minnesota. In fact, Black students do better here (at least according to the NAEP scores) than in most other states.

Instead of seeking to vilify teachers, destroy schools and fracture communities, reformers should get real about the issues and work for solutions instead of scoring political points.

Caroline Hooper is a Minneapolis high school teacher.

VIDEO: She’s an Entrepreneur

Mon, 13 May 2013 11:00:13 +0000

By Tom Niemisto, Video Production Specialist

The economic crash turned a lot of laid off workers into small business owners, especially women. What was a hobby making crafts or free professional help for a friend became cash for bills. Along the way, Minnesota's Department of Employment and Economic Development has helped some of these small business ventures thrive. However, more public policy work is needed.

We stopped in at WomenVenture, who facilitates DEED business programs, for its Spring Showcase where entrepreneurs shared policy ideas that could enable growth and foster local economic development.

Minnesota 2020 Journal: Conservatives’ Pizza Problem

Fri, 10 May 2013 11:00:22 +0000

By John Van Hecke, Executive Director & Fellow

Conservative policy activists have a problem. Minnesota is rejecting conservative policy prescriptions. Their policy product fails to deliver on its promise of a better life through fewer, lower taxes and a lot less government. Conservative activists are divided over the problem’s source. One side blames persuasion mechanics while the other blames tactics. Neither side believes that conservative policy might be their obstacle.

A pizza business case study, parallels the conservative policy quandary. Is the problem with the pizza or is the problem with the pizza box? Applied to conservative public policy, that roughly translates as which is failing, conservative policies or conservative messaging?

Domino’s Pizza started as a single Ypsilanti, Michigan, pizza joint called DomiNick’s. A timely purchase and renaming, combined with a desire to sell more pizza than greater Ypsilanti could consume set Domino’s on the road to national success through home-delivered pizza dominance.

Domino’s Pizza eliminated the dine-in option, a staple for many local pizza joints, focusing on producing and rapidly delivering restaurant-quality pizzas. Customer satisfaction keyed on ordering interface and speedy product delivery. But, as Domino’s eventually learned, a barely adequate product, even with outstanding delivery, can’t dominate the pizza business.

For much of its history, Domino’s understood that it produced average pizzas but, in the home-delivered pizza game, so did everyone else. As long as Domino’s delivered its adequate pizzas faster and in better, hotter condition than its competitors, low to modest quality wasn’t a concern. The pizza world, however, doesn’t stand still. The large, undifferentiated pizza business became increasingly segmented as competitors developed profitable niche sectors. Although it was a dominant industry player, Domino’s Pizza was being nibbled to death.

After closely examining customer service, delivery and marketing strategies, Domino’s Pizza realized that their adequate pizza was inadequate. The problem wasn’t their pizza box but with the pizza itself. To maintain profitability and market share, Domino’s needed a better pizza. So, they created one but that step didn’t solve their public perception problem. People assumed that “new and improved” meant “more of the same,” essentially discounting and discarding the company’s efforts. To overcome this barrier, Domino’s had to change the way that people understood Domino’s.

The campaign turned their liability into an asset. First, Domino’s “owned” their problem. Yes, they said, repeatedly, using a great deal of advertising money, we were making mediocre pizza. Now, we’ve changed; taste and see for yourself. Within their market, the strategy worked. Domino’s reversed its slide. But, what about conservative policy activists?

The conservative policy problem isn’t a simple as needing a better adequate pizza. I’m intrigued by conservative debate regarding self-perception. The choices range from tentatively suggesting moderation to doubling down on orthodoxy. Still, few conservatives doubt the appeal of limited government and no new taxes. Rather than examine policy performance metrics, conservative policy advocates continue pushing forward on faith alone.

Let’s apply the Domino’s lesson. Policy is the pizza. Good pizza satisfies the consumer just as good policy delivers widely-understood public outcomes. Law enforcement response times, library hours, road conditions and the entire host of public services color people’s perception of government success. Declining services and shifting reliance on the local property tax base to support lower effective tax rates on Minnesota’s highest income earners tends to undermine conservative policy success definitions.

That growing policy disconnect reflects fundamental policy flaws, not marketing problems. “Limited government” is increasingly revealed as limited government for some but not others. “No new taxes” means lowering state income tax while raising local property taxes. Public benefits accruing to fewer, wealthier people sit poorly with middle and low income earners.

The real problem lies with conservative public policy, not with its marketing. Delivery must match promise. Tax policy that asks more of Minnesota’s majority while returning less yet asks less of Minnesota’s top two percent of income earners while returning more is unsustainable. The problem is the pizza, not the box.

VIDEO: Citizen Water Testers in Action

Thu, 09 May 2013 11:00:23 +0000

By Tom Niemisto, Video Production Specialist

The 1972 Clean Water Act requires states to monitor river and lake health by measuring and reporting basic environmental data. That's quite a challenge in the land of 10,000 lakes, so every year the Minnesota Pollution Control Agency recruits volunteers to help monitor water quality.

As Laurie Sovell of the MPCA says, we all live down stream from somebody, and Minnesota needs to be a leader in keeping water quality at its best.