A Brain Gain in Rural Minnesota?

As demographers see it, much of the history of the 20^th Century in America can be described as a massive rural-to-urban migration. It was in fact this rural-to-urban migration, along with European immigration that provided the labor for the development of our great industrial economy. And after World War II as agricultural technology accelerated the displacement of labor with capital equipment, it freed up even more rural residents to move to urban locations and support the emerging service economy; and later the information economy.

Today, we seem to take it for granted that in most communities across rural Minnesota, a large percentage of the high school graduating class will leave town to go off to college or try to increase their economic life chances in more urban locations. And few places across Minnesota represent this trend more illustratively than the western tier of counties and specifically southwestern Minnesota. For it is here in southwestern Minnesota that the census documents county population decreases of up to 50 percent since 1960 (e.g., Traverse County); and where many of the counties recorded their peak census populations back in the 1930s and 1940’s. Accordingly, for the majority of their current living residents, population decline is the only demographic trend that they have ever known. And given that it is typically the young folks who migrate to urban centers, many have labeled this chronic migration of youth as “The Brain Drain.”

So my ears perked up when I read a recent report authored by University of Minnesota Extension Research Fellow Ben Winchester, who suggests that within this broad pattern of demographic decline, not all age cohorts are decreasing in size. And further, that there are some cohorts that are actually increasing in significant numbers that represent “A Brain Gain” for rural Minnesota. And yes, this pattern is even occurring in southwestern Minnesota.

Winchester’s notion and evidence of a “Brain Gain” is really rather simple to understand. He uses the case of Grant County, MN as an example, where overall population losses of 32 percent have occurred since 1960. Here he suggests that similar to patterns in the past, in Grant County young people continue to migrate out in pursuit of higher education, better jobs and the lights and excitement of urban life. And the Census data seems to strongly support that contention, with significant population losses in the cohorts between 18-30 years of age. But using the same Census data, Winchester also documents substantive population gains in cohorts between the ages of 30-44, as well as between the ages of 10-14.

By now you may be asking what exactly accounted for this sizeable population gain in some selected age cohorts. Through the use of multiple focus groups among these newcomers, Winchester suggests that there are multiple reasons, but one of the primary factors is the desire of those who left a rural community in their late teens and early 20’s to return to their home region a decade or so later. Not surprisingly, now with a spouse and children in tow, many of these former rural residents want their children to experience the good schools, as well as the safe and supportive environment that they had growing up. And it is the presence of these returning newcomers’ children that leads to the gains in the 10-14 age cohort.

Winchester also notes what he labels as “push factors” for many of these rural newcomers; these being the high cost of living in urban areas, congestion, along with the long commuting times that led them to seek a more rural lifestyle for themselves and their family. And somewhat interestingly, several of these newcomers cited their desire and the opportunity to start their own business as a reason to move to a rural community. But most interestingly, these factors were just as important for newcomers who never previously lived in a rural community as it was for the former rural residents.

In looking more closely at Winchester’s study two main thoughts come to mind. First, is that if this demographic Brain Gain is occurring in Grant County MN, it is likely occurring in your county as well. Second, while economic development professionals spend a great deal of time strategizing on how to attract new businesses, I seldom hear enough about well thought-out and focused strategies to attract and retain these newcomers that represent this Brain Gain for rural Minnesota. Winchester not only suggests some targeted strategies that rural regions may want to consider, but he even includes an abbreviated economic impact analysis of the 52 newcomers he interviewed for his study. The results may be surprising to some economic development professionals.

Interested? A copy of the results of Winchester’s focus group research can be viewed and downloaded at http://www.edacenter.org/downloads/Ben_Winchester_Report_2.pdf

The LGA Mess

In his first official veto letter, Governor Mark Dayton noted his objection to the legislature’s proposed cuts to Local Government Aid to cities and counties. Specifically, he repeated his often-mentioned comment that cuts in LGA simply force local governments to increase property taxes; a tax perceived by many as more regressive than other state-collected taxes. On the other hand, proponents of the LGA cuts accurately note that the State of Minnesota is broke and that there was nothing in the bill that requires local governments to raise property taxes. And so the debate continues … Of course the truth is that both sides are right; and like much political rhetoric, there is more interest and concern about “being right” than actually fixing the problem.

Actually, it’s too bad that many legislators today were not around at the establishment of Local Government Aid, nor do they seem interested in a history lesson. For if they were, they would see the similarities in the arguments being made today as they were 40 years ago. LGA was first established in the early 1970s as a key component of what has often been called the Minnesota Miracle of 1971. A decade in the making, the legislation was a response to a wide variety of concerns regarding state and local financing of government and educational services. But foremost in the legislators’ minds was property tax relief. For you see, by the 1960s it was obvious that Minnesota was becoming a patchwork of “property tax rich” and “property tax poor” communities. These inequities led legislators to think about ways to equalize funding to ensure that some level of basic services could be provided through means other than just local property tax revenues.

However, another factor seldom mentioned was the desire of state legislators to prohibit local governments from establishing their own local sales, income or other taxes. In fact in many states local sales and even income taxes were not at all unusual. But here in Minnesota, the perception was that if local governments established these additional taxes, the revenue inequities across communities would likely increase – not decrease. Accordingly, these and a variety of other concerns culminated in the early 70’s to establish a system of state aid that had three core components:

1. A significant increase in state-levied taxes, primarily through sales and income tax revenues;

2. The establishment of a state aid formula to local governments, which reduced inequities by augmenting local property tax revenues; and

3. A prohibition of local governments establishing their own sales and tax revenues without legislative consent. Of course today virtually all of Minnesota’s metro communities now have their own dedicated sales tax … but that’s another story.

Over the subsequent 40 years the LGA formula has been modified a few times, however the general consequence has been mostly to continually increase state aid to local communities, thereby making many communities more and more dependent upon LGA to fund city services. This was especially true in the 1990s. As a result today, for some communities LGA could comprise up to, or even more than half of their general fund budget. And while such a situation puts a community financially at great risk as they now face these proposed cuts, let’s remember that it was state officials, not city or county governments that created this system. As one city administrator from west-central Minnesota candidly questioned, “Why did the state keep giving us more and more LGA?”

So here we are today. After years of creating a dependence of local governments on state aid, the LGA cuts over the past few years, as well as the proposed cuts have quite predictably led to increased local property tax levies. After all, it’s the only consistent source of revenue the legislature allowed local governments to have.

But of course the real question is what do we do now? So here are three things I hope our legislators might consider:

1. First, legislators need to realize that there are some core services that the state needs to ensure all Minnesotans have local access to. Accordingly, LGA should not go away, but rather it should be targeted to those defined core services.

2. Second, local governments need to be slowly weaned off their dependence on LGA. However, this will need to be deliberate, strategic and take some time. Drastically cutting LGA as a way to erase a budget deficit will only lead to higher property taxes and greater fiscal inequities across Minnesota.

3. And finally, legislators need to remember that part of the deal creating LGA was the prohibition of levying local sales and income taxes. If legislators are so quick to cut off LGA, are they equally prepared to unshackle local governments on the types of tax revenues they can collect? It’s time to look before you leap.