State and Local Public Finance

U.S. Budget Process – Legislative Consideration of the Budget Resolution

2012-01-27T19:55:00.004-06:00

President Obama will submit his budget toCongress on Monday, February 13^th of this year. The House and SenateBudget Committees will receive the budget, thus beginning legislativeconsideration of the budget.

The Chairmen of the Senate and House Budget Committeesreview the President’s budget, hear testimony from various executive branchofficials, and create their own budget document. The budget document they eachcreate is known as the “Chairman’s Mark.” The Mark describes the chairman’spriorities in words and numbers and includes legislative language.The Mark becomes the document that the Budget Committees will work from to formthe budget resolution.

The Senate and House Budget Committees both complete aprocess called Mark-Up.This means the committees are reviewing and amending the Chairman’s Mark. EachBudget Committee must pass the budget before it can move on to consideration byeach body – the Senate and House. The budgets are different at this point.

Both the House and Senate consider their respective budgetresolutions on the floor of each chamber. Senators cannot filibuster thebudget resolution because the budget resolution has special rules that limitthe time for debate once it has started. After both houses pass a budgetresolution, a conference committee is formed to work out the differencesbetween the two resolutions. The conference committee budget resolution is thenvoted on by both houses.

The budget resolution passed by the House and Senate becomesa guide for consideration of the various appropriation bills. The appropriationbills are what actually become laws and give legal authority for agencies to incur obligations.

The process described above is how the legislature is “supposed”to pass a budget resolution. However, this process has become very difficult inrecent years and Congress does not always pass a budget resolution in a timelymanner. Recently, there has been more attention on the process and even some discussionabout reform. The Senate Budget Committee held a hearing in October 2011 tohear testimony about options for reform.

Finally, Chairman Conrad of the Senate Budget Committeerecently gave a floor speech describing the Budget Control Act of 2011. In this speech he addressed critics who said Congress had not passed a budget in over 1,000 days.

The U.S. Budget Process & the Debt Ceiling

2012-01-27T17:33:00.001-06:00

It is no secret that the U.S. Congress rarely meets itsbudget deadline. There are a number ofideas about how to change the processwhich could facilitate better progress and enable Congress to meet deadlines.However, timing is not the only problematic aspect of Congress’ budget process.

Adjusting for inflation, spending in a number of budgetareas has actually been less under President Obama than it wasunder President Reagan over 30 years ago. However, this has not been the case with all or evenmost government programs.

Because overall government spending exceeds the revenuescollected, the government must have a mechanism in place for meeting its expenditureobligations. Although the government can do this in a variety of ways,it is often the case that Congress borrows from the entitlement trust fundsthat have been invested in U.S. Securities to make up for the shortfall.

However, there is a limit to the amount of money thatCongress can borrow, that is, the amount of debt the federal government canincur, regardless of where it borrows from. That amount is referred to as the “debt ceiling”.

In the fall of 2011, Congress’ borrowing ran up against thedebt ceiling, which at the time was $14.7 trillion. In order for the federal governmentto be able to pay its bills, therefore, Congress needed to increase the amountit was allowed to borrow. The process to raise the debt ceiling was bothpartisan and protracted, but ultimately a deal was reached between the WhiteHouse and Congress that among many things included the creation of a so-called “SuperCommittee” of 12 members of the U.S. House and Senate tasked with identifying$1.2 trillion in federal spending cuts.

Unfortunately, the Super Committee did not succeed inidentifying the spending cuts and as a result, triggered automatic,across-the-board budget cuts that total $1.2 trillion. The cuts begin in FY2013 and phase in over the next 10 year period. The speculated impacts of thesecuts are currently being debated, but what is certain is that they will affectgovernmental programs at every level from the national defense to communityhealth centers.

Welcome to PA5113, 2012 Spring

2012-01-24T15:17:00.003-06:00

Hello friends,

Welcome to the course weblog of "State and Local Public Finance," which is an additional channel of communication for our journal together on PA5113, 2012 Spring.

Throughout the semester, each of you is required to post two blogs, one before the Spring Break and one after. Please log on the Moodle course website to register for your posting schedule.

The broad topic area for each week is generally following the lecture schedule, with some exceptions. When it is your turn, you shall pick a specific point of interest, find relevant materials on the Internet or through other sources, and present your comments or questions that are related to our lecture or readings. Each blog should provide hyperlinks to additional web-based resources, and I would love to see some multimedia ones, which are often really enjoyable. In the class, some of you may be asked to do a 2-minute "mini speech" about your post and answer one or two questions.

You are all encouraged to read these blog posts and add comments. Each week we will select a "Post of the Week," whose author will be awarded 1 extra point in the participation scores.

Let me know if you have any questions or concerns,

Jerry

Washington Post- Sorting Out the Budget Proposals

2011-05-31T16:42:00.000-05:00

http://www.washingtonpost.com/wp-srv/special/politics/sorting-out-the-budget-proposals/

Chicago Commuter Rail: Performance Doesn’t Promise Funding

2011-05-04T05:57:00.005-05:00

“The way to really fly” is the marketing slogan used by Metra, Chicago’s public commuter rail provider, to attract riders. Aside from simply implying that Metra is a fast and efficient mode of public transportation, the motto also reflects its soaring success as a service provider. “Some call Metra the best regional railroad in the U.S.”[1] Metra has shown that the public sector is capable of providing cost efficient service that provides excellent consumer outcomes. Unfortunately, the budget debates now taking place in Congress threaten to compromise the continued success of the Metra and other mass transit services throughout the country that need federal aid for their capital budgets. It is a perfect example of how a slash and burn approach to the budget can unnecessarily jeopardize well performing and essential public services.

As gas prices begin to soar, the consensus is that fuel prices will remain high for the long-term. If transportation alternatives aren’t made available, fuel related cost pressures will have adverse affects on consumers and the economy. Therefore, the need for maintaining and expanding public transit should be a national priority… but it’s not! Metra has proposed addressing the transportation needs and congestion concerns of suburban commuters by proposing a “first-of-its-kind” suburban commuter rail line. Unfortunately, state and federal funding for this project has completely dried up.

Metra has historically performed better than its peers on virtually every significant measure of cost effectiveness and efficiency, as confirmed in an Illinois Auditor General analysis.[2] When compared with other commuter rail services, expenditures for Metra are quite low. Metra’s relatively low expenditures per passenger mile are maintained while also having comparatively low fares (comparable systems in other US cities charge 80% or more for fares) and a relatively high farebox recovery ratio of 55%.[3] The average commuter rail farebox recovery ratio is 43% for all North American commuter rail systems (including Canada). Farebox recovery ratios are an important measure of financial performance because they indicate how much of a government subsidy is needed. A high farebox recovery ratio indicates less of a need for government subsidies.

Metra’s high level of performance should translate into state and federal support in the form of increased funding, but it has not. In fact, the Illinois Legislature is considering a bill that would exempt businesses from paying a local sales tax that supports Metra and other Chicago area public transit services, depriving it of critical funding it needs for operations. Metra and other Chicago area public transit services have already cut their budgets and reduced services to account for lost sales tax revenue during the recession. Now that the economy appears to be recovering and gas prices are climbing, riders are sure to increase their use of public transit. But instead of providing increased funding, governments aren’t providing support and, in the case of the Illinois Legislature, are effectively seeking to reduce the remaining revenue sources.

[1] Railway Age Feb2010, Vol. 211 Issue 2, p23-24

[2] Regional Transportation Agency, Metra. (2011). 2011 proposed program and budget book Retrieved from http://metrarail.com/content/dam/metra/documents/MetraBB2011_s11.pdf1, p1-63

[3] Regional Transportation Agency, Metra. (2011). 2011 proposed program and budget book Retrieved from http://metrarail.com/content/dam/metra/documents/MetraBB2011_s11.pdf1, p1-63

Standardizing State Agency Accounting through SWIFT Implementation

2011-05-03T13:11:00.000-05:00

Different state funded E-12 institutions in Minnesota have varied levels of required budget transparency. For example, E-12 public school districts are regulated differently than two state agencies who also provide education to E-12 students (on a smaller scale). Charter Schools have long been criticized for the multiple layered governance and lack of fiscal transparency. Charters have also been criticized for the lack of efficiency and high level of spending on administration compared with school districts.

Changes are happening in state agency transparency. In 2009, the legislature approved funding to implement a new, comprehensive accounting system for all state agencies. The Minnesota Accounting and Procurement System (MAPS) had a lack of software update availability that was putting it at risk for failure. The state did a comparison study that showed cost savings with a new system, put out a bid request, and chose the Statewide Integrated Financial Tools (SWIFT), which is on target to be implemented by July 1, 2011.

State Agency versus School Board Governance
School Boards are required by state law to abide by open meeting laws, and provide transparent budget information in order to qualify for state funding. See the Robbinsdale Area School Board for an example of the kinds of budget disclosure available at the district level.

Openly available documents from the three E-12 Education-based state agencies include the agency profile and Governor’s budget recommendations for FY 2012-13. A more detailed budget outline was available by request from the Minnesota Management and Budget staff person, Kristy Swanson.

Both of the smaller state agencies, the MN Academies for the Blind and Deaf and the Perpich Center for Arts Education, are governed by a board appointed by the governor, who’s responsibility is primarily to run as a state agency board, without the requirements of a school board, but still governed by public open meeting laws. Board documents have not been readily available, and a more detailed line-item budget request was refused by both finance directors, due to the pressing needs of the legislative session and SWIFT implementation. This left some open questions of accountability and transparency within both institutions.

Key comparative elements that were unclear from the MMB documents were the true per pupil cost, the cost of the residential facilities, and the cost of administration and how that administration directly translated to students served at the facility. The justification for cost and number of Full-Time Equivalents (FTE), 80.4 at PCAE and 179 (FTE) at MN Academies, has been that they serve the center’s statewide outreach needs as well. It is unclear how that metric is evaluated. This difference in transparency made it more difficult to compare statistics than it is for charter schools because the governance and reporting structures are more similar to state agencies.

Statewide money is needed to improve graduation rates and address achievement gap issues in specific communities at risk, as in those served by MN Academies and PCAE, as well as to improve economic growth and increase international competitiveness. My recommendation is that state agencies that also function as schools should have additional measures of reporting and transparency. This reporting should be directly connected to their governance functions, similar to the reporting required of traditional schools. These measures would include per pupil costs, administrator to student ratios, and clear residence hall costs. This is one way to ensure that tax dollars are being spent wisely. SWIFT will hopefully fulfill its intent, and improve accounting and accountability for state agencies, but more attention and accountability is needed at the board governance level.

Great Faces, Great Places: Tourism Promotion in South Dakota

2011-05-01T15:45:00.003-05:00

South Dakota’s tourism industry is a vital economic engine for the state. The signature attraction—Mount Rushmore—is a national icon that attracts thousands of visitors each year from around the world. Other tourist offerings include the annual Sturgis Motorcycle Rally, Wall Drug, Badlands National Park, historic Deadwood, pheasant hunting, and other attractions that highlight the state’s rich western heritage and sweeping prairie vistas. According to state estimates, tourism in 2010 had a $2.42 billion impact on the state’s economy. Visitors to South Dakota spend upwards of $950 million annually and the industry employs more than 33 thousand people. Additionally, tourism generated 20 percent of all state and local tax revenue in 2010. Without question, tourism is plays a major role in the state’s economic and fiscal condition.

To maximize the economic and fiscal benefits of tourism, South Dakota actively promotes visitor travel through its Department of Tourism. The department’s budget for 2010 was approximately $11.3 million dollars, funded exclusively through earmarked own-source tax revenue. The lion’s share of that revenue ($7.5 million) was derived from the state’s 1.5 percent ad valorem sales tax, and almost all of the rest came from a statewide gambling tax ($3.2 million).

The gambling tax is a straightforward levy on gambling revenue, but the tourism tax is more complicated. It is an excise sales tax with two layers: the first layer applies during the summer months to "visitor-intensive businesses" such as gift shops, festival vendors, and other businesses that earn half of their revenue between the months of June and September, and the second layer applies year-round to visitor businesses, including hotels, campgrounds, spectator events and car rentals.

Recently, the state legislature voted to extend the tourism tax which was set to expire in June of 2011. The governor and several lawmakers believed that the tax should be made permanent, but vocal opposition within the senate—many of whom believed that making a temporary tax permanent amounted to a tax increase—forced an amendment to the bill that would sunset the tax in 2012. Sen. Bruce Rampelberg, a Republican from Rapid City, was one senator who believed the tax should be made permanent. "Why would you want to kill the goose that lays the golden egg?” Rampelberg told the Rapid City Journal. “Is it a tax increase? Maybe. But it's working. We pay a lot of taxes for things that aren't working."

Recent academic research indicates that Rampelberg is right. Public tourism expenditures do have a positive impact on visitor spending. Accordingly, the majority of the state’s tourism expenditures finance advertising, marketing, and promotional activities.

Tourism expenditures are also directed toward the state’s historical preservation society, arts council, and other state heritage organizations. In my opinion, this is a wise use of tax revenue because it supports institutions that do not garner as much visitor spending, yet play a fundamental role in preserving South Dakota’s cultural heritage—a main visitor attraction. Overall, the state of South Dakota receives high marks for developing an appropriate and highly effective system to capitalize on its tourism industry.

Minnesota's Parks and Trails

2011-05-01T15:09:00.002-05:00

Minnesota has a vast system of parks and trails that include 73 parks and 1137.9 miles of trails. These parks and trails are highly popular among Minnesota residents, with overall attendance rising from 8.3 million in 2008 to 9.5 million in 2010.

The Parks System has an interesting funding system; the three main sources of expenditures at the state level are the Natural Resources Fund (at $89.3 million), the Parks and Trails Fund (at $36.6 million), and the general fund (at $21.1 million). The parks collect user fees, which go into the Natural Resources Fund, and some of those funds are then returned to the parks system. The Parks and Trails Fund is generated by the Legacy Amendment, which placed a .375% sales tax on goods in Minnesota. General Fund revenue comes mainly from general income and sales taxes.

Due to the fact that only a small portion of the budget for Parks and Trails comes from business-like user fees and charges, what results is a large subsidy for Parks and Trails. This means that the expenditures on Parks and Trails cause a large distortion to the market. Specifically, total quantity demanded is increased greatly.

This distortion is justified in that parks represent a market failure insofar as their use increases public health through recreation and exercise. Additionally, parks and trails represent a natural monopoly that could not exist without public subsidy, as the costs associated with a park cannot typically be justified business-wise. Additionally, Minnesota has been historically known as a generous state when it comes to expenditures related to quality of life issues, such as parks and trails, and though they may be somewhat of a luxury, Minnesotans are typically willing to pay the costs through taxation.

The current model of funding creates a major disconnect between those who pay for the parks and those who use them. Whereas the bulk of the funding comes from regressive sources, such as lottery tickets and sales taxes, the users of state parks disproportionately are those with higher incomes. This is the one area of Parks and Trails expenditures that should be changed: instead of the system receiving expenditures from the Natural Resources Fund and the Parks and Trails Fund, the weight of the expenditures should come from the General Fund, as to reduce the level of regressivitity currently present in the way Parks and Trails are funded.

http://minnesota.cbslocal.com/2011/02/14/visits-to-minn-state-parks-are-on-the-rise/

http://www.dnr.state.mn.us/news/features/amendment.html

http://files.dnr.state.mn.us/aboutdnr/budget/fy10-11/budget_full.pdf

http://files.dnr.state.mn.us/maps/state_trails/trail_brochure06.pdf

http://www.dnr.state.mn.us/aboutdnr/budget/budgetplan/06-07/natresfund.html

http://www.mmb.state.mn.us/supporting-documents

http://www.mmb.state.mn.us/budget-cons-funds/538-budget-cons-funds/53533-feb2011

Food Stamps & Farmers Markets

2011-05-01T10:56:00.002-05:00

You would have to be living under a rock to not be aware of the growing popularity of the “buy local” phenomenon when it comes to healthy foods. Farmers markets are becoming increasingly trendy because they provide incredibly fresh and affordable food while also supporting local growers. While the opportunity to support local agriculture should be available to all, access for low-income populations became restricted following the government’s transition in 2004 from paper food stamps to EBT (electronic benefits transfer) debit cards.[1] At $1,000 each, EBT terminals are expensive and often not practical for farmers markets to operate.¹ The lack of terminals effectively requires EBT users to buy their produce at traditional grocers.

This problem not only restricts access to healthy food by buyers, but also significantly limits potential sales for local growers. Food stamp usage is at an all time high with more than 478,000 Minnesotans using the program in January of 2011.[2] The program is also seeing rapid increases in use; the “percent change in monthly food stamp participation in January 2010-2011” in Minnesota was 18.7%, ranking the 9^th highest percent change among states.[3]

Fortunately, the issue of lack of EBT access at farmers markets seems to be gaining recognition. With the help of grants, state and local government, and non-profit organizations, EBT terminals have made it into the hands of market vendors in Montana, Iowa, Massachusetts, New Jersey, Maine, and Minnesota, among others. In fact, the 2012 budget proposed by President Obama “includes $4 million for the purchase of card readers for farmers markets.”⁴

Minnesota will see a boost in farmers market food stamp acceptance this year to a total of 13 of the 130 markets in the state.[4] An interesting concept being implemented in Bloomington is the use of tokens. The market can be set up with one card reader (which can accept both EBT and traditional credit cards) and users will be issued tokens worth $1 and $5. These tokens can then be used at the individual vendor booths as payment, with vendors trading their tokens for cash with the city.⁴

The new West Broadway Farmers Market will begin operation on June 5, 2011 on Saturdays from 8am – 1pm and Wednesdays from 3pm – 7pm. The market, located at 2101 West Broadway Ave N in Minneapolis between the new 5-Points building on Penn and the Capri Theater, is centered in a traditionally lower-income neighborhood where use of the food stamp program is high. According to Market Manager Alicia Uzarek, EBT will be incorporated into this new market. This feature will serve to increasing access to fresh and affordable produce to a large population of deserving people.

[1] http://www.nytimes.com/2009/07/20/us/20market.html

[2] http://minnesota.publicradio.org/display/web/2011/02/11/all-time-high-food-stamp-usage/

[3] http://www.statehealthfacts.org/profileind.jsp?ind=649&cat=1&rgn=25

[4] http://www.startribune.com/lifestyle/wellness/121006599.html?page=all&prepage=1&c=y#continue

Public Safety Spending in Minnesota Cities

2011-04-30T14:36:00.003-05:00

Public safety is considered to be a fundamental duty of government; however, in a day when budgets are increasingly tight, even fundamental services are facing cuts. These cuts are forcing people to make difficult decisions regarding level of service. Services included in the public safety realm are administered at all levels of state and local government and entail more than just beat cops and penitentiaries. Public safety services actually include correctional facilities, courts, human rights, law enforcement, emergency responders, public defenders, certain libraries and communications equipment, and various oversight boards. As the cost of public safety rises, governments are being trapped in a corner where cost and demand are both high.

Cities often rely on local government aid to fund their public safety programs. The federal budget deal reached by Democrats and Republicans in April of 2011 cuts $600 million from programs for police department salaries and equipment, which will likely result in cuts to Minnesota local law enforcement.[1] City governments approached the public safety budget dilemma in a variety of ways.

In White Bear Lake policing is the city’s single biggest expense at 41% of the city budget.[2] Instead of migrating cuts to other departments, White Bear Lake has decided to make public safety sacrifices. They are holding off on purchasing new patrol cars and tornado sirens, rely primarily on a volunteer firefighting staff, have foregone standard improvements to the shooting range, and opted not to put computers in city ambulances.²

Cities in greater Minnesota are experiencing great difficulty keeping their police forces afloat. In almost every single outstate Minnesota community, public safety is the single largest budget item, making it a big budget cut target.[3] Some have chosen to eliminate jobs and now nearly half of outstate programs no longer operate 24/7.³ An option that is being increasingly utilized is consolidating with other agencies or contracting out law enforcement services. According to Lebens, “over the past 10 years, 63 police departments have folded or merged.”

Minneapolis and Mayor R.T. Rybak have chosen to make public safety a priority and has cut funding in all other departments. In fact, the city increased annual spending of general fund dollars from $150 million in 2003 to $190 million in 2010.[4] Although 59 jobs had to be cut in other departments, the police and fire departments suffered no losses and actually effectively saved 103 public safety jobs by reallocating the necessary budget cuts.[5]

The City of St. Paul has used funds from Obama’s Recovery Act to maintain the safety of the city in 2010. 34 new police officers were hired with special emphasis on combating gang activity and domestic violence. The EMT force was beefed up to include “super medic” units and 18 new firefighters were brought to the department.[6] The St. Paul example demonstrates that improvements can be made even during tough times as long as public safety is a top priority.

[1] http://www.mccollum.house.gov/index.php?option=com_content&task=view&id=1427

[2] http://minnesota.publicradio.org/display/web/2009/01/16/whitebearlake_publicsafety

[3] http://minnesota.publicradio.org/display/web/2010/09/09/ground-level-cities-in-crisis-public-safety/

[4] http://www.ci.minneapolis.mn.us/newsroom/factsheet-budget-top-ten.pdf

[5] http://www.ci.minneapolis.mn.us/news/20090313RevisedBudgetApproved.asp

[6] http://www.stpaul.gov/index.aspx?NID=3354&PREVIEW=YES

Changes to BadgerCare--Not so Forward Thinking

2011-04-29T23:31:00.005-05:00

On March 23, 2010 the Affordable Care Act became law, helping more children get health coverage, ending lifetime and most annual limits on care, allowing young adults under 26 to stay on their parent's health insurance, and giving patients access to recommended preventative services without cost. While it seems the nation is making strides to provide better healthcare to more Americans, Wisconsin's new Governor wants to slash funding for and overhaul the state's BadgerCare Program that makes healthcare available for more Wisconsinites.

The BadgerCare Program was enacted in the fall of 1997 under Governor Thompson to make healthcare available for the working poor. Wisconsin succeeded in enrolling such a large proportion of the uninsured low-income children that policy makers in other states took notice. Read more about the history of BadgerCare here. Currently, the program serves more than 750,000 people and is so popular that there is a 70,000 person waiting list.

Who is currently eligible?

- All children under age 19, regardless of income.

- Pregnant women with incomes up to 300% of the Federal Poverty Level (FPL)

- Parents and relatives caring for a child up to 200% of the FPL

- Young adults in foster care who turn 18 on or after January 1, 2008, will automatically be able to get BadgerCare Plus until they turn 21, regardless of income.

- Farm families and other families who are self-employed may be eligible under BadgerCare Plus if their income is under 200% of the FPL

- Parents whose child/children are in foster care and you have a reunification plan in place may be eligible for BadgerCare Plus if their income is below 200% of the FPL

The BadgerCare program is highly utilized, however under Governor Scott Walker's budget plan, about 55,000 people could lose their health insurance under the state's BadgerCare program. Then, going further, he wants to ensure that his appointed head of the state Department of Health Services (DHS), Dennis Smith, could make sweeping changes to Medicaid programs without approval by the full Legislature. The budget deficit is an issue, but is Walker taking this too far?

What steps are being made to make buildings GREEN

2011-04-29T19:54:00.023-05:00

   In 2008, U.S. buildings accounted for 8% of the total share of global primary energy consumption and 40% of the U.S. total. Buildings use energy for a number of different needs but a large portion of the energy consumed is for heating and cooling. Increasingly, financial incentives at all levels of government are looking to retrofit and redesign buildings to be more energy-effiecent. Below is a breakdown by the U.S. Department of Energy of the consumption patterns for residential and commercial buildings.

   Energy prices have fluctuated over the last few years but they have been consistently going in one direction, up. The concern over the stability of the energy markets has led federal, state, and local governments to invest in programs that target energy efficient building construction and design. Recently, the White House has released a new report that aims to address the barriers that exist for implementing cost saving measures and steps that can be made to address them.
   One of the programs that has received a significant amount of support is the Property Assessed Clean Energy (PACE) Financing model. It was started in Minnesota in 2010 and to date has 26 participating states (Figure 2). Many people want to retrofit their buildings to make them more energy-efficent, but they don't want to pay a great deal of money for something that they won't see benefit from if they move out. The PACE model provides loans to building owners to retrofit their property but the repayment of the loan is done through an added payment attached to the property taxes on a building. In this way the cost of the improvements are tied to the property and not the individual.

A recent cost-benefit analysis by a PACE advocacy group found that once the program realized economies of scale it could be a net savings for the government. The savings would come from an estimated 20,000 increased jobs and the reduced energy production needs that are partially subsidized by the government.
Finally, cutting edge technology tools by MIT as well as ESRI are making the analysis of the potential cost saving measures that a building could employ much faster. The discussion below by the Green Building Council outlines steps that are being taken and provides a GIS platform to show what retrofit programs various buildings throughout the country are implementing. It is also meant to be used as a financial resource to track the reduction in energy consumption of buildings.

K-12 Education in Minnesota: State-Level Spending

2011-04-29T18:46:00.000-05:00

State-level spending in Minnesota on K-12 education represents over a quarter of the state’s expenditures by program, second only to expenditures on health and human services. This spending is supplemented by federal aid and local property tax levies to create an education spending paradigm on par with other states. However – and as one might expect – Minnesota receives fewer federal dollars per pupil than all but three other states (Census report here). It is also interesting to note that Minnesota funds its 340 school districts and 143 charter schools with fewer local revenues than all but thirteen other states. The end result is a heavy reliance upon state revenues for education programs.

In 2008-2009, Minnesota state sources provided $6.6 billion in funding for the state’s 800,000 pupils. Due to socioeconomic differences across school districts, and despite policymakers’ efforts, this money is not always spread as equally as it might be. A clear indication of this lies in the fact that, “[i]n fiscal year 2008, school districts comprising the top 5% in terms of general education revenue will have approximately 25% more revenue to spend than districts comprising the bottom 5%.”

This leads naturally to inquiries as to the fairness and equity of Minnesota’s education spending. At the heart of the matter is the state’s alarming achievement gap, issues of teacher performance measurement and compensation, and the perhaps one-sided controversy surrounding school vouchers and charter schools. In more detail:

Minnesota students score higher than or at the national average across the board, independent of race, but Caucasian pupils have somehow been given a tremendous lead over minority students.
The beleaguered teaching profession is suffering from a lack of competitive pay and a protracted crisis of credibility in the absence of an effective performance standard.
School vouchers and charter schools continue to stand accused of siphoning off precious state general education aid to private institutions and to charter services instead of disadvantaged districts.

In the midst of an economic downturn and in the context of an already relatively high level of state-level education spending, can we recommend Minnesota spend its way out of an achievement gap? One option, outlandish as it sounds, might be to tighten spending on those districts that outperform, academically, and reallocate their funds to districts with lower achievement scores.

A more palatable option might be to give serious consideration to a new measure of teacher performance – especially as teacher salaries constitute upward of 60 percent of all education costs. If we turn teacher compensation into a competitive, performance-based living wage, we may see that Minnesota’s $6.6 billion is able to go just a little farther.

Economic Development Expenditures for the Bioscience Industry in Iowa

2011-04-29T17:56:00.005-05:00

Iowa is well known in the United States for being a state filled border-to-border with cropland. The state conjures an image of acres upon acres of corn and soybean fields. The growth, sale, and use of these vast resources is a fundamental part of Iowa’s economy. The advanced processing of these crops is part of a large industry called bioscience. The bioscience industry is considered to be one of the key industry clusters in the state of Iowa and is a prime target for state expenditures to capitalize on this strength and promote further economic development. Two of many programs through which Iowa supports the bioscience industry include the Grow Iowa Values Fund and the Iowa Demonstration Fund. They are both programs organized and operated by the Iowa Department of Economic Development (IDED). Together they support a wide range of companies doing business in Iowa.

The Grow Iowa Values Fund (GIVF) is one of the most contentious pieces of economic development legislation in the last decade. Both policy groups and editorial writers question its effectiveness. It was designed to be a funding resource, including loan and forgivable loans, for projects focused on job creation or retention, value-added agriculture, and entrepreneurial efforts. The first legislation for its creation in 2003 was found unconstitutional due to inappropriate Governor vetoes. When it was finally enacted in July 2005, large financial awards to companies like Wells Fargo made people question whether it was an appropriate use of tax dollars. The most troubling report of all, initial evaluations showed GIVF projects to be drastically under-performing their stated employment and wage projections. Despite its issues, the GIVF has been very active. From its creation in 2003 through February 2010, it has awarded funds to 579 projects pledging 33,954 new or retained jobs. Source

The Iowa Demonstration Fund is a much smaller, matching grant program. Grants of up to $150,000 are awarded to applicants who match the dollar amount 2-to-1. The program is for companies in targeted industries (including bioscience) who have a product ready for commercialization and market entry. During fiscal years 2008 to 2010, 131 applications for the program were received, with 81 total grants funded totaling around $8.3 million. Source No criticism could be found for the program, likely due to its small annual cost. It also has had recent changes to its application process to set up applicant for success and continue mentoring grant recipients. Source

Public Campaign Finance Expenditures

2011-04-29T16:40:00.005-05:00

On federal and sixteen state income tax returns individuals have an opportunity to “checkoff” if they wish to designate $1 - $10 (depending on the state) to public campaign funds. These funds, which do not increase or decrease the taxpayer’s tax liability or refund have been the backbone of public campaign finance since Congress passed the Federal Election Campaign Act in 1971. Unfortunately, instead of these funds proving to expand the candidate base, limit the influence of special interest donations, or provide reasonable monetary parameters for competitive campaigns, they have been used as an unfortunate “plan B” for candidates with limited fundraising options.

The factors hampering the effectiveness of these funds are not obvious. It’s not that the fund lacks money. It’s not that candidates can only get the funds piecemeal.[1] And it’s not that the funding allowed per candidate is small.[2] Rather, it is that campaign finance in this country has gotten so out of control that no public financing system could possibly compete if the most competitive offices (President and Governor) continue in their present trajectory.[3]

So what needs to be done? (Ranging from the most radical to the most simple.)

-Abolish the Federal Election Commission [4]
-Pass the “Clean Money, Clean Elections Act”

-Allow for the amount in the checkoff to vary with the consumer price index

-Simplify compliance requirements

-Educate Americans about the checkoff programs to increase participation rates

[1] Primary election fund are given out periodically based on a candidates ability to raise matching funds. General election funds are distributed in one lump sum.

[2] For 2008 primary election candidates could receive more than $42 million, for the general election party candidates could receive more than $82 million not including legal fees or fees spent to comply with federal election law (which could be equal to or less than 15% of the “base grant” or $3 million).

[3] In the 2008 Presidential election candidates Obama and McCain spent more than $1.1 billion. The 2010 Minnesota governor’s race came with a price tag of $25 million.

[4] The FEC has been a barren wasteland of political wrangling, inefficiency, and deadlock since its inception. Currently the FEC can handle little to no actual disputes because it cannot form a quorum. This country has long needed a replacement to accurately and transparently enforce election laws.

Higher Education State Funding for Big Ten Schools is in decline

2011-04-29T16:39:00.008-05:00

As part of my research for the our expenditure paper, I began to wonder about if other Big Ten institutions were experiencing the same institutional pressures and reductions in funding as the U has over the past two years.

As a graduate student, I am taught to go straight to the source for information, so I called the budget directors of the 9 other public schools that currently comprise the Big Ten. All but the Indiana University responded, and I was able to determine some interesting trends.

As the graph above demonstrates, most of our Big Ten peers have either seen their state appropriations stagnate or decline over the past decade. The singular exception is The Ohio State University, which has seen a 24 percent increase in funding since 2000. OSU is led by E. Gordon Gee, who is well-known for his combative educational style and his ability to wring more and more dollars out of the state capitol in Columbus.

The picture is otherwise pretty bleak, with most institutions loosing ground considerably.

As the University of Minnesota looks at closing or consolidating programs and other significant changes and our peer institutions worry about losing 50 percent of their state support in the next year, perhaps it is time for a reexamination of whether public higher education is a priority in state legislatures across the country. And, if we find it is not, a discussion of what (electorally) needs to happen to ensure higher education becomes a priority again.

The Future of Affordable Housing

2011-04-29T16:18:00.005-05:00

The U.S. and Minnesota budgets have proposed cuts to affordable housing programs and services. To avoid the federal government shutdown, cuts of approximately $38 billion for fiscal year 2011 were agreed upon. Of the $38 billion nearly $19.8 billion come from health, education and social services. Housing assistance programs felt the funding cuts to the tune of $2.3 billion.[1]

Here in Minnesota, Governor Dayton’s budget would protect services for those who are homeless or at risk of becoming homeless, but would reduce funding by 5 percent to the Minnesota Housing Finance Agency. Further reductions would directly affect “efforts to preserve and rehabilitate affordable housing units.”[2]

So the inevitable question is, how will the funding cuts affect the people who rely on the government assistance or government provided housing? 30 percent of an individual or families income is the threshold considered when discussing the affordability of housing.

In Minnesota, nearly 300,000 are paying 30 percent of their income to housing related costs. Housing forecasts in the metro area, show a gap of nearly 22,000 units of affordable housing.[3] “In 2006, one-fourth of Minnesota homeowners and close to half of renters lived in unaffordable housing.”[4] In 1990, 19 percent of the population was living below the poverty line and was paying more than 30 percent of their income on housing costs.[5] The Minnesota Housing Partnership reported in 2009, “Over the past nine years, Minnesota has experienced the fastest increase of extremely low-income households living in unaffordable housing in the nation.”[6]

The need for more affordable housing choices is apparent, but the funding sources look as though they will continue to be reduced. To top off the reduction in funding, the rental market is picking up, partially due to the housing market collapse, and rents for apartments are out of reach for many. Rents are increasing fast than incomes and people can’t keep up. The graph below shows the sharp increase in rental rates across the county.

Common Bond, the regions non-profit leader in affordable housing, owns or manages over 40,000 affordable apartments or townhomes. Common Bond is working to provide affordable housing for those in need, but there is a long waitlist. A 50-unit development was recently opened in Maplewood and received 550 applications for the 50 available units.[7]

With all the funding resources at maximum capacity and funding being reduced, what will the future hold for those that demand affordable housing when the system can’t keep up with the demand? As of now there are no answers only lines being drawn across budgets with little thought as to where the funding gap will be made up and the direct affect it has on the American public.

[1] http://minnesotabudgetbites.org/category/federal-budget/

[2] http://minnesotabudgetbites.org/2011/02/21/governors-proposal-impacts-economic-development-affordable-housing-and-cultural-programs/

[3] http://www.fhfund.org/affordable_housing.htm

[4] http://www.mnbudgetproject.org/research-analysis/federal-tax-budget/federal-budget/federal-appropriations-impact-minnesota

[5] www.auditor.leg.state.mn.us/ped/pedrep/0103sum.pdf

[6]http://minnesota.publicradio.org/display/web/2009/06/22/affordable_housing_shortage/

[7] http://minnesota.publicradio.org/display/web/2009/09/18/affordable-housing/

Going Gumby

2011-04-29T16:15:00.005-05:00

The Minneapolis Park and Recreation Board (MPRB) is operating under the conservative expectation that they would receive LGA to fund their expenditures. However, the MPRB's certified portion of the state's sales tax (i.e., LGA) may decrease from $10.3 million to $7.6 million, leaving a $2.7 budget gap. So just how can local Park and Recreation departments stretch their green, and be more Gumby? And is there a correlation between resident wealth and park spending?

Minneapolis Park and Recreation Board (MPRB)

Approximately 7 cents of every property tax dollar is allotted to the Minneapolis Park and Recreation Board for supply of their services. To put the earlier note regarding the $2.7 million MPRB LGA budget gap in perspective, this is approximately equivalent to the Board’s complete elimination of all Administrative, Finance and Environmental Protection services.

MPRB and Comparison Cities

The following twelve cities were selected with which to compare expenditures:

· Budget Poor:[1] Chicago, IL; Cincinnati, OH; Los Angeles, CA; San Francisco, CA

· Budget Average: St. Paul, MN; Sioux Falls, SD; Des Moines, IA; Madison, WI; Omaha, NE

· Budget Rich: Little Rock, AR; Fargo, ND; Billings, MT

As can be seen in the graph, Budget Rich cities (green) spend less than Budget Poor (red) cities. Another visible trend is that the three wealthiest cities, San Francisco, Little Rock, and Madison, spend less on park service than the other comparison cities.

Examples of City Cost-Saving Initiatives

Cincinnati Strategies

· Utilizing Student Labor: To make up for the employee cuts that needed to take place, the City is reaching out the University of Cincinnati for their labor force. By employing students at a lower cost than their previous employees , the City is able to save money and maintain the same level of service, and the students gain valuable professional and career experience. While there are concerns that this decision "replaces the higher-paid, and potentially, family-supporting workers," the Parks Department saw it as away to get more for their money.

· Leave No Trace: The Park Board found it more cost efficient to spend money on public awareness than trash collection. Upon finding that many of the city's park trash cans were ineffective and misused, which resulted in wasteful spending in their trash collection, they decided to take three measures: 1) reduce trash collection routes, 2) remove trash cans, and 3) shift trash removal onto Park Maintenance staff, whom are already routinely on-site.

· Give a Day—Get a Game: The City has partnered with the Major League Baseball Players League to create an incentive for residents to volunteer for community park service. Each volunteer that contributes at least four hours of park services will receive a ticket to a Cincinnati Reds game.

Minneapolis Strategies

· Grant Writing: The 2010 MPRB budget did not have room for grant writing. Now, the Board realizes how important it is to lobby and compete for available dollars. Hopefully, this $113,000 shift in spending will allow them to leverage spending dollars in the future.

· Strategic Planting: The Park Board will engage in more strategic planting arrangements of their trees and shrubs that will help reduce operating costs, such as the time associated with mowing around plantings.

· Compost Bins: The City will increase its supply of compost bins at large events, such as bike tours, runs, and garden shows. Encouraging residents to compost their eating and drinking utensils, as well as their food, allows the Board to spend less on waste collection.

Educating Minnesota's Youngsters

2011-04-29T15:52:00.004-05:00

Minnesota is planning on spending about $15 billion over the next biennium on education, $7.8 billion/year. Of that total expenditure funding from the state for early childhood education is only about $30 Million. In order to be able to realize the

true returns for or money much more is going to be needed, about $1.5 Billion dedicated to an endowment, the money from which will go to fund scholarships for impoverished families for early childhood education. The whole formulas may need to be rewritten and policy should change.

Per Student Minnesota only spends about $271/student. The Rand Corporation shows that at least $2,000/child is needed to gain measurable, substantial results. All studies show that if the investment is used wisely then there can be great benefits and savings to the state. The High Scope program in Michigan has shown that the benefits to the community are vast and that there are great

potential savings to the state. Their studies show that each dollar spent on their program returns $7.16 in savings to the state. Over a 40 year study of some students from the same high risk neighborhoods and moving through the same schools, those who participated in the early childhood showed measurable and sometimes drastic improvements in major categories shown here.

Major policy changes are going to be needed in Minnesota to the early childhood education system if there are going to be any change in the achievement gap. This is a large ask when we as a state seem to be unwilling to pay the necessary taxes to support the programs we ask so much out of, when we give them so little to work with.

Public Campaign Finance Expenditures

2011-04-29T15:34:00.004-05:00

The factors hampering the effectiveness of these funds are not obvious. It’s not that the fund lacks money.[1] It’s not that candidates can only get the funds piecemeal.[2] And it’s not that the funding allowed per candidate is small.[3] Rather, it is that campaign finance in this country has gotten so out of control that no public financing system could possibly compete if the most competitive offices (President and Governor) continue in their present trajectory.[4]

So what needs to be done? (Ranging from the most radical to the most simple.)

-Abolish the Federal Election Commission [5]

Pass the “Clean Money, Clean Elections Act” [6]

Allow for the amount in the checkoff to vary with the consumer price index

Simplify compliance requirements [7]

Educate Americans about the checkoff programs to increase participation rates

States that have checkoff programs:

[1] http://www.fec.gov/press/bkgnd/pres_cf/PresidentialFundStatus_Jan2011.pdf

[2] Primary election fund are given out periodically based on a candidates ability to raise matching funds. General election funds are distributed in one lump sum. http://www.fec.gov/press/bkgnd/fund.shtml

[3] For 2008 primary election candidates could receive more than $42 million, for the general election party candidates could receive more than $82 million not including legal fees or fees spent to comply with federal election law (which could be equal to or less than 15% of the “base grant” or $15,000,000).

[4] In the 2008 Presidential election candidates Obama and McCain spent more than $1.1 billion. The 2010 Minnesota governor’s race came with a price tag of $25 million. http://www.startribune.com/politics/statelocal/115076859.html

[5] The FEC has been a barren wasteland of political wrangling, inefficiency, and deadlock since its inception. Currently the FEC can handle little to no actual disputes because it cannot form a quorum. This country has long needed a replacement to accurately and transparently enforce election laws. http://www.cato.org/pubs/pas/pa042.html

[6] http://library.publicampaign.org/sites/default/files/CleanMoneyCampaignReform.pdf

[7] http://www.fec.gov/pdf/candgui.pdf

Special Education Funding in Oregon, A thorny government expenditure?

2011-04-29T15:29:00.014-05:00

Though Oregon today is no longer one of the states that need assistance in special education provision, the recent statewide budget cuts are placing it into a difficult situation of funding special education. So what is the state’s funding formula for special education? And what is the biggest concern with the current formula?

Special Education Funding in Oregon: Single Weight Formula
Oregon is a representative state that distributes special education aid to different districts using a “single pupil weight” formula. Under this approach, special education students receive twice the per pupil funding provided for a non-special education student, and each special education student is assigned the same weight regardless of type of disability or education placement.

Two major adjustments are factored into the current formula: the 11 percent identification cap of special students and Funding for High-Cost Students.

Funding formulas in other states
Alternative funding formulas commonly used in other states include multiple weights formula (Arizona), census-based formula (California), resource-based formula (Delaware), variable block grant (Minnesota), and percentage reimbursement (Michigan).

Assessment of the funding formula in Oregon
 Adequacy and quality of provision
Studies show that Oregon has lower special education spending per student and a higher ratio of special education students to special education teachers, which demonstrates that the state is below the national average in terms of both the adequacy and quality of special education provision.

 Educational setting
However, in terms of special education setting, Oregon performed much better compared to the national average. As shown in Exhibit 2, Oregon's current formula is less likely than the national average to place a student in a more restrictive education setting (out of regular class), which is a clear advantage of the system.

Strengths of Oregon's funding formula
Besides the fact that it is simple and straightforward, the most important strength of Oregon's funding formula is that there are no fiscal incentives to identify students into one category of disability over another or for one form of placement over another.

Concerns
However, a primary concern is the misalignment between revenue and spending among districts. The overall degree of statewide support for special education spending shows considerable variation in districts across the state of Oregon, which results in great disparities.

Recommendations
Changes to ease the misalignment between revenues and spending are necessary. One possible way is to factor in cost-of-education indices in establishing funding levels for individual districts. Such indices would acknowledge the higher cost of providing education services in certain areas of the state such as urban centers. Also, improved funding formula should be more closely linked with what is actually being provided. Oregon could consider a more cost-based approach to funding special education. This might require incorporating the merits of single weight and other funding formulas such as percent reimbursement, or some form of resource-based provision.

Housing & Economic Development

2011-04-29T15:23:00.010-05:00

I investigated local government expenditures on housing and economic development activities. In order to narrow down the topic, I considered only cities and townships within the Twin Cities seven county region. I examined 140 cities and 43 townships for fiscal year 2009.

The total regional expenditure on housing and economic development exceeded $354 million. The City of Minneapolis spent by far the most, with expenditures of $121 million, more than the next four highest cities combined. Being the largest, and one of the oldest cities in the region, this seems to make sense. Along with Minneapolis, the top five in absolute expenditures included St. Paul, Bloomington, Brooklyn Park, and Roseville. All of these cities are large in terms of population, making high levels of expenditure understandable. However, a large population did not entirely predict high levels of expenditure. Notably, St. Louis Park and Richfield recorded the 6th and 7th highest absolute expenditures, but were 17th and 23rd largest in population. Because of the substantial variation in the population among the cities and towns considered, I examined expenditure using two additional measures. The first was spending as a percent of total expenditure and the second was spending per capita. In six cities in the region, expenditures on housing and economic development exceeded 20% of total 2009 expenditures. In the City of Roseville, expenditures on housing and economic development accounted for more than 27% of all city expenditures. A calculation of spending per capita revealed incredible variation from city to city. The highest spent over $300 per person, and the lowest spent $0.

While the highest levels of expenditure are interesting, perhaps more interesting are the lowest. 49 of the 140 cities examined spent absolutely nothing on housing and economic development. Admittedly, many of the cities that spent nothing were small in population, but not when considered collectively. The combined population of the 49 cities that spent nothing was over 168,000, about twice the size of Bloomington. These 168,000 people are in a way “free-riders” who benefit from expenditures made by other cities, while their government spends nothing. One rebuttal to this critique might be that the 49 cities that spend nothing lack the ability to pay. In order to address this I evaluated ability to pay at the local government level by investigating taxable tax capacity. To compare the 49 cities with zero expenditure to the 91 cities with expenditures, I compared the median tax capacity per person of the two groups of cities. The median tax capacity per person of the 49 “free-rider” cities was $1,441. By comparison, the median tax capacity per person of the other 91 cities was $254 lower.

I also examined 43 Townships. 42 of 43 recorded zero expenditure on housing and economic development. I expected this due in part to the small populations of Townships. The median population was about 1,370 residents. A lack of expenditure is understandable when considering the limited scope and size of township governments. This does not mean that townships lacked the ability to pay. The total population of the 43 townships was nearly 85,000, almost identical to the population of Bloomington (which had the third highest absolute expenditure). I hypothesized that the per capita tax capacity of townships would be lower than cities and this might justify the expenditure gap. This was not the case. Surprisingly, the median tax capacity per person of the 43 Townships was about $1,600, even higher than the per capita tax capacity of the 49 “free-rider” cities, and much higher than the 91 cities that did record expenditures on housing and economic development activities in 2009.

Sources:

Minnesota Office of the State Auditor

City of Minneapolis Revised / Adopted Budget 2009

City of Rogers Annual Financial Report 2009

Minnesota Office of the State Auditor, Notes and Glossary

Minnesota House of Representatives, House Research

MetroGIS www.metrogis.org

Why do states produce health insurance?

2011-04-29T15:23:00.005-05:00

While I was writing my paper about different redesign efforts for the MinnesotaCare program, I began to wonder, why does the government provide insurance? Insurance is an expensive business for state governments. According to the Kaiser Family Foundation, Minnesota spent $2.9 billion on Medicaid in 2009. So, why would the state spend valuable funds in a well-developed industry when they could use those funds for other need projects?

Normally a government intervenes only with instances of market failure. So what is the market failure that has occurred in the health insurance industry that requires government intervention? There are two central reasons why the government provides health care. First, the government redistributes income because pure markets do not enable all participants to earn an adequate level of income (Santerre and Neun 276). Insurance can be cost-prohibitive and therefore an unaffordable good for many Americans. According to the Kaiser Family Foundation the average employee contribution to a family health insurance plan was $4,000 in 2010 (Kaiser). This premium price makes insurance inaccessible for many families that are just above the federal poverty line. Therefore, the government implements income redistribution programs to assist low-income families in obtaining equal opportunities in the insurance market.

A second reason is that imperfect information exists in the insurance market because some consumers do not “understand the technical terms and conditions contained in health insurance policies” (Santeere and Neun 287). Insurance policies can be very complex and people often do not have the ability to directly compare competing policies to choose the best product. By producing insurance, the government prevents vulnerable consumers from the consequences of being deceived by imperfect information.

The United States government has found another method to intervene with an imperfect information market failure that does not require it to be an insurance producer. The Patient Protection and Affordable Care Act (ACA) of 2010 included provisions for each state to establish a health insurance exchange. The exchange is an online marketplace for consumers to compare all available insurance plans in their state. The plans will be categorized by type of benefits included and price. Consumers will be able to directly compare plans from competing companies in order to choose the one that best fits their needs. The exchanges will provider more information to consumers so they can participate the insurance market without fear of being deceived.

Wisconsin has made significant progress with create the infrastructure of its exchange. Check out the state’s prototype website here. Minnesota received a planning grant for the exchange from the federal government, but no legislations has passed to implement the program. A couple exchange bills have been introduced this session (one from Rep. Gottwalt and Rep. Erin Murphy), but neither bill has made it out of committee.

Kaiser Family Foundation. Family Health Premiums Rise 3 Percent to $13,770 in 2010, But Workers' Share Jumps 14 Percent as Firms Shift Cost Burden. 2 Sept. 2010. Web. .

Kaiser Family Foundation. "Minnesota: Federal and State Share of Medicaid Spending, FY2009." State Health Facts. Web.

Santerre, Rexford E. and Stephen P. Neun. Health Economics: Theory, Insights, and Industry Studies. Mason, OH: South-Western Cengage Learning, 2010.

California's Master Plan for Higher Education- still top notch?

2011-04-29T15:17:00.004-05:00

California’s Master Plan for Higher Education, developed in 1960, laid out California’s higher education policy by assigning missions to the different higher education segments, which include the University of California (UC), the California State University (CSU) and California Community Colleges (CCC), specified eligibility goals, and expressed state goals of an affordable, high-quality and accountable higher education system. This commitment to higher education translates into over $9.8 billion dollars or 11.6 percent of the state’s proposed budget, with K-12 education comprising the largest share of state expenditures at 42.8 percent followed by health and human services at 25.0 percent as seen below.

In recent years, proposals to reduce state funding of higher education have been raised as a way to reduce state spending. Proponents argue that the primary beneficiaries of public institutions should be incurring the majority, if not all, of the cost. College graduates have clear private benefits. Different research studies estimate that college graduates earn over $400,000, $900,000, $1.2 million, and $1.6 million more than non-college graduates over the course of a lifetime. Others, on the other hand, argue that although there is clear individual benefit, there are public benefits to having an educated workforce that the state should encourage. One study indicates that for every new dollar California invests to get more students in and through college above current levels, it will receive a net return on investment of three dollars. Additionally, studies have indicated that California faces a skilled workforce gap, which has a significant impact on California’s economy.

California currently provides the bulk of higher education funding, with differences across the different systems, and student fees (tuition) comprise a much smaller percentage of funding. However, the cost of higher education has increasingly been born on students and families. However, tuition for CSU remains relatively low to comparable institutions at $4,884 for 2011-12. CSU tuition is currently about 61 percent of the group average. UC tuition for 2011-12 is $11,124, putting UC in the middle of comparable groups.

The state should continue to fund higher education as it (1) ensures an efficient allocation of society’s resources as it address market failures, specifically the positive externality of higher education, (2) reduces income disparities and provides a safety net by providing low-income students access to higher education, specifically higher wages and (3) fosters economic growth through a skilled workforce whose earnings and productivity are higher than unskilled workers. In light of budget shortfalls, an alternative financing mechanism of high fee, high financial aid model is offered if the level of financial aid drastically increases to meet student needs and more transparency is provided in how financial aid is calculated so that families are aware of their expected contribution. Other financing suggestions to contain cost by reducing time-to-graduation, charging different rates based on class time and major, and investing in retention efforts.

TIF for Tat

2011-04-29T15:08:00.008-05:00

In 1982, James Q. Wilson and George Kelling wrote an influential article about the importance of fixing "broken windows" in order to maintain social order in a neighborhood. www.theatlantic.com/magazine/archive/1982/03/broken-windows/4465/

With the continued trend of suburbanization since the mid-20th century and the loss of federal funds for renewal projects, bigger cities have struggled to fix broken windows, let alone rejuvenate entire areas of blight. Tax increment financing districts have become popular strategy for local governments to induced economic development in downtowns. Generally, in a TIF district a city will make public improvements in order to incentivize private developers to locate a project in that area. The government freezes the initial assessed value and then pays for the cost of the improvements by capturing the incremental tax increases that result from the development. trb.metapress.com/content/d2v5683400467107/fulltext.pdf

Currently, all fifty states have allowances for local governing bodies to designate a TIF district. The mechanism has been around since the 1950s, however it was used sparingly, and with skepticism, until the 1970s. By the end of the 1980s, over one thousand cities had established TIF districts. heinonline.org/HOL/Pagehandle=hein.journals/mnlr82&div=19&g_sent=1&collection=journals

Zhao et al. (2010) found that areas with more fragmented local governments tend to establish TIF districts more often, and this is especially true in Minnesota cities since the TIF enabling Act in 1979. Minneapolis states that it only uses TIF for the purposes outlined under State Law. The city also analyzes a proposed TIF to see if the needs and risks associated with the project are appropriate for public assistance. www.ci.minneapolis.mn.us/cped/tax_increment_policy.asp

Minneapolis has credited TIF for the redevelopment and revitalization of the Mill District and Mississippi riverfront. The area had been blighted and under-utilized in the 1960s. The City performed pollution clean up and made transportation infrastructure improvements to attract commercial developers. The riverfront is now one of the biggest attractions of the city. www.cdfa.net/cdfa/cdfaweb.nsf/fbaad5956b2928b086256efa005c5f78/65e9445d385825bf86257329004e45dc/$FILE/Mpls%20TIF%20Case%20Study%20Rev.pdf

On the other side of the river, St. Paul has mostly used TIF for residential development. Private developers tend to favor Minneapolis over St. Paul for residential development because they can get a higher return on investment. Essentially, the City often uses TIF as a lure for developers to choose St. Paul over a neighbor, rather than a last resort for community revitalization. Some developers who have not benefited from TIF are bitter with St. Paul's method. "With proper density, property design, and great communications" any project can be done with TIF, says TJ Hammerstrom of SpringPointe Development in Burnsville. On the other hand, Susan Kimberly of the St. Paul planning department argues that they are using TIF for the intended purposes, because redevelopment would hardly ever occur in the city without it. TIF, Kimberly argues, has helped "level the playing field" for cities to attract developers who would normally scout the suburbs. www.bizjournals.com/twincities/stories/2005/05/30/focus1.html

TIF was originally intended for the revitalization of urban areas that would not be rehabilitated without public assistance. When local governments use TIF for a competitive edge, it is quite similar to the "race-to-the-bottom" of attracting big-box retailers into the jurisdiction. There may be some short term benefits, but it may deplete the government of resources in the long run. Similar to the arguments for regional transportation planning, the power to establish TIF districts should be put into the hands of a regional governing authority. This would help local governments keep more property tax revenues and fund future needs. Local governments should avoid using TIFs for baiting developers, and instead use it to fix truly "broken windows".

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

2011-04-29T14:39:00.015-05:00

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).

It's a Touchy Subject, Try and Not Mention It

2011-04-29T13:40:00.001-05:00

Do you know that right now, you probably just purchased a pack of cigarettes, but what’s that, you don’t smoke? That’s okay though, a lot of people smoke when they drink, so they’ll go with the 6-pack you just bought. How did you do all of that from work? Good question. Perhaps this weekend you might want to have a little fun and place some bets at a tribal casino. There’s a catch though, you have no chance of winning. Oh well, nobody really expects to win, but you’re still having a good time, right? If things get a little crazy, maybe your friends can talk you into getting a tattoo.

If this doesn’t sound like you at all, you’re probably not alone. The fact is though, this just happened on your dime, and somebody else is reaping the benefits. How did all this happen you ask? The short answer is, welfare fraud. It is against the law to purchase products such as tobacco, alcohol, lottery tickets, and use them within certain establishments such as casinos. Yet it happens all too often.

Follow this link to see a Channel 5 KTSP Investigation into fraudulent charges made through Minnesota’s welfare system.

The Minnesota Family Investment Plan (MFIP) is Minnesota’s name for their cash assistance program that is aimed to help people back on a path of self-sufficiency by providing assistance in job hunting, while at the same time providing assistance to low-income families with one or more children. The money is deposited onto an Electronic Benefits Transfer (EBT) card each month and can be redeemed with cash back at a point of sale, or by using an ATM to withdrawal money from the card. This is what creates the problem. This money is then used by some to make purchases on items other than what the benefits are intended for, like providing proper nutrition for hungry children.

Abusing the cash assistance programs isn’t the only way to abuse the welfare system unfortunately. Food stamp benefits, which are also deposited onto an EBT card each month, continue to be a source for welfare fraud. Fraudulent redemption of food stamp benefits is a very serious crime where a few individuals can rack up some serious damage as is the case with the Twins Market and Meats in St. Paul.

If you’ve viewed the video from channel 5 by now, it may not be very comforting to know that EBT benefits are being redeemed in every state in the country, and in some U.S. territories. What’s even worse are the steps that have been taken to address the problem. Essentially people are on the honor system as of now until serious reforms can be made. However, there are strides being made to clean up the welfare system and rid of those who would seek to abuse it, and bring about the negative public image it has assumed for many years. Check out the Minnesota Department of Human Services report on preventing and eliminating welfare fraud.