What’s Wrong With Minnesota, Part 1

I can summarize what’s wrong with Minnesota government in four words:  privatized benefits, socialized costs.  This post is the first of a series explaining the following conundrum,

Voters on the right are eternally frustrated that they send “fiscal conservatives” to St. Paul, yet the state budget keeps increasing every year—at rates greater than the rate of inflation and the overall growth in the economy.

Yet, voters on the left are frustrated that there never seems to be extra money to fund their spending priorities on children, the poor, and the elderly.

Both criticisms are valid and both spring from the same set of facts, as this series will develop.

In the past few years, a cottage industry has sprung up trying to explain what is wrong with Minnesota politics, and by extension, American politics.  On the national level, Minnesota’s Norm Ornstein helpfully explains that the problem is the failure of Republicans to keep raising taxes.

More specifically to Minnesota, the explanation for what is wrong with state politics turns out to be…Republicans refusing to raise taxes.  How can that be, you ask, when Minnesota has one-party Democrat rule?

As herald of Minnesota’s left, Star Tribune columnist Lori Sturdevant explains, Republicans were supposed to have raised taxes 10 years ago, but didn’t.  Republicans missed this pre-scheduled tax increase and now Democrats in the state legislature have no choice, you see, but to impose the largest tax hike in state history.  Forced into it, really.  $3 billion in “overdue” new taxes are needed to close a budget deficit of $627 million.

Yet, at exactly the same time that state Democrats are raising taxes and fees by $3 billion, they are cutting money for the state’s most vulnerable citizens by $150 million.  One advocate was quoted as follows,

"I nearly went into shock" said Norm Munk, president of the Minnesota Organization for Habitation and Rehabilitation, who said services to the elderly and people with disabilities are already suffering from previous cutbacks.

Sorry, but the problem with modern politics has nothing to due with Republicans and scheduled tax increases.

This pie chart from a couple of years ago shows what state government spends money on.  Although the total dollars spent keeps going up, the relative shares stay roughly the same. 

2010-2011 Minnesota State Spending, All Funds

Source:  Minnesota Management and Budget

Including Federal funds that are spent through the state budget, three items—health and human services, K-12 education, plus higher education—represent 71 percent of total spending.

However, when state budgets are under threat, we only hear about items within the 29 percent:  roads and bridges (transportation, 9.1 percent), police and fire (public safety, 3.6 percent), and state parks (environment, energy, and natural resources, 3.5 percent).  It’s no coincidence that governments reach for "The Firemen First" strategy:  roads, parks, and cops are among the few items that all agree are legitimate functions of government and represent services that are valued by taxpayers.  Except that these consensus items represent a vanishingly small share of the state budget.

When the state House of Representatives recently voted in a massive $2.6 billion tax increase, the headline in the Minneapolis Star Tribune—the state’s newspaper of record—read, “House wraps $338 million for Mayo Clinic into tax proposal.”  Rochester’s Mayo Clinic is seeking state help for an expansion of their operations (debt service & other, 2.7 percent).

So you, Dear Reader, are off the hook for not knowing even the basics about state budgeting.  A large share of the media coverage around the state budget focuses on these perennial set-piece issues.  This year, it was the Mayo Clinic.  In the previous two years it was the Vikings stadium that sucked up all the local media oxygen.  In years past, the Twins stadium, the Gophers football stadium, and the Mall of America filled that role.

Truth be told, as expensive as these white elephant projects are, their impact on the budget’s bottom line is nil.  However, the impact on the bottom line of the project sponsors is huge.

As it pertains to state government, the items we debate in public have next to no impact on the budget.  The items that have the greatest impact on the budget receive the least attention.

In Part 2, I will begin exploring why this is so.

Amateur Hour at the Capitol

A couple of weeks ago I described how, in 2011, Minnesota’s Democrats were trying to tag the incoming Republican legislative majorities with the label of “amateur hour.”

Fast forward two years and it’s the new Democrat majority earning the amateur hour reputation.  Monday afternoon, the Democrats in the state Senate failed to muster the votes for their own multi-billion-dollar tax hike bill.  Later in the day, they had to conduct an embarrassing do-over vote to get the measure through, forcing two members into the never-pleasant “I voted against the tax hike before I voted for it” position.

All of this is made that much more delicious because of this April 16th quote from Democrat Senate Majority Leader Tom Bakk,

"It is the majority's job to put up 34 votes for a bill and we did that."

Sen. Bakk was speaking specifically about the lack of debate on the Senate’s efforts to raise their own pay.  But even in that limited context, I think he misunderstands his role in leading the upper house of the state legislature.

For beginners, he failed to put up the 34 votes this afternoon.  In what had to be ranked as the biggest vote to date of his tenure as Majority Leader, he fumbled the ball.  And this from a Senator so famously intolerant of legislators with less experience than his 18 years.   I’m sure there is an argument to me made for a less stage-managed politics.  Tom Bakk is not the guy to make that argument.

Instead, his job should be more than just putting up 34 votes for whatever whim strikes one-party-rule that day.  If you are raising taxes to record levels, raising your own pay, and regulating industries like never before, you owe an explanation to the voters, even those who did not vote for you.

Does a Bear ---- in the Woods? Not if the MPCA Can Stop Him

On the radio this past Earth Day Monday, I put forward the proposition that the modern environmental movement is a victim of its own success.  As the obvious environmental problems are all solved—burning rivers, open waste pits, etc.), we have to dig ever deeper for new challenges and set new standards for environmental quality, no matter how unreasonable, to make environmental “progress.”

This article in today's Minneapolis Star Tribune on local smog jogged loose a nearly-twenty-year-old memory. 

Back then, scientists were searching for clues as to why certain waters in the Chesapeake Bay region were being contaminated by fecal coliform bacteria.  The usual suspects—agriculture, residential housing, and sewage treatment—appeared blameless.

Scientists from Virginia Tech studying the matter collected data showing that at some locations and times, wildlife are the primary sources of fecal pollution. 

Update on Green Energy Follies

The good folks at the Center of the American Experiment have collected and updated my series on Minnesota's renewable energy policy.

Super-Secret Tax Deals: The Shape of Things to Come

One of my favorite TV commercials from the 1970’s was for Triumph Motor Company’s sports cars.  Promoting the alleged aerodynamic qualities of their triangular-shaped British-made cars, Triumph used the tag line, “The shape of things to come.”  Triumph proved to be far from the mark, as the egg-shaped minivans of the 1980’s demonstrated.

Triumph itself never lived to see that day, ending production in 1981.  When then-Prime Minister Margaret Thatcher (whose funeral was this morning) pulled the plug on government subsidies for state-owned industries, Triumph’s parent company, British Leyland, was broken up and sold off.

Although both Triumph and Baroness Thatcher are now gone, the belief in industrial policy—that government can make better decisions than private business—is still alive and well.

Case in point:  Minnesota state government.  On Monday, Democrats in the state House of Representatives introduced a bill to raise taxes by $2.6 billion over the next two years, which (among other items) would increase the state’s income tax rates to the nation's second highest.

Cheap at Twice the Price

Days like today are the reason that I don’t attempt satire.  Once cannot parody real life, at least not in this age.

To date, the Minnesota State Legislature—despite one-party Democrat rule—has accomplished little of note, unless you count the further government takeover of the state’s health insurance industry.

Yet today the state Senate saw fit to reward their effort so far by voting in a 35 percent pay increase.  One observation that I have not seen made:  the raises take effect in 2015, but senators will not face voters again until 2016—senators will pocket the increase without first having the opinion of the voters recorded at the ballot box.

Arguments in favor of the pay increase were as numerous as they were unconvincing.  A few:

·        We’ll attract better-qualified candidates.  First, I’ll say “none taken.”  Second, does that mean the 34 senators who voted for higher pay will immediately resign, so we can vote in better senators?  Third, I hope our new senators will be smart enough not to raise their own pay before the next election.

·        A raise is overdue.  Of the 201 members of the legislature, 57 just began serving their first term.  In what sense is their raise “overdue”?  They knew the pay level before the filed to run for office.  How common is it to get a raise just 3½ months into a job?  We really have lost the sense that a stint in the legislature is not supposed to be a career.

Meanwhile, over at the state House of Representatives, Democrats there are increasing the state’s income tax to the nation's third highest, (or is it 2^nd highest?) in addition to raising every other tax they can think of.  At the same time, the state legislature is assembling a package of tax breaks to lure a big company here from Illinois.  How can those two sentences possible be true?

We are going to spend $5 million to create 190 jobs, or in the new currency of the day, 119 state senators.

So which is it?  We need to raise taxes on everyone, so that we can lower taxes for a few, well-connected companies?  Or, we need to raise taxes on everyone so we can give state senators a raise?

Neither.  It turns out that the real reason we need to raise taxes on everyone [and I’m not making this up] is that—gosh darn it—we’re just spending too little on government.

Like I said, satire is simply not possible.

Weather Facts

This morning, I carefully scanned my newspaper's weather page for any hope of a return of Spring.

Seeing none, I checked out the weather facts for this date.  Yesterday's high temperature (34) was 23 degrees below the average high for the date (57).  In fact, we have experienced a colder than "normal" winter, as measured by Heating Degree Days: 7,105 so far this winter, slightly more than a normal to date of 7,086.

We had more snowfall yesterday, bringing the seasonal total to 56.1 inches, slightly more than a normal of 53.  We've had above normal precipitation for the month and year so far.

What does this mean?  Nothing.  We have long, cold winters in Minnesota.  That's normal for our mid-continent latitude.

Yet, somehow, Republican weatherman Paul Douglas writes on the same page that this is all somehow proof of something called "Global Weirding."  Douglas writes,

"Global warming implies steady warming, worldwide.  'Global Weirding' better describes what we are seeing."

Yes, the globe has been warming, although not so much in the past 20 years.  "Climate Change" never really worked as a label, as the climate is always changing:  always has, always will.  So now we have arrived at "global weirding."

I wish I could remember who said it, but the adage applies, "If you say that every bit of data proves your theory, the phenomenon you are describing is not science."

There Will Be a Budget Deal

The Minneapolis Star Tribune is out with an article ("DFL still a long way from deal on budget") making exactly the same point that I made a few days ago:  one-party Democrat rule has little to show for its efforts just a few weeks from the end of the session.

Here's a prediction:  there will be a budget passed.  It will be the largest budget ever passed in the history of Minnesota--any way you look at it, per capita, inflation adjusted, or as a share of the state's economy.

The budget will be passed before the "end" of session.  Even if they have to cover up the clock to pretend midnight has not passed, even if they have to come back and fix it in special session.

The budget and much else will be passed at the last second, with bare partisan majorities, in massive bills that no single human being will have read all the way through before they are signed into law.

It will all be hailed as a once-in-a-generation political triumph.  Until...months later...when someone gets around to reading the bills passed...and we all wonder:  now what?

The Deck Chairs, Part 2

Author Michael Lewis (Liar’s Poker, Moneyball) traveled to Iceland shortly after that nation’s bankruptcy in 2008.  His Vanity Fair article on the visit was an early, front-line report on the great global financial collapse, told from the viewpoint of a tiny (population 320,000) arctic-island nation.

One anecdote has stuck with me more than four years after his piece ran in the magazine:  the exploding Range Rovers.  As Lewis recounts to National Public Radio in an interview,

“I had just arrived and there were all these weird noises in my hotel room that were keeping me up in the middle of the night, and the last of them were these explosions.  And I got out of my bed the next morning and went to interview a young banker.  And I said, ‘you know, it was a little odd.  There were all this noises and these explosions.’  And he said, ‘yeah, there have been reports of lots of Range Rovers blowing up.’  And he kind of laughed about it.

“But what he meant was—and what has happened was—during the boom years, 2003 to 2008 in Iceland, Icelanders had taken to—because their own currency, the krona, had a very high rate of interest associated with it; if you borrowed krona to buy Range Rover, you paid a 16 percent interest rate, so they all borrowed Swiss franc and Japanese yen and other currencies to buy these—to buy houses, to buy Range Rovers, and when the banks collapsed last fall and winter and the Icelandic krona collapsed, they found themselves owing huge sums of money in krona terms for these things they had bought.

“And there were really only one or two things you could do to get out of your debt, your car loan.  One was to put the car in a boat, ship it to Europe and try to sell it for some currency that was worth something, or the other thing was to set it on fire and hand it back to the insurance company.  And so that's what the young banker was referring to when he said there have been a lot of reports of Range Rovers blowing up.

Imagine yourself, tooling around Reykjavik (I checked, they drive on the right) back in 2007 and seeing all the magnificent vehicles on the street.  You would have been impressed with the wealth of the place.  Two years later, those vehicles were going up like firecrackers.

And so it is with America in the ‘Teens.’  No kidding, the other day I went to the grocery store and there was a recent vintage Bentley in the parking lot.

If you are a person of the Left, I can imagine how you would think that the government can’t be too big; taxes couldn’t be too high, if someone could afford to take a Bentley grocery shopping.
 

Take another look at the statistics I included in Part 1.  Take that guy’s Bentley, take everything else he owns, and sell it.  There is not enough wealth among “the rich” to balance the budget.  As we saw, you can take all household income—leave people with zero to pay for food, shelter, and clothing—and you will not balance the budget.

The trappings of wealth we see as we move about are just that.  Individuals may be rich, households may hold great wealth, and corporations may have record amounts of cash on theirs balance sheets.  But once you factor in the debt (public and private) and the unfunded liabilities not recognized on the balance sheet (pensions, entitlements) we are broke. 

California—a state blessed with a mild, Mediterranean climate, rich farmland, top-rate universities, and abundant fossil fuel deposits—is worse than broke.  The State Auditor has calculated the net worth of the state government at a negative $127 billion.

Fortunately, the story in Iceland has something of a happy ending.  After seeing the complete collapse of the economy, unemployment has fallen to 6.3 percent and the economy is growing again.  But it took a worldwide crisis, and exploding SUV’s, to get there.                                  

The Deck Chairs, Part 1

For me, one of the more fascinating bits of the Titanic’s story involves the ship’s designer, Thomas Andrews.  He was among the passengers on the doomed ship’s first and last voyage in 1912.

Within minutes of the ship hitting the iceberg, Andrews had gone below to survey the damage.  Using whatever analog tools were at his disposal a century ago, Andrews calculated the weight of the water rushing in, the weight of the water being pumped out, and estimated (in his words, with “mathematical certainty”) how many minutes the ship had left.

The heroic efforts of the crew below decks bought the ship an extra half-hour beyond Andrews' estimate, just enough time to launch the last of the life boats.  As for Andrews, after making his fateful calculation, he helped load passengers into lifeboats and was last spotted on deck tossing wooden deck chairs to passengers thrashing in the water to use as floatation devices.

I remembered the story of the ship builder when I was reviewing this document about the long-term Federal budget outlook.  The Congressional Budget Office calculates that Federal debt will equal 200 percent of our nation’s economic output (gross domestic product, GDP) by the year 2037.

Except that it won’t.  Economist Herbert Stein is credited with promulgating Stein’s Law, which says “If something cannot go on forever, it will stop.”

Somebody bothered to do some simple math this week.  Total spending by all levels of government is estimated at $6.2 trillion for this year in America.  There are 115 million households in America, according to the U.S. Census Bureau.

Dividing one number by the other results in government spending per household of $53,913.  Back to the Census Bureau data, median household income is $52,762.  Government is spending more money than the typical household makes.  Forget “tax the rich,” you can take all (100%) of the income made by the typical household, and you won’t balance the books.  [Please don’t write me about the difference between median and mean.]

Like Mr. Andrews, someone could run the numbers and figure out exactly how many years (months?) our economy has left with “mathematical certainty.”  But somehow, we are all convinced that current government spending trends can go on forever.

In Part 2, I will explore the mystery of Iceland’s exploding Range Rovers.