Private Gains and Public Losses

In a previous posting I suggested that looking back a year or more from now we may come to view July 2010 as an important turning point for the Minnesota economy. With a strong gain of 19,000 private sector jobs in July, Minnesota businesses clearly made a statement that a jobs recovery was taking hold. It was the type of performance that portends a break in the old cycle and the beginning of a new one. At the same time, far less mentioned was the observation that along with the gain of 19,000 private sector jobs in July was a loss of 9,100 public sector jobs.

Interestingly, the new trend that appears to be emerging is far more complicated than simply a substantive recovery of jobs in the private sector. As I have often noted, while the Minnesota economy is a reflection of the production, sale and distribution of goods and services in a global marketplace, our state and local budgets are best described as political instruments. As a result, a state budget is the culmination of dozens of political decisions often made by a handful of political leaders – some good; some not so good. And while macroeconomic theory tells us that economies find their equilibrium, no such theories govern the political ideologies or whims in constructing a state budget. Accordingly, there is no reason to assume that the Minnesota state budget will necessarily reflect the recovery taking hold in the economy. So allow me to suggest that the good news in this new trend will be the continuation of private sector job growth; and the bad news will be continued reductions in public sector employment.

Why am I so gloomy about public sector jobs? Well, there are three factors that are affecting my outlook. First and foremost is the current state budget situation. With a budget deficit greater than $5 billion (note that this column is being written prior to the release of the November state budget forecast), it is simply impossible to responsibly address such a large deficit without further public sector job losses. These losses will occur in state agencies, higher education institutions and school districts, as well as within county offices and city halls. Second, the current political sentiment appears to be conducive to those who advocate that government at all levels have gotten too big and need to be “right-sized.” And third, this is actually the continuation of a trend that has been steadily occurring in Minnesota for the past decade. In fact, our annual state workforce reports often highlight the reduction in state employees since 2001.

Interestingly, when we talk about reducing the size of government, more often than not, people look at the size of our state expenditures to reflect the size of government. But does that really make sense? For example, we can reduce the gas tax in Minnesota and significantly decrease the funds we have to build and repair our state roads and highways. But while that reduces overall state expenditures, is that really reducing the size of government? Similarly, we can whack our human services budgets and greatly decrease state Medicaid reimbursements to nursing homes. But with one of the fastest growing cohorts in the state being those who are 85 and older, is that what we mean by reducing the size of government? I don’t think so. So as this agenda of downsizing government commences, it is likely that it will be reductions in the number of public employees that best reflect its success.

And with that in mind, one region that may disproportionately feel the negative effects of this downsizing is the Mankato/North Mankato metropolitan area. While we typically do not think about it, the Greater Mankato metro is home to close to 4,000 state-funded jobs. This includes employees such as those at the State Hospital in St. Peter, MnDOT employees at the District 7 Office in Mankato, as well as MnSCU employees at MSU and South Central College. In fact, it is the highest concentration of state-based jobs outside of the Twin Cities metro; with St. Louis County and Stearns County being the two other high concentration areas outside of the Twin Cities.

So if this new trend of private sector job growth and public sector job losses emerges, what will its effect be? Well first, it may significantly reshape the composition and culture of the workforce in these regions, as many of the jobs lost will be highly skilled; requiring college and graduate degrees. But equally important, it will seriously “handcuff” the regions' ability to reduce the regional unemployment rate, if we find that one public sector job is lost for every couple of private sector jobs gained. Like dancing the cha-cha, it’s two steps forward and one step back.

A Quisling; Really?

Yesterday it was reported in the Star Tribune that GOP Chair Tony Sutton responded by saying, "There's a special place in hell for these quislings," in his reaction to the news that a dozen former Republican legislators have thrown their support to Independence Party candidate Tom Horner for Governor. So the first thing we all did is run to our dictionaries to find out what the heck is a quisling?

From Dictionary.com:

–noun
a person who betrays his or her own country by aiding an invading enemy, often serving later in a puppet government.

Origin: 1940; after Vidkun Quisling (1887–1945), pro-Nazi Norwegian leader.

So a quisling is essentially a traitor.

Mr. Sutton has been profiled many times in the press since his election to the Chair of the Minnesota Republican Party and the term that keeps being repeated is "no holds barred." I can see why. But it is precisely because of this type of behavior why so many moderate Republicans are distancing themselves from Mr. Sutton and candidate Emmer. While we all expect to have differences with our political opponents, they are not the enemy. And it is this type of thinking that has made the Minnesota Legislature so dysfunctional.

These type of folks see the election as a war to win for their party's benefit. Let me be clear: They are not interested in solving Minnesota's problems. They simply wish to dominate the elected offices for their political benefit and the favor of their benefactors.

What they failed to understand is that Minnesotans are actually a well-educated lot and see past the rants. And it is because of such rants and tactics that Emmer has peaked. It's over for him.

It's no secret that I am a Horner supporter. I think he's the best chance thoughtful Minnesotans have. But what continues to impress me the most, is that while he has taken the negative shots from both the left and the right, he has yet to air a negative response.

Now that's truly Minnesota Nice!

The Digitally Distant

I have no doubt that looking back several years from now that 2010 will be viewed as a landmark year in terms of the deployment of broadband technology throughout rural Minnesota. Due to the passage of the federal American Recovery and Reinvestment Act (ARRA), more than $7 billion dollars were appropriated nationwide to support the deployment, access and adoption of broadband technology; much of it targeted toward rural America. It is a level of technology investment that can best be described as unprecedented. And to date here in Minnesota, municipalities, counties, nonprofit organizations and state agencies have been working together with local and regional broadband providers to secure more than $400 million of these funds.

I have been following the deployment of broadband technology throughout rural Minnesota for more than a decade now, and I can say without hesitation that while we cannot yet state that broadband is ubiquitous, overall, it is fair to say that it is increasingly accessible. Accordingly, this large infusion of technology investment just may be the final push toward ubiquity. Data from several sources seem to support this notion. For example, state broadband maps from Connect Minnesota suggest that only 6 percent of households still have no access to a broadband service; while a recently released report from the Center for Rural Policy and Development documents Internet connectivity rates among rural households at an estimated 70 percent.

What is most interesting about this infusion of federal funding is that much of it is targeted to some of the most rural regions in Minnesota. A good example is the recent announcement of an $82 million award to deploy digital fiber throughout Lake, Cook and northern St. Louis counties. Anyone who has ever ventured up the north shore to Grand Marais, the Gunflint Trail, or the Boundary Waters Canoe Area can attest to the remoteness of this Northeast Minnesota region. In fact, a recent study commissioned by the Blandin Foundation found that while only 8 percent of rural households who are online still connect with a dial-up connection, in Cook County dial-up still represents 25 percent of their Internet connections. Accordingly, these large investments in such remote places just might make the difference in changing the broadband map.

However, while watching this activity is certainly exciting, I must caution as a social scientist that increasing the availability of broadband does not guarantee the adoption of broadband. In fact, the adoption of any technology or innovation is far more complicated than that. Rather adoption is dependent upon a variety of factors including cost, relevance, culture, interest and in some cases, even religion (e.g. the Amish have yet to adopt electricity). And with 70 percent of rural households already online it is important to take a closer look at those who have yet to log on to the Internet.

Analyzing data of those rural households who have yet to even report having a working computer in their home finds that almost 70 percent are 65 years of age or older; 91 percent live in a household of 2 or fewer people; 94 percent report having no school-age children living in their household; and 46 percent report a household income under $25,000. Equally important is the strong correlation between Age and Income, where 64 percent of rural residents who report having a household income of less than $25,000 are also age 65 or older. This “double whammy” of older age and lower income will certainly create a barrier to technology adoption that may not easily be overcome.

So as we applaud this new level of technology investment that will digitally launch some of our most rural places into the 21st century, we must equally understand that the work is far from over. For the “build it and they will come” strategy will not likely work for those who are currently the most “digitally distant.” Rather we need to address some of the fundamental demographic and socio-economic factors, not just the technology factors. And it is organizations such as the Mankato-based PCs for People that can help lead the way. This local group of social entrepreneurs collects and refurbishes used computers for redistribution to thousands of low-income Minnesota families. That along with the hands on training they provide to these families is just the type of hand holding and support that will be needed to increase adoption rates beyond their current levels.

Not familiar with PCs for People? Well the next time you are online “Google” them.

Why Horner?

Yesterday I was contacted by the Horner campaign asking me to put down in words why I am supporting Tom Horner for Governor. Below is my response:

I can’t recall a time in recent Minnesota history when so much was riding on the outcome of a gubernatorial election. While our state economy is finally in a somewhat steady but tepid recovery, we face a massive budget deficit. And if that is not enough of a challenge, the long-term demographics of an aging and ethically changing population will tax our public services, our current and future workforce and our public infrastructure. To say that we need a governor with real vision, leadership and a record of accomplishment seems like an understatement. For the truth is that in spite of what Garrison Keillor may tell his national audience each week, we Minnesotans know that our state has been slipping on many key parameters for some time. Can we really call ourselves “above average” anymore? I’m not so sure.

For most of the past decade we seamlessly transitioned from one budget deficit to the next, with no effort to truly or honestly balance the budget. Remember when we used to have a substantial budget reserve; a massive tobacco endowment; or a sizable surplus in the health care access fund? It really wasn’t that many years ago, but they are all gone because our state officials and legislators chose to throw one-time money at recurring budget problems. Instead of honestly addressing our needs with real budget cuts and/or real revenue enhancements, they chose to take the politically easy route with the use of one-time funds, accounting gimmicks and shifts. Who in their right mind would call that sound political or fiscal stewardship?

To be honest, I don’t envy our next Governor as it is not going to be easy. We are going to need a Governor who is willing to make very difficult decisions and ask us all to sacrifice a bit to successfully get through this mess. And I mean all of us. Not just the wealthy through higher taxes and not just the poor through draconian cuts in service. Not just the struggling rural communities through cuts in police, fire and essential services; and not just the local taxpayer through higher school levies. But all of us together.

Benjamin Franklin was famously quoted as saying at the signing of the Declaration of Independence, “We must all hang together, or assuredly we shall all hang separately.” It is time for a new kind of leader to bring Minnesotans together; a leader with creative vision and skills. We need a leader who is more interested in pragmatically solving our problems than simply getting elected. And I believe that Tom Horner is that kind of leader. I have known Tom Horner for several years and have always admired his creativity, his leadership and his ability to bring diverse views to consensus. Equally important, I do not believe that at this critical point in our state’s history that we can rationally expect the representatives of the two parties that made this mess to fix it; they are simply too polarized. That is why centrist Democrats, Republicans and Independents who deeply care about the future of this state are standing up for Tom Horner. I am pleased to be one of them.

The best Subway in Minnesota

As some know, I spend a heck of a lot of time in my car, clocking around 48,000 miles per year. From Crookston to Duluth, to Slayton and Zumbrota. It's an incredibly big state and I love it all. As a result, I've probably stopped at more than 50 different Subway sandwich shops all across the state. Some have been stand alone shops, while others are in in truck stops, gas stations or strip malls. But there is little doubt that Subway is my favorite when I'm on the road, as I find it quick and easy; and if you leave off the lettuce, it's pretty easy to eat at 70 mph without making a mess.

While my intent was never to become a Subway sandwich aficionado, in many ways that's exactly what I have become. So with that in mind, I want to tell you that I have designated the Subway in Ada, MN along State Highway 9 as the best Subway in Minnesota. I've must have stopped there at least 15 times and the bread is always fresh, the store is always clean, the tuna is the best I have ever tasted and the cookies (a must!) are always soft and fresh.

So congrats Ada! You have a great Subway store.

A Turning Point for the Minnesota Economy?

As we look back it just may turn out that July marked a real turning point for the Minnesota economy. As we all know, for the past few years the Minnesota economy and its job outlook has been in retrenchment, or at best going sideways.  But beginning in mid-2009 some signs of recovery began to emerge, with job growth one month and retrenchment the next.  Temporary workers were showing up on payrolls and the signs of a recovery taking hold were there.
 
Then came the month of July when the Department of Employment and Economic Development reported that Minnesota had a net gain of 9,800 jobs.  Pretty impressive in itself, until you realize that during the same month we also lost 9,100 government jobs.  Many of these government jobs were temporary census workers, but clearly not the majority.  So for a net gain of 9,800 jobs to occur, this actually meant that the private sector created almost 19,000 jobs in July. Now that’s a pretty good month!  In fact, Minnesota has now gained almost 30,000 jobs in the past 12 months; a pace not matched in almost 4 years.
 
If you currently examine our economy within the national context, you’d have to come to the conclusion that while the recovery is slower than we would like, it’s really not doing too bad.  We’ve now recovered more than 25 percent of the jobs lost in the recession and our unemployment rate of 6.8 percent is almost 3 percentage points lower than the national rate of 9.6 percent. And while a 6.8% unemployment rate is still high, let’s remember that several other states are still stuck in double-digits.  And of course, it wasn’t that long ago when a 4-5% unemployment rate was viewed by many as “full employment.”
 
Of course, you’d never know that the economic recovery is on track if you listen to our politicians and public officials.  With a substantial budget deficit at the state level, it’s easy to blame the economy for this situation.  But the reality is that the Minnesota economy and the Minnesota state budget are two entirely different things.  The economy of course is a reflection of the production, sale and distribution of goods and services continuously circulating throughout a global marketplace.  As much as government tries, it really cannot make an impact on the economy as quickly or as comprehensively as politicians would have you believe.
 
The state budget on the other hand is a political instrument, reflecting the culmination of dozens and dozens of political decisions and compromises; some good – some bad.  But unlike the economy, a small group of political leaders can make a huge impact on the state budget. Choices to raise taxes, lower taxes, use one-time funds to temporarily resolve recurring problems, or shift expenses into the next budget cycle are all political decisions. So the next time your local legislator or public official wants to blame the economy for our budget woes don’t let them off so easy.
 
In the end no one knows for certain what the remainder of 2010 will bring, but my guess is that the economy and the job outlook will continue to incrementally improve until we reach a full recovery.  But when we are fully recovered, don’t expect everything to look like it did prior to the recession.  The reality is that some of our business sectors will never fully recover and the overall employment composition in Minnesota will have changed. This may be especially true within some regional areas across the state.  And looking a bit further out, demographic shifts, educational attainment and other socio-economic characteristics of the workforce, along with the integrity of our regional and state infrastructure will all influence the future economic and employment outlook for Minnesota.
 
Many economists and pundits are now calling this emerging economic configuration the “New Normal.”  I think they are on to something.
 

What I want in a Governor

I don't think I can recall a time in recent history where the stakes have
been higher for a gubernatorial election.  With the Minnesota economy in a
steady, but fragile recovery; a whopping $6-7 billion state budget
deficit; and a massive wave of baby-boomers about to retire, the need for
a leader with vision and skills is essential.
The truth is that our state economy, while weakened, is not doing that
bad.  Our state budget on the other hand is a mess because both Democrat
and Republican leaders have mismanaged it for most of the past decade.
Putting the needs of their party ahead of the needs of their state, our
leaders have been content to kick the can down the road, while praying
that the economy takes off again.  Too bad it didn't work.
So as I listen to the current crop of gubernatorial candidates all I hear
is the same old tax the rich message from one party; and a trickle down -
starve the beast message from the other.  This is not leadership.
I want a new kind of leader for a 21st Century Minnesota.  I want a leader
that is not bound and censored by party officials.  I want a leader who
wants to solve problems - not just win elections.  I want a leader who
cares about the well-being of our small rural towns, as well our Fortune
500 companies.  And I want a leader who is not shy about telling me that
we all will have to sacrifice to get out of this mess.  I want ... Tom
Horner as our next Governor.