The names are familiar to many Americans: Polaris, Marvin Windows, Arctic Cat, Digi-Key, Christian Brothers and Central Boiler. Others, such as Mattracks are just beginning to brand themselves across the nation. Together, they represent a cluster of businesses in Northwest Minnesota that employ thousands of workers. They are an economic developers dream; just the kind of businesses they want to recruit and develop in their communities. These are businesses that bring high levels of capital investment, thousands of first-earner incomes and substantial tax revenues.
Yet the reality is that none of these businesses were recruited to northwest Minnesota. Rather, they simply started out with an interesting idea and were encouraged by friends and family. They often started in a garage, pole barn or shack; but their founders had the drive and determination to never give up. They are in reality, a historical artifact of their region the same way that the Mayo Clinic is a historical artifact in southeast Minnesota. The truth is that there was nothing particularly special about Rochester, Minnesota that allowed the Mayo Clinic to grow into the world-renowned organization it is today. Nor was there anything special about Warroad, Minnesota that allowed Marvin Windows & Doors to blossom there. Instead what was truly special were the people who came upon a good idea and didn’t let go of it.
I note this because now that the Minnesota economy has stalled a bit, local and regional economic development organizations are being looked upon to come up with more innovative strategies to move their regional economies forward. For example, in southwest Minnesota some development organizations have identified the renewable fuels and energy industry as their focal point. Blessed with the assets of quality soils and a strong west wind, there’s much to be said for that strategy. Similarly, after a year-long study, the Southern Minnesota Regional Competitiveness Project is mobilizing its resources around its identified assets in healthcare, biosciences, manufacturing, high technology, food and agriculture. And in southeast Minnesota along the Highway 52 corridor, a unique partnership anchored by the University of Minnesota and the Mayo Clinic hope to make the corridor a biotechnology juggernaut. But regardless of the region or the sectors, the approach seems somewhat similar: identify regional assets; examine potential economic opportunities and try to craft a coordinated strategy to maximize the probability of success.
Now contrast that approach with the IDEA Competition in Northwest Minnesota (IDEA stands for Ingenuity Drives Entrepreneur Acceleration). Sponsored by a dozen regional organizations and facilitated by the Northwest Minnesota Foundation, the approach is based upon the observation of what has worked in northwest Minnesota for decades; and that is simply stated: bring us your best ideas. It is not bound by specific industries or service sectors, but rather by two questions: first, is there a promising breakthrough idea; and second, is the entrepreneur truly committed to developing their business in northwest Minnesota? That’s it.
Each year dozens of entrepreneurs and start-ups bring their best ideas to the selection committee comprised of business executives, finance organizations, business professors, foundation executives and economic developers. And through an iterative process they select the entrepreneurs and breakthrough ideas they hope will become the next Marvin Windows & Doors. This past May, five new entrepreneurs were selected, each receiving an initial $10,000 award. But of course, the real prize is not the $10,000, but rather it’s the regional recognition and the connections to financiers and resources to assist in the commercialization and development of these new business start-ups.
As Wade Fauth, Vice President of Grand Rapids-based Blandin Foundation noted, “The type of innovative thinking that drives business creation often comes down to the vision of a single individual. This strategy focuses on uncovering some of the most promising ideas and providing them with the support needed to be successful in the marketplace.”
Finding the next Polaris, Schwans Foods, Taylor Corporation, Digi-Key or Cirrus Design is never easy. In fact, some might argue that it is nearly impossible. But in Northwest Minnesota they appear to be taking a very different approach. Instead of trying to second guess the industries or products of the future, they are using a strategy steeped in the history of their region. Simply put: Invest in those people with the best ideas and have the drive and determination to never give up.
Saturday, June 12, 2010
The Boomers are Getting Tired
In 1998 Tom Brokaw authored a book chronicling the accomplishments of the American cohort known as “The Greatest Generation.” These children of the Great Depression, World War II soldiers and liberators were clearly remarkable not only in their accomplishments, but in their passion for chasing the American dream. This generation raised our collective standard of living, established the American suburbs and left an unmistakable mark on both American and world history. But in spite of their achievements, it may turn out that it will be their children, the “Baby Boomers” who will leave a longer lasting impact on American society.
These boomers, who were born between 1946-1964, represent the largest demographic cohort in American history. Often characterized as the “pig in the python,” the boomers have owned this country for a generation now. Reared in the turbulent 1960’s with a disdain for the status quo, they are not only the largest, but the best-educated, healthiest and wealthiest in American history. Collectively, they represent a truly remarkable and successful professional class. But time does not stop for anyone; and the leading edge of the boomers who were born in 1946 know all too well that they will begin turning 65 in 2011. Over the next three decades these boomers will redefine what it means to a senior citizen in America. Unfortunately, regardless of their efforts to redefine retirement and senior citizenship, the sheer size of this cohort transitioning into their senior years will greatly tax our current health care system and have a serious impact on the Minnesota workplace.
For years now the largest demographic cohort in Minnesota has been school-aged children; i.e., those between the ages of 5-17. This demographic group is not only large, but they demand a great deal of public services; and as a result, the financing of our public K-12 education system has been the largest single expense category in our state budget. But according to our state demographer, within 10 years there will actually be more residents in Minnesota aged 65 and over than there are children between the ages of 5-17. The impact of such a large cohort transitioning their heath care needs from private insurance to public insurance (through Medicare and Medicaid) will challenge our state and federal budgets.
According to our state economist and the most recent state budget projections, Minnesota’s economy grows on average 3.9% per year, while its state expenditures on health and human services has been annually growing on average 8.5%. As a result, over the past 10 years the health and human services budget has ballooned and has overtaken higher education spending and the majority of other expenditure categories. Further, this growth has occurred without the influence of boomers transitioning to senior citizenship. So the question is, as the number of boomers overtakes the number of school children in Minnesota, will the health and human service budget become the single largest expenditure category in the budget? Left alone, will there be adequate future funding for K-12 education, roads and bridges, economic development, etc., or will health care expenditures overtake everything?
Of course the other concern is the issue of replacing this well-educated and talented group of boomers as they transition out of the work force and into retirement. Clearly, the departure of boomers from the active workforce will leave a very large hole to fill and worker shortages will once again become evident. And while that may be good for future job-seekers, there is a real question as to whether this future workforce will be qualified to fill many of the highly-skilled jobs that these boomers are exiting. Unfortunately, the prospects are not good.
Current demographic projections suggest a dramatic slowing of the growth of our future workforce, with migration becoming the single largest source of future workers in Minnesota. But unlike Minnesota’s economic immigrants of the past who came from Iowa, Wisconsin and the Dakotas, the majority of our current immigrants come from East Africa, Southeast Asia, Mexico and Eastern Europe. Unfortunately, these new Minnesotans are not currently experiencing the academic success needed to fill these higher-skilled jobs being exited by the boomers; and that may have a critical impact on the types of future businesses that we will develop and grow in Minnesota.
Just as the baby boomers take on the task of redefining senior citizenship in America, their demographic transition may collaterally redefine the future of Minnesota.
These boomers, who were born between 1946-1964, represent the largest demographic cohort in American history. Often characterized as the “pig in the python,” the boomers have owned this country for a generation now. Reared in the turbulent 1960’s with a disdain for the status quo, they are not only the largest, but the best-educated, healthiest and wealthiest in American history. Collectively, they represent a truly remarkable and successful professional class. But time does not stop for anyone; and the leading edge of the boomers who were born in 1946 know all too well that they will begin turning 65 in 2011. Over the next three decades these boomers will redefine what it means to a senior citizen in America. Unfortunately, regardless of their efforts to redefine retirement and senior citizenship, the sheer size of this cohort transitioning into their senior years will greatly tax our current health care system and have a serious impact on the Minnesota workplace.
For years now the largest demographic cohort in Minnesota has been school-aged children; i.e., those between the ages of 5-17. This demographic group is not only large, but they demand a great deal of public services; and as a result, the financing of our public K-12 education system has been the largest single expense category in our state budget. But according to our state demographer, within 10 years there will actually be more residents in Minnesota aged 65 and over than there are children between the ages of 5-17. The impact of such a large cohort transitioning their heath care needs from private insurance to public insurance (through Medicare and Medicaid) will challenge our state and federal budgets.
According to our state economist and the most recent state budget projections, Minnesota’s economy grows on average 3.9% per year, while its state expenditures on health and human services has been annually growing on average 8.5%. As a result, over the past 10 years the health and human services budget has ballooned and has overtaken higher education spending and the majority of other expenditure categories. Further, this growth has occurred without the influence of boomers transitioning to senior citizenship. So the question is, as the number of boomers overtakes the number of school children in Minnesota, will the health and human service budget become the single largest expenditure category in the budget? Left alone, will there be adequate future funding for K-12 education, roads and bridges, economic development, etc., or will health care expenditures overtake everything?
Of course the other concern is the issue of replacing this well-educated and talented group of boomers as they transition out of the work force and into retirement. Clearly, the departure of boomers from the active workforce will leave a very large hole to fill and worker shortages will once again become evident. And while that may be good for future job-seekers, there is a real question as to whether this future workforce will be qualified to fill many of the highly-skilled jobs that these boomers are exiting. Unfortunately, the prospects are not good.
Current demographic projections suggest a dramatic slowing of the growth of our future workforce, with migration becoming the single largest source of future workers in Minnesota. But unlike Minnesota’s economic immigrants of the past who came from Iowa, Wisconsin and the Dakotas, the majority of our current immigrants come from East Africa, Southeast Asia, Mexico and Eastern Europe. Unfortunately, these new Minnesotans are not currently experiencing the academic success needed to fill these higher-skilled jobs being exited by the boomers; and that may have a critical impact on the types of future businesses that we will develop and grow in Minnesota.
Just as the baby boomers take on the task of redefining senior citizenship in America, their demographic transition may collaterally redefine the future of Minnesota.
Monday, April 26, 2010
Becoming a Broadband Leader
Recent articles and editorials in a variety of newspapers and blogs have expressed concern about Minnesota’s standing and direction in its deployment of broadband technology. Specific concerns seem to fall into two categories; that Minnesota does not seem to be as competitive in its efforts to get its share of the $7.2 billion in stimulus funding dedicated to broadband development; and second, that the leadership and direction from our Governor in this regard is both confusing and unclear.
Regarding the Governor’s action, I must admit to some confusion myself. For those who don’t follow this closely, governors across the country were asked to provide their input on the many stimulus proposals submitted from their respective states; and our governor did just that. However, Governor Pawlenty chose not to publicly disclose his input to the federal government; which creates some confusion in helping us better understand his vision for the State of Minnesota in this regard. At the same time, while keeping his thoughts confidential is somewhat unusual, I really do not believe that it had a meaningful impact on the competitiveness of the collective proposals from Minnesota.
Regarding our standing as a state, I am not overly concerned that we are collectively lagging behind; or that we will not be receiving our fair share of the federal funding pie. First, it has been clear to me that relative to most other states, Minnesota as a whole has always been in pretty good shape. Sure we have rural areas that are both digitally unserved and underserved, but all states that have large rural tracts are in that position. In fact, the initial data and maps produced last year by Connect MN indicated that a large majority of Minnesota is well served, with reasonably good connection speeds. In other words, we have a good base to work from.
Looking forward, there’s much to be excited about given the numerous broadband activities occurring all over Minnesota. First and foremost was the passage of a bill by the legislature establishing statewide goals and leadership for broadband development. Senate File 2254 was sent to the Governor for his signature in late April.
I am also encouraged by the broadband projects that have already been funded and the proposals that are currently being reviewed for funding. Some selected projects underway include:
• A $6.3 million project being lead by the C.K. Blandin Foundation to increase awareness, provide training and increase broadband adoption among households and businesses all across rural Minnesota.
• A 2.9 million initiative conducted by the University of Minnesota to establish public computer centers in multiple low–income neighborhoods in Minneapolis and St. Paul. These centers will provide digital literacy training and access to immigrant and other low-income populations.
• A $12.8 million project by the Southwest Minnesota Broadband Group to expand the current fiber-to-the-premise network deployed in Windom to the communities of Jackson, Lakefield, Round Lake, Bingham Lake, Brewster, Wilder, Heron Lake and Okabena. When completed, this fiber project will provide state-of-art Internet connections to these rural communities that surpass the current capacity of many metro-area communities.
• A $1.4 million project by the Minnesota Valley Improvement Corporation in Granite Falls to expand their wireless broadband network to unserved and underserved parts of South Central and West Central Minnesota.
• A $43 million project by the Northeast Service Cooperative to create a 915-mile fiber backbone that will cover 8 counties in northeast Minnesota. Once in place, the fiber backbone will allow local broadband providers to have a quality access point from which they can serve their customers.
• And finally, Qwest Communications recently announced their application for a $350 million grant to enhance broadband capacity in their 14-state region. If funded, approximately $54 million is set aside for Minnesota.
It is also important to remember that this is just the first round of these federal broadband grants and loans, which focused primarily on unserved areas. As we move into the second round, projects to enhanced underserved regions as well as more competitive areas will follow.
As stated in the recently passed Senate File 2254, Minnesota aspires to be one of the top five states in the nation in universal access, connection speeds and broadband adoption. Projects like these and the ones that will follow are precisely what we need to do to achieve that goal.
Regarding the Governor’s action, I must admit to some confusion myself. For those who don’t follow this closely, governors across the country were asked to provide their input on the many stimulus proposals submitted from their respective states; and our governor did just that. However, Governor Pawlenty chose not to publicly disclose his input to the federal government; which creates some confusion in helping us better understand his vision for the State of Minnesota in this regard. At the same time, while keeping his thoughts confidential is somewhat unusual, I really do not believe that it had a meaningful impact on the competitiveness of the collective proposals from Minnesota.
Regarding our standing as a state, I am not overly concerned that we are collectively lagging behind; or that we will not be receiving our fair share of the federal funding pie. First, it has been clear to me that relative to most other states, Minnesota as a whole has always been in pretty good shape. Sure we have rural areas that are both digitally unserved and underserved, but all states that have large rural tracts are in that position. In fact, the initial data and maps produced last year by Connect MN indicated that a large majority of Minnesota is well served, with reasonably good connection speeds. In other words, we have a good base to work from.
Looking forward, there’s much to be excited about given the numerous broadband activities occurring all over Minnesota. First and foremost was the passage of a bill by the legislature establishing statewide goals and leadership for broadband development. Senate File 2254 was sent to the Governor for his signature in late April.
I am also encouraged by the broadband projects that have already been funded and the proposals that are currently being reviewed for funding. Some selected projects underway include:
• A $6.3 million project being lead by the C.K. Blandin Foundation to increase awareness, provide training and increase broadband adoption among households and businesses all across rural Minnesota.
• A 2.9 million initiative conducted by the University of Minnesota to establish public computer centers in multiple low–income neighborhoods in Minneapolis and St. Paul. These centers will provide digital literacy training and access to immigrant and other low-income populations.
• A $12.8 million project by the Southwest Minnesota Broadband Group to expand the current fiber-to-the-premise network deployed in Windom to the communities of Jackson, Lakefield, Round Lake, Bingham Lake, Brewster, Wilder, Heron Lake and Okabena. When completed, this fiber project will provide state-of-art Internet connections to these rural communities that surpass the current capacity of many metro-area communities.
• A $1.4 million project by the Minnesota Valley Improvement Corporation in Granite Falls to expand their wireless broadband network to unserved and underserved parts of South Central and West Central Minnesota.
• A $43 million project by the Northeast Service Cooperative to create a 915-mile fiber backbone that will cover 8 counties in northeast Minnesota. Once in place, the fiber backbone will allow local broadband providers to have a quality access point from which they can serve their customers.
• And finally, Qwest Communications recently announced their application for a $350 million grant to enhance broadband capacity in their 14-state region. If funded, approximately $54 million is set aside for Minnesota.
It is also important to remember that this is just the first round of these federal broadband grants and loans, which focused primarily on unserved areas. As we move into the second round, projects to enhanced underserved regions as well as more competitive areas will follow.
As stated in the recently passed Senate File 2254, Minnesota aspires to be one of the top five states in the nation in universal access, connection speeds and broadband adoption. Projects like these and the ones that will follow are precisely what we need to do to achieve that goal.
Thursday, April 1, 2010
Another Focus on Rural Broadband Adoption
On March 25th the U.S. Dept. of Commerce announced the awarding of a $4.7 million grant to the Grand Rapids-based Blandin Foundation, to conduct a statewide broadband development project across rural Minnesota. Through this grant, the Minnesota Intelligent Rural Communities (MIRC) coalition will bring a network of resources and support to rural Minnesota individuals and communities—especially those unemployed and seeking employment, small businesses, coalitions of government entities, and local leaders.
The EDA Center at the University of Minnesota, Crookston will serve as the lead evaluator for this large and broad-based project. Go to: http://broadband.blandinfoundation.org/news/news-detail.php?intResourceID=1208 to learn more.
The EDA Center at the University of Minnesota, Crookston will serve as the lead evaluator for this large and broad-based project. Go to: http://broadband.blandinfoundation.org/news/news-detail.php?intResourceID=1208 to learn more.
The Health Care Outlier
Outlier\ noun – a statistical observation that is markedly different in value from the others of the sample.
Now that the National Health Care Bill has been signed, I think it is fair to conclude that few policy issues are more politically polarizing. One side argues that the federal government needs to have an increased role to ensure access to all Americans and help lower costs; while the other side suggests that allowing market forces to work more freely would have the effect of lowering costs and increasing access. And the recent news that several health insurers were proposing to increase insurance rates to individual policy holders by more than 30% seemed to simply have the effect of throwing gasoline on an already blazing fire. In fact, one of the most frequently heard questions in this debate is, “can we afford to turn over 16 percent of our economy to the federal government?”
Certainly, we all know that health care and health insurance is plenty expensive; but have you ever wondered why it has grown to be 16 percent of our gross domestic product (GDP)? Well a report that was released last year by the Organization for Economic Cooperation and Development (OECD) sheds some interesting comparative data on this (see http://www.oecd.org/dataoecd/46/2/38980580.pdf ).
As noted in the OECD report, total health care spending accounted for 16.0% of GDP in the United States in 2007; by far the highest share among the 30 OECD nations. The U.S. was followed by France, Switzerland and Germany, which allocated respectively 11.0%, 10.8% and 10.4% of their GDP to health care. Interestingly, the OECD average was almost half of the U.S. percentage at 8.9% of GDP.
Looking at per capita health care costs (expressed in U.S. dollars and adjusted for purchasing power parity) the report documents that the United States ranks far ahead of other OECD countries, spending $7,290 per person. This is more than twice the OECD average of $2,964. In second place was Norway, spending $4,763 per capita and in third place was Switzerland, spending $4,417 per capita.
For the overwhelming number of OECD nations, public health care expenditures far exceed private expenditures. Some would clearly call this a government takeover of the health care sector. For example in the United Kingdom where they have a National Health Service, more than 80 percent of all health care expenditures are public. This is true for most OECD nations; while the United States is the exception, with the majority of its health care expenditures in the private sector. But looking at the weight of this data on its surface seems to make you wonder, if freeing up market forces is the most effective way to decrease costs, then why is the U.S. with its focus on competitive, private sector health care so much more expensive than these other similarly industrialized counties?
One possibility maybe lies in the adage, “you get what you pay for?” After all, maybe the reality is that while our health care is much more expensive than in other countries, our superior health outcomes are worth the added costs? Unfortunately, here the report goes on to document that in fact compared to the OECD average, the U.S. actually has fewer physicians per capita, a lower life expectancy rate and a higher infant mortality rate. In other words, we’re paying a lot more but receiving a lot less. And if that doesn’t bother you, the non-partisan Congressional Budget Office estimates that if left on its current trajectory, health care costs will rise over the next 25 years to 31% of GDP. It’s not exactly the value proposition Americans deserve.
So while the politicians here in Washington continue to batter each other back and forth in an effort to turn this issue toward their political advantage in November, let’s at least agree on one thing; while being an outlier in some instances might be flattering, this isn’t one of them.
Now that the National Health Care Bill has been signed, I think it is fair to conclude that few policy issues are more politically polarizing. One side argues that the federal government needs to have an increased role to ensure access to all Americans and help lower costs; while the other side suggests that allowing market forces to work more freely would have the effect of lowering costs and increasing access. And the recent news that several health insurers were proposing to increase insurance rates to individual policy holders by more than 30% seemed to simply have the effect of throwing gasoline on an already blazing fire. In fact, one of the most frequently heard questions in this debate is, “can we afford to turn over 16 percent of our economy to the federal government?”
Certainly, we all know that health care and health insurance is plenty expensive; but have you ever wondered why it has grown to be 16 percent of our gross domestic product (GDP)? Well a report that was released last year by the Organization for Economic Cooperation and Development (OECD) sheds some interesting comparative data on this (see http://www.oecd.org/dataoecd/46/2/38980580.pdf ).
As noted in the OECD report, total health care spending accounted for 16.0% of GDP in the United States in 2007; by far the highest share among the 30 OECD nations. The U.S. was followed by France, Switzerland and Germany, which allocated respectively 11.0%, 10.8% and 10.4% of their GDP to health care. Interestingly, the OECD average was almost half of the U.S. percentage at 8.9% of GDP.
Looking at per capita health care costs (expressed in U.S. dollars and adjusted for purchasing power parity) the report documents that the United States ranks far ahead of other OECD countries, spending $7,290 per person. This is more than twice the OECD average of $2,964. In second place was Norway, spending $4,763 per capita and in third place was Switzerland, spending $4,417 per capita.
For the overwhelming number of OECD nations, public health care expenditures far exceed private expenditures. Some would clearly call this a government takeover of the health care sector. For example in the United Kingdom where they have a National Health Service, more than 80 percent of all health care expenditures are public. This is true for most OECD nations; while the United States is the exception, with the majority of its health care expenditures in the private sector. But looking at the weight of this data on its surface seems to make you wonder, if freeing up market forces is the most effective way to decrease costs, then why is the U.S. with its focus on competitive, private sector health care so much more expensive than these other similarly industrialized counties?
One possibility maybe lies in the adage, “you get what you pay for?” After all, maybe the reality is that while our health care is much more expensive than in other countries, our superior health outcomes are worth the added costs? Unfortunately, here the report goes on to document that in fact compared to the OECD average, the U.S. actually has fewer physicians per capita, a lower life expectancy rate and a higher infant mortality rate. In other words, we’re paying a lot more but receiving a lot less. And if that doesn’t bother you, the non-partisan Congressional Budget Office estimates that if left on its current trajectory, health care costs will rise over the next 25 years to 31% of GDP. It’s not exactly the value proposition Americans deserve.
So while the politicians here in Washington continue to batter each other back and forth in an effort to turn this issue toward their political advantage in November, let’s at least agree on one thing; while being an outlier in some instances might be flattering, this isn’t one of them.
Thursday, February 11, 2010
No More Business as Usual
It’s not exactly breaking news that Minnesota’s state budget is facing some unprecedented difficulties; but this time I believe that the change needed will likely be transformational in its consequence. By that I mean that with a current billion dollar budget deficit and a lurking multi-billion dollar deficit through 2013, it’s fair to say that our public officials simply will be unable to successfully meet this challenge using “business as usual” tactics; a tweak here and a tweak there, just won’t do it.
As I noted last month, if we are going to successfully meet this current budget challenge, we need to stop thinking about the solutions in terms of tax increases or tax cuts. Rather, we need to serious talk about tax and expenditure reform. We simply need to rethink how we choose to collect our tax revenues and how and where we choose to spend it. Sooner or later our public officials will have to have that conversation, and when they do there are some issues important to rural Minnesota that they will have to address:
The Fate of Local Government Aid – Local Government Aid or LGA has been a tremendous help to small rural communities (and some large ones too), and was intended to serve as a statewide equalizer to assist local governments in meeting their essential service needs without completely overburdening their local taxpayers. This is especially true in rural communities where the property tax valuations are quite modest and there is a disproportionate percentage of lower-income and fixed income residents.
But LGA has grown over the years into a program that is ripe for reform. In fact, LGA today provides well over half of the funds of many community budgets. So the question is, does LGA simply help these communities or are metro and suburban taxpayers actually paying more than their fair share? It’s a question that legislators have debated for quite some time, with rural legislators strongly supporting the current system. But how safe can LGA be when Minnesota’s most recently elected Senator from rural Waseca unabashedly states that LGA is an unfair transfer of wealth and that it undermines accountability by allowing rural city councils to spend money they don’t have to tax for. As Senator Parry was quoted as saying “LGA to me is nothing but a credit card.” (Mankato Free Press, Jan. 22, 2010).
So as the legislature prioritizes and discusses its future spending, look for LGA to occupy a place in the discussions.
Prioritizing Capital Bonding Projects – During “even numbered” years communities from across the state regularly compete in hopes of getting a capital improvement project placed in the state’s capital bonding bill. From small community ice arenas to the new Guthrie Theater, legislators carry these local requests to the State Capitol where there are typically 3-5 dollars in requests for every one dollar available. But in more recent years it has been increasing difficult to secure a place in the bonding bill as local projects are out of favor, replaced by projects with “regional or statewide significance.”
To be fair, there is certainly logic to this prioritization scheme, and I envision such logic being used more in the future – not less. But we also need to ask, outside of a flood control project, or the development/ improvement of a statewide facility such as the sex offender treatment facility in Moose Lake, what type of project originating from a small rural community can actually meet this test? We simply need to revisit the goals of a state capital bonding bill and the role of local projects in it.
Consolidation, Consolidation, Consolidation – When I first arrived in Minnesota I was often asked why there are 87 counties and shouldn’t we consider county consolidations; we’ve all heard similar concerns. But like the school consolidations throughout the Midwest in the 70’s and 80’s look for a serious and broader consolidation effort over the next few years. Sure … the 87-county question will return, but also look for a much broader set of consolidation efforts. City-county service consolidation and the regionalization of our human service infrastructure will be hotly pursued. But don’t be surprised to also see further consolidation of statewide offices, schools and school districts; college campuses and state-owned infrastructure.
Change is never easy; and that is especially true for large-scale transformational changes. The temptation for elected officials to avoid such discussions and make every effort to try to constructively “tweak” the status quo is great. But at some point it will become obvious that we have no other viable alternatives. It reminds of the words of Winston Churchill, who toward the end of World War II was quoted as saying, “You can always trust the Americans to do the right thing … after all other alternatives have been exhausted.”
As I noted last month, if we are going to successfully meet this current budget challenge, we need to stop thinking about the solutions in terms of tax increases or tax cuts. Rather, we need to serious talk about tax and expenditure reform. We simply need to rethink how we choose to collect our tax revenues and how and where we choose to spend it. Sooner or later our public officials will have to have that conversation, and when they do there are some issues important to rural Minnesota that they will have to address:
The Fate of Local Government Aid – Local Government Aid or LGA has been a tremendous help to small rural communities (and some large ones too), and was intended to serve as a statewide equalizer to assist local governments in meeting their essential service needs without completely overburdening their local taxpayers. This is especially true in rural communities where the property tax valuations are quite modest and there is a disproportionate percentage of lower-income and fixed income residents.
But LGA has grown over the years into a program that is ripe for reform. In fact, LGA today provides well over half of the funds of many community budgets. So the question is, does LGA simply help these communities or are metro and suburban taxpayers actually paying more than their fair share? It’s a question that legislators have debated for quite some time, with rural legislators strongly supporting the current system. But how safe can LGA be when Minnesota’s most recently elected Senator from rural Waseca unabashedly states that LGA is an unfair transfer of wealth and that it undermines accountability by allowing rural city councils to spend money they don’t have to tax for. As Senator Parry was quoted as saying “LGA to me is nothing but a credit card.” (Mankato Free Press, Jan. 22, 2010).
So as the legislature prioritizes and discusses its future spending, look for LGA to occupy a place in the discussions.
Prioritizing Capital Bonding Projects – During “even numbered” years communities from across the state regularly compete in hopes of getting a capital improvement project placed in the state’s capital bonding bill. From small community ice arenas to the new Guthrie Theater, legislators carry these local requests to the State Capitol where there are typically 3-5 dollars in requests for every one dollar available. But in more recent years it has been increasing difficult to secure a place in the bonding bill as local projects are out of favor, replaced by projects with “regional or statewide significance.”
To be fair, there is certainly logic to this prioritization scheme, and I envision such logic being used more in the future – not less. But we also need to ask, outside of a flood control project, or the development/ improvement of a statewide facility such as the sex offender treatment facility in Moose Lake, what type of project originating from a small rural community can actually meet this test? We simply need to revisit the goals of a state capital bonding bill and the role of local projects in it.
Consolidation, Consolidation, Consolidation – When I first arrived in Minnesota I was often asked why there are 87 counties and shouldn’t we consider county consolidations; we’ve all heard similar concerns. But like the school consolidations throughout the Midwest in the 70’s and 80’s look for a serious and broader consolidation effort over the next few years. Sure … the 87-county question will return, but also look for a much broader set of consolidation efforts. City-county service consolidation and the regionalization of our human service infrastructure will be hotly pursued. But don’t be surprised to also see further consolidation of statewide offices, schools and school districts; college campuses and state-owned infrastructure.
Change is never easy; and that is especially true for large-scale transformational changes. The temptation for elected officials to avoid such discussions and make every effort to try to constructively “tweak” the status quo is great. But at some point it will become obvious that we have no other viable alternatives. It reminds of the words of Winston Churchill, who toward the end of World War II was quoted as saying, “You can always trust the Americans to do the right thing … after all other alternatives have been exhausted.”
Monday, January 11, 2010
Let's quit playing Kick the Can!
When I was a 6-year old kid back in New York, one of my favorite games was kick the can; and my favorite place to play was in the alley across the street. As the alley was actually the back of the retail storefronts and restaurants facing the street, there were plenty of dumpsters back there and consequently, an endless supply of cans. But equally important, the alley was actually several blocks long and ended at a dead end; so there was never a question when the game was over. When you hit the dead end, the game was done.
Kick the can is also a rather useful metaphor for what many believe our Governor and state legislators have been doing with the state budget for a majority of this just-ended decade. Beginning with a large budget deficit after the dot-com bubble and the 9-11 attacks, our public officials have been regularly kicking our budget woes from biennium to biennium, patching it together with one-time funding fixes (remember the tobacco endowment or our budget reserves?); selected budget cuts to local governments; accounting shifts and most recently, federal stimulus funding. I suppose the rationale for continually pushing our budgetary troubles further into the future was the hope that by the time the bills actually came due, that the Minnesota economy would be out of the doldrums and once again humming along. But like the alley’s dead end back in New York, as the Legislature re-convenes this month it’s clear that this game is over.
The dead end actually came into view back in December when the state budget forecast documenting a $1.2 billion shortfall for the remainder of the current biennium. In essence we learned of a $240 million deficit for the remainder of FY 2010 and a whopping $916 million deficit in FY2011; thereby erasing any rational hope that the Minnesota economy is on the verge of roaring back. Further, what was most disturbing about this forecast was that 72 percent of the projected deficit is from the loss in personal income tax revenues; further suggesting that the employment picture will remain tepid for some time to come. As it is often said about income taxes, you don’t have to pay them if you don’t earn the wages.
But what about the FY 2012-13 biennium, surely by then the economy will bounce back; right? Well to be honest, because we have been continually shifting significant expenses from biennium to biennium, we have been starting each biennium with the debt of the past biennium. In addition, the federal stimulus dollars dry up at the end of FY 2011. Accordingly, the budget picture actually worsens for the 2012-13 biennium, with the current forecast of a $5.4 billion deficit.
And just in case you may think that we didn’t see this trouble coming, let me assure you that you are wrong. In fact, our state economist Tom Stinson and our state demographer Tom Gillaspy have been preaching how Minnesota’s shorter-term economic cycles have merged with our longer-term demographic cycles for so long that many of us have come to name their regular presentations as the “Tom & Tom” show. And what is most ironic is their presentation has been a regular feature of the Legislature’s annual policy conference at the beginning of each legislative session. Yes, that’s right. At the beginning of each session, legislators come together for a day to learn about the economic trends, demographic trends and the overall outlook for the state. But given the way this budget situation has been handled, you’d never know that the Tom & Tom show has been a staple of this legislative event every year for the past 3 years.
So now as the legislature convenes to address this budget dilemma, let’s vow to stop playing kick the can with the state budget. As there are no more one-time fixes to be found, no more accounting shifts to be made, and no more stimulus funds, let’s finally have a serious discussion about how we Minnesotans collect our taxes and spend our revenues. Through such discussions legislators may find that they might consider taxing some items or services that are currently exempt. And even more likely, as they prioritize our state programs and expenditures, they may find that there are some programs that just can’t be prioritized as high as they used to be given the current fiscal realities.
But most importantly, if the discussion is truly going to be serious, Republican members can’t label every proposed tax enhancement a “job killer” nor can Democrats label every proposed spending cut a confirmation that Republicans are only looking out for the wealthy. As we begin this new decade, we Minnesotans deserve a more serious discussion than that.
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