Friday, April 29, 2011

Workforce & Economic Development Expenditures: Reform, Redesign, and Redirection

As the economy continues to struggle and the issues of jobs, economic development, and workforce readiness become prime targets of budget policy decisions, both Minnesota and Wisconsin experience different levels of funding and outcomes. Among the proposed solutions to these issues are Reforms in Minnesota, Redesigns in Wisconsin, and money Redirections in other states to education.

Minnesota’s Scenario
Economic snapshot: Minnesota, has not experienced the extremes of unemployment and economic downturns that has taken a toll on states of similar populations, like Wisconsin. Minnesota’s economy, as measured by GDP, is relatively strong when compared to other Plains-area states, and is currently ranked #16 overall. Much of the funding for these outcomes is primarily provided by The Department of Employment and Economic Development (DEED), which is tasked with facilitating “an economic environment to produce jobs and improve the quality of the state’s workforce."

Governor’s Budget: Recommendations for the 2012-13 Biennium have been made by newly-elected Governor Mark Dayton, with a significant decrease in expenditures ($829M) for DEED for the biennium. This includes a -10.1% biennial change in appropriations from 2010-11, and an overall change of -8.1% from 2010 total expenditure levels. About 70% of all DEED funding is federal money received funding through a variety of federal agencies including the Departments of Labor, Education, and Housing and Urban Development, Social Security Administration, Environmental Protection Agency, and Small Business Administration.

Wisconsin’s Scenario
Economic Snapshot: Wisconsin has not fared as well as Minnesota. Wisconsin’s economy, as measured by GDP, is relatively weaker when compared to other area states, and is currently ranked #21 overall. With an unemployment rate currently estimated at 8.1%, Wisconsin citizens are have less jobs than Minnesota, and this more dismal situation has led to a shift of Gubernatorial power to current Republican Governor Scott Walker, who campaigned saying that he would create 250,000 jobs in his first term. In starting to fulfill that promise, Walker proposes drastic measures to shift funding in economic and workforce development. Walker aims to completely dismantle the Department of Commerce and shift its tax credit programs for corporations and businesses to the new Wisconsin Economic Development Corporation (WEDC). This agency, along with the Department of Workforce Development, is the primary agency tasked with employment programs in Wisconsin.

Governor’s Budget: Together, these two agencies are budgeted to expend about $863M over the biennium, with nearly $200M transferred from the Commerce Department to the WEDC. This represents a decrease of -14.975% over four years. Wisconsin's portion of federal funds is larger (~83%) than Minnesota.

A Minnesota’s Reform Proposal

Social-Impact Bonds

(click image for Center For American Progress Report, March 2011)

This idea is the innovation of Rise, Inc. founder Steve Rothschild and is currently part of the omnibus government expenditures bill being debated in the Minnesota State Legislature. In this reform, the state would sell revenue bonds for social programs related to employment – in the same way that infrastructure (roads, building, etc.) is paid for through long term debt bond financing. As high performing nonprofits, partially-funded by DEED, achieve measurable results in the form of increased high-quality jobs the positive effects on the economy, these increases in income taxes and decreases in entitlements will pay for the debt service and possibly generate revenues for the nonprofit and/or state. This truly is a long term reform that may not get off the ground if the pilot program ($20M) is not passed through during the current session.

Wisconsin Redesign Efforts
The Wisconsin Economic Development Corporation: Because of the dismal situation in which Wisconsin finds itself, Governor Walker has proposed a redesign effort aimed at merging two separate agencies, eliminating the Commerce Department altogether, and creating the new Wisconsin Economic Development Corporation to provide linkage and efficiency not currently experienced in Wisconsin. All workforce programs and activity will be run through this new agency, and the WEDC is expected to get $192 million for the next biennium.

Alternatives: Redirection of Expenditures to Education:
Iowa’s Workforce Development agency is reforming how the services are delivered. By eliminating the many offices around the state (39 in total) and placing them in alternative community locations (such as libraries, community centers, Iowa State University Extension offices and churches) Iowa hopes to save $3M to $4M per year.

In South Carolina, calls for drastic economic reform through increased attention and redirection of funds to education. South Carolina boasts significantly lower scores on educational measures such as spending per pupil, ACT scores, and graduation rates from high school. The logic involves educational policy reform to increase the level of competition among schools by easing charter school establishment procedures and performance measurement. The result of this increased competition is seemingly better schools and a framework for replication that other states can embrace.

There is little doubt that investment in human capital is highly important for economic growth. More important, however, are the targets of that spending. Tax dollars should be spent on the most useful and productive educational inputs if we want to see a more flexible and capable labor force. In Minnesota and Wisconsin, reform and redesign of current systems may not be enough. In an era of budget cuts and declining federal transfers, state governments must decide on their priorities – to spend on the problem (unemployment and fleeing corporations) or the cause (under skilled graduates and workforce).

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