Gruber’s MNsure Work

So it turns out that controversial Obamacare consultant Jonathan Gruber worked his well-paid magic here in the North Star State.  Gruber was hired in Minnesota in 2011 by the controversial former head of MNsure, April Todd-Malmlov.  The contract Gruber signed with the Dayton Administration totaled $329,000, and resulted in a 60-page report and a 25-page 2013 update.

The quality and quantity of the work hardly seem worth a third of a million dollars of taxpayer money.  But it’s the conclusions that he reached that seem laughable after a year of MNsure operation.  Here’s a few for your consideration:

·         “The Exchange will enroll roughly 1.3 million persons” (Update, page 3)

·         “There will be little effect on employer sponsored coverage.”   (Update, p. 25)

·         “[T]he majority of individuals in the individual market [will] see a decline in their premiums.”  (Update, page 25)

I wonder if we can still get a refund from Gruber?

Bait and Switch

Minneapolis Star Tribune reporter (recently of the Pioneer Press) Christopher Snowbeck is performing a great public service in his reporting the on the ongoing MNsure debacle.

About this time last year, we were all suspicious of the apparent low rates being offered on Minnesota’s Obamacare exchange.  Sure, everyone loves a bargain, but the re-election campaign-ready “nation’s lowest rates” claim always looked too good to be true.

Sure enough, low-price supplier Preferred One grabbed a majority of the first-year MNsure market share.  It turns out that they were low-price, not low cost.  They have dropped out of the MNsure exchange and raised rates by 63 percent to any customers who are still interested in sticking around.

Snowbeck reports that Preferred One’s low rates were the result, in part, of pressure from state insurance regulators.  In my opinion, the situation reads less like a consumer advocate asking bidders to “sharpen their pencils” than a political deal getting done.

Was there some quid pro quo involved?  Democrat Governor Mark Dayton has previously denied putting any pressure on the insurance company.  Quoting last week’s Pioneer Press,

Dayton said he never talked to PreferredOne, and neither his commerce commissioner nor MNsure dictated rates.

As they say in the business, “that statement is longer operative.”  Dayton and his appointees need to come clean about who said what to whom and when.

In the end, consumers did not benefit from these artificially low prices.  Yes, premiums paid by some consumers looked to be a real bargain for a few months.  But now they are faced with ruinous rate hikes they did not plan for and may not be able to afford.

Bait and switch may work in politics, but in economics, not so well.

The Banana Republic of Minnesota: One Year Later

Going back a year ago, I reported on the “outreach” grants distributed by state government’s MNsure to local community agencies to promote the Obamacare health insurance exchange around the state.

Many of the grants went to individuals and organizations with close ties to the state Democratic party. 

The Minneapolis Star Tribune reported on the results yesterday, and they are exactly as you would have expected,

As of June 30, with three months remaining in the contract year for outreach agencies, grantees had reached just 45 percent of their collective goal of 51,600 enrollments, according to a state review.

Some grantees could not reach even that low threshold.  The Star Tribune reports,

Through June 30, Health Access MN was credited by MNsure for reaching 28.6 percent of its 6,000-person enrollment goal.  The group received a second-year award of $209,500.

They achieved less than 30 percent of their goal, but getting a second grant?  Who is this group?  The Star Tribune adds,

For one, lawmakers questioned a $326,606 award to a start-up called Health Access MN, which was formed just days before the grant application deadline by Maureen O’Connell, a former top executive [and Mark Dayton appointee] for the Minnesota Department of Human Services.

Ah, so it’s not what you accomplish, it’s who you know.  Not making the second-year list was last year’s biggest grantee, a consortium headed by Community Action of Minneapolis, the Democrat-run nonprofit closed by regulators last month.

Also not appearing on the second year list is Small Business Minnesota, a nonprofit run by a Democrat candidate for state representative.  Big-time Democrat donor Planned Parenthood is back for 2015, rewarded for its continued loyal service to the party.

Despite all available evidence, I keep hearing how Minnesota is a clean government state.  It’s as if self-regard and stated intentions can overcome actual performance.

A Shrinking Pie to Hit Education Minnesota

As they say, demography is destiny, and right about now the nation’s (and Minnesota’s) destiny is not looking so good.  I’ve written about this topic before, and now I have more recent data to work with and can draw more definitive conclusions.

Here are the raw numbers for the past decade.

U.S. Births By Year
Year	U.S.	Minnesota
2013	3,957,577	69,160
2012	3,952,841	68,772
2011	3,953,593	68,411
2010	3,999,386	68,605
2009	4,130,665	70,648
2008	4,247,694	72,421
2007	4,316,233	73,745
2006	4,265,555	73,675
2005	4,138,349	70,920
2004	4,112,042	70,614
2003	4,089,950	70,053
Source:  CDC

As I wrote back in March,

A decade ago, we were seeing slow, if unspectacular, growth.  When the last economic boom was at its peak (2006-2008), we saw something of a mini baby boom.  When the recession hit in 2008, the number of births fell, and has not recovered.  

Keep in mind, these effects are cumulative.  So, in Minnesota, since the 2007 peak, we are now “missing” 24,453 children in the last six years. 

Think of a K-5 elementary school.  To make the math easy, assume 25 students per teacher, we now need 978 fewer elementary school teachers than we would have planned for, using the higher birth rates of a few years ago.

Those changes, of course, won’t be spread evenly across the state.  Some districts will allow class sizes to shrink.  Some districts will continue to grow, while others may face the need to close entire schools.

Even as middle schools will be coping with the recent mini baby boom, suddenly in 2015, schools across the state will find they are “missing” 2,000 kindergarteners from the year before.

Judging by the national numbers, which mirror Minnesota’s, we are unlikely to avoid shrinking schools with domestic migrants.  (Foreign immigration would be a different matter)

The ripple effects continue.  State education funding depends on per pupil formulas.  Fewer pupils means less money.  Fewer pupils translates, eventually, into fewer dues paying union member teachers.

As it stands, the state teachers’ union—Education Minnesota--ranks as the state’s largest campaign donor, giving almost exclusively to Democrats.  As school enrollments begin to shrink across the state, look for the politics of education to get even more bitter.

The economics of teachers’ pensions relies on a growing number of dues-paying-members to support the growing number of retirees.  If the ranks of active teachers actually shrink, the finances turn upside down. 

Look for Education Minnesota to push ever-shrinking class sizes and ever-growing pay to make up the difference.

Doing Well by Doing Good, Part 5

Now that the state has raided and shut down the controversial nonprofit Community Action of Minneapolis, it may be useful to take a look at some of the similar nonprofits operating around the state.

The Minneapolis agency is part of a network of a couple of dozen that serve throughout the state, operating programs funded by taxpayers aimed at helping low income households.

One of the most eye-catching facts in the Community Action Minneapolis scandal was the compensation of its CEO.  Bill Davis was reported to have received $273,060 in total compensation in the last year for which data is publicly available.

I took a look at the CEO compensation for all local agency heads, as shown below,

Community Action Agency	Location	CEO Comp. $
Community Action MPLS	Minneapolis	$273,060
Ramsey & Washington	St. Paul	172,872
Local Government Salary Cap		162,245
Scott, Carver & Dakota	Shakopee	139,628
Three Rivers	Zumbrota	131,552
Arrowhead	Virginia	118,877
Anoka County	Blaine	118,741
Mahube-Otwa	Detroit Lakes	116,974
Suburban Hennepin	St. Louis Park	113,662
Lakes & Prairies	Moorhead	109,215
West Central	Elbow Lake	109,163
Minnesota Valley	Mankato	97,699
Tri-County	Little Falls	97,368
Lakes & Pines	Mora	95,259
Tri-Valley	Crookston	95,018
Heartland	Willmar	93,821
Southwestern	Worthington	92,498
Northwest	Badger	92,131
Semcac	Rushford	90,510
Wright County	Maple Lake	90,055
Tri-County	Waite Park	85,436
Western	Marshall	84,091
Bi-County	Bemidji	83,834
KOOTASCA	Grand Rapids	80,475
Prairie Five	Montevideo	69,434
Duluth	Duluth	60,220
Inter-County	Oklee	56,392

[Compensation listed is as reported in the agency’s last available IRS Form 990 income tax return (either 2012 or 2013, depending upon the fiscal year used).  For CEO’s not serving a full year, the previous year’s figure was used.]

For comparison purposes, I’ve included the salary cap used by local governments for 2014, $162,245.  Local governments can, and do, seek waivers to pay above that amount.

It turns out that Davis’ compensation is quite an outlier for this type of organization, representing something close to three times the median CEO compensation.

The other agency that sticks out in this analysis is the one across the river, the Community Action Partnership of Ramsey & Washington Counties, based in St. Paul.  Its CEO, Clarence Hightower, received total compensation of $172,872 in the year ending September 30, 2013.  Hightower’s compensation comes in close to twice the median compensation of local agency CEO’s.

You may recall that Hightower’s name came up recently in connection with the Community Standards Initiative controversy.  The CSI controversy was the first count in the recently filed ethics complaint against state Sen. Jeff Hayden.  Count 2 in the Hayden complaint centered on Hayden’s board membership in Community Action of Minneapolis.

According to the St. Paul Community Action agency’s 2013 income tax return, the east-metro agency spent over $676,000 on travel, conferences and meetings.

In 2012, the St. Paul agency spent even more on travel and conferences, totaling $756,272.  In 2011, the amount for the agency for those items was $722,028.

To compare, the Minneapolis agency spent a little over $233,000 on these items in 2012.  True, the east-metro agency represents a larger organization—roughly twice the size of the Minneapolis group—but its spending on travel and conferences was three times the amount of the agency on the other side of the river.

Perhaps further investigation would prove useful.  In a later post, I look at the political donations of the community action network.

Doing Well By Doing Good, Part 4

Minneapolis Congressman Keith Ellison is making headlines for quitting the board of the embattled nonprofit Community Action of Minneapolis.

In quitting the board of the group accused of misspending taxpayer funds, Ellison is quoted as follows,

Ellison, a DFLer, said he had not attended any board meetings and appointed an alternate to serve on his behalf.  He said he did not vote on any financial matters.

In a statement, Ellison said the audit’s findings are “serious and require corrective action.”

It’s too bad that Ellison could not turn up to any Community Action board meetings.  If he had, he might have learned something about the nonprofit’s operations and its alleged mismanagement of tax dollars.

Back in January 2012, Ellison issued this press release asking for more Federal spending on the low-income energy assistance program, known as LIHEAP,

“LIHEAP is about more than just heating assistance for low-income families and seniors, though that alone would be reason to fight for it,” Ellison said. “This is about the fundamental American promise to care for those who need heat during the cold winter months. We don’t want our grandparents having to choose between fuel and food.”

As you will have guessed by now, the agency operating the LIHEAP program in Ellison’s district is Community Action.  It turns out that every dollar spent on luxury vacations and car loans to nonprofit executives could be used instead to help heat the homes of our seniors.

Doing Well By Doing Good, Part 3

Alleged financial mismanagement at a local nonprofit, Community Action of Minneapolis, has received a great deal of media attention since the release of a scathing state government audit of the group.  The state’s Department of Human Services is now considering cutting off funds to the agency as a result of its investigation.

The story has taken on a political angle, since the group’s board included two politicians—Congressman Keith Ellison and state Sen. Jeff Hayden—who have resigned from the group in recent days.

What is a Community Action Agency?
The Community Action Agency is a creature of LBJ’s War on Poverty, created 50 years ago to assist in delivering Great Society programs to the nation’s poor.  Community Action of Minneapolis is part of a network of agencies that covers the entire state.  The service offerings differ from agency to agency, but often include low income household energy assistance (utility bill subsidies), low-income home weatherization (insulation) and operation of the local Head Start program.

The Minneapolis agency was formed by the City in 1994 to administer certain Federal block grant programs.  It does not operate the local Head Start program.

Many readers of the Minneapolis Star Tribune’s coverage of this story may have been surprised to discover so many Democrat elected officials serving on the agency’s board.

It is actually required by law.  Not that they all must be Democrats, but that one-third of the board for each agency must consist of public officials, with the remainder split between community members and private sector leaders.  For this purpose, unions count as the private sector.

As it happens, Republican public officials are thin on the ground in Minneapolis, if Community Action were inclined to appoint one.  In areas dominated politically by Republicans, you will find public official board members at local agencies who are Republicans.

I have no idea what the original rationale was for having one-third of each agency’s board consist of public officials.  However, in today’s context, it provides a built-in lobbying team ready to advocate for continued (or expanded) taxpayer funding of the agency’s activities.

What is the Issue?
In Fiscal Year 2012, Community Action received 99.92 percent of its total revenue from government sources, according to the group’s IRS Form 990 income tax return.  Most of its funds come from Federal energy-related programs overseen by the state’s Department of Commerce.

An earlier audit (2012) performed by the Legislative Auditor found that the state’s,

Department of Commerce did not adequately monitor a local service provider [Community Action of Minneapolis] that inappropriately provided $1.35 million to households who did not meet the eligibility requirements for the crisis emergency benefits they received from the Low-Income Home Energy Assistance Program.

In the audit (2014) performed by the state’s Department of Human Services (DHS), the first finding involves inadequate oversight by Community Action’s board over the activities of senior management.  One recommendation made by DHS was to have Community Action fill the many vacant slots on the board.  The resignations of Ellison and Hayden, in that regard, are not helping the cause.

In the audit itself, the DHS audit cites specific transactions related to programs overseen by Commerce.

Further, many of the questionable items cited by DHS apply to the agency’s overall management.  The bulk of the dollars questioned by DHS involve dodgy allocations of overhead costs to a DHS grant that should have been allocated to Commerce-related grants, or never incurred in the first place (travel, bonuses, etc.).

With all of its revenue coming from taxpayer sources, Community Action must meet strict guidelines on cost allocation and administrative spending.

If DHS has lost faith in the ability of Community Action to execute its grants, then one wonders how Commerce cannot reach the same conclusion.  Should the discussion be expanded to include cutting off all government funding of this local agency?

And if government funding is withdrawn from Community Action, who would step in to continue to supply the services that its clients depend on?

To extend the discussion even further, if an agency has been around for 20 years (or 50) and has not yet accomplished its mission, then perhaps it’s time to rethink the delivery of these services or consider whether this particular mix of services will ever accomplish the stated goals.

In Part 1, I looked into some of the politics behind the latest controversy.  In Part 2, I looked into the connections with the 2009 Federal stimulus money.

Doing Well By Doing Good, Part 2

As the fallout continues over alleged misspending at the Democrat-connected nonprofit Community Action of Minneapolis, we should take a step back and look at how we got here.  [See Part 1 for more.]

Community Action is usually described as an anti-poverty agency.  In fact, its two biggest programs involve weatherizing (insulating) the homes of low-income households and signing up low-income households for energy assistance (utility bill subsidies).

During the early days of the Obama administration, these programs received huge additional funds from the 2009 Federal stimulus.

According to the nonprofit’s IRS Form 990 income tax returns, from Fiscal Year 2009 to 2010, the nonprofit’s revenue nearly doubled, from $9 million to $17.3 million.  Of that 17.3 million, a total of $13.2 million came in the form of government grants.  The 2010 revenue of $17.3 million fell to $15.8 million in 2011 and fell further to $11.1 million in Fiscal Year 2012 as the stimulus money was phased out.

Reporting in the Minneapolis Star Tribune indicates that problems at the nonprofit date back years, perhaps even decades.  If the propensity for alleged misspending was there before 2009, the opportunity certainly grew during the Federal stimulus years.

In the 2010 Fiscal Year, the group paid CEO Bill Davis (a former treasurer of the state Democrat party), $236,445 in total compensation.  That amount rose to $245,088 in 2011 and to $273,060 in Fiscal Year 2012.  As of 2012, the nonprofit is carrying $264,000 in deferred compensation on its balance sheet.

In 2010, the group spent more than $285,000 on travel, conferences and meetings.  That amount rose to $294,000 in 2011 and fell to $233,000 in 2012.

The Federal stimulus funds came and went, but the overhead costs that built up during these years remained.

According to its Federal tax returns filed during these years, the nonprofit lists a number of elected Democrats among its board members—Congressman Keith Ellison, state Sen. Jeff Hayden, and Minneapolis city council members Barb Johnson and Bob Lilligren—and not their designated alternates.

One of the less publicized aspects of the 2009 Obama stimulus was how it steered billions of dollars—not toward urgent infrastructure projects—but toward Democrat-favored constituencies and causes.  As day follows night, that sudden influx of money created opportunities for misspending of taxpayer funds.

In Part 3, I explore the origins of the nationwide Community Action movement.

Doing Well by Doing Good

One of my all-time favorite Simpson’s quotes comes from the early days of the Bill Clinton presidency.  Lisa and Bart were using Grandpa Simpson as a front for a money-making scheme.  Grandpa was happily cashing the checks.

Bart Simpson: "Didn't you wonder why you were getting checks for doing absolutely nothing?"

Grandpa Simpson: "I figured because the Democrats were in power again."

Just so.  After a generation out of power, Democrats re-occupied the Minnesota Governor’s Mansion in January 2011.  Long-suffering constituencies—starved of resources from anti-government, penny-pitching, results-oriented Republicans—went wild.  The Minneapolis Star Tribune reports,

Leaders of a Minneapolis nonprofit that serves low-income residents used taxpayer money to pay for a celebrity cruise and trips to Palm Beach and the Bahamas, according to a recently completed state audit.

Along with the trips, the audit by the state Department of Human Services found that the nonprofit’s leaders spent public money on bonuses, golf, spa treatments, furniture, alcohol and even a personal car loan.

The Star Tribune headline reads,

 

Audit scolds Community Action of Minneapolis for misspending hundreds of thousands of dollars.

The result needs to be much more than a scolding.  The Star Tribune notes that the Community Action board includes three members appointed by local Democrat politicians, including Congressman Keith Ellison, state Sen. Jeff Hayden, and a series of Minneapolis city council members.  Community Action proposed to spend 68 percent of its budget on administration and overhead next year, according to the Star Tribune.

It’s not the first time this month that Sen. Hayden—a Deputy Majority Leader—has been linked to a dodgy nonprofit operation.  Bill Davis, the head of Community action is a former treasurer of the state Democrat party.  According to the group's 2012 Form 990 income tax return, Davis received $273,060 in pay.

Oddly enough, the state agency investigating Community Action is the Department of Human Services.  Serving as DHS' Chief Compliance Officer is Gregory Gray.  According to his LinkedIn profile, Gray has held that post since March 2011.  Prior to that, Gray served as an executive with Community Action, and was previously elected as a Democrat member of the State House of Representatives.

[For his part, Democrat Gov. Mark Dayton says that he was very alarmed by the audit's findings.  But the same governor who cannot name a single program that should be cut from state government is somehow surprised when groups abuse his generosity with taxpayer money.  Although the state claims that it has been investigating the group for months, Dayton says he first found out by reading the Sunday paper.  The man in charge, but always the last to know.]

The mentality seems to be that, after decades of selflessly serving the public, the time has come for nonprofit executives to start helping themselves.  State government agencies, and the nonprofit entities they fund, need to be audited much more frequently than is currently the case, to root out waste and abuse.

But to paraphrase a lesson from my MBA education, you cannot ‘audit quality into’ a program.  Audits find problems after the fact.  What needs to change is the ‘me first’ attitude among nonprofit management and the politicians who vote them taxpayer money, no questions asked.

In Part 2, I dig deeper into the history of Community Action Minneapolis.  In Part 3, I get into the history of the nationwide Community Action movement.

Below Expectations, Again

Like a broken record, the state office of Management and Budget (MMB) has issued another monthly state revenue total that falls below its forecast.  For the month of August 2014, state government revenues fell $10 million below expectations, with individual income tax receipts representing most of the shortfall. 

For the first two months (July and August) of the new 2014-15 fiscal year, revenues are running 3.3 percent below forecast, with collections falling $79 million short, so far.

So, for those scoring at home, July’s report marked the sixth consecutive (1, 2, 3, 4, 5, and 6) monthly report that came in below forecast.  (There was not a monthly report issued for June.)

Six out of seven months below forecast does not sound like a state with a booming economy.  At some point, all of these monthly shortfalls will add up, and we will be faced with a new budget deficit.  At present, they are still being dismissed as “variations” that will even out over time.  Quoting MMB,

All results are preliminary and subject to revision.  Monthly revenue variances should be interpreted with caution.  Wide swings in variances may be caused by variations in the rate at which receipts are received and refunds are issued.

I don’t know about “wide swings,” but for 2014 all of the variations have been in the same direction (down).  If our economy really were the strongest in the nation, then tax collections would be running ahead of forecast every month.

More significantly, the fact that individual income tax receipts are leading the plunge does not bode well for the future.  Labor is more mobile than capital, so what we are seeing is people voting against the Mark Dayton economy with their feet.  Corporations (and their tax payments) will be following quickly behind.

Minnesota Is Not Working

Local blogger Gary Gross has performed a public service by digging into the premise behind the Democrats’ re-election campaign this year.  He transcribes the relevant portion of an Alliance for a Better Minnesota (ABM) TV ad supporting Democrat Gov. Mark Dayton,

Look across the land.  On farms and in factories, in classrooms and on construction sites, Minnesota is working. Four years ago, Minnesota faced a $5,000,000,000 deficit. But Gov. Mark Dayton showed strong leadership.  He raised taxes on the wealthiest 2 percent so we could invest in our schools and reduce middle class taxes.  Now Minnesota has 150,000 new jobs and a budget surplus.

As you know, ABM is the well-funded “independent” political group linked by marriage and cash to Dayton’s inner circle.  It’s fair to say that the message above will be the one coordinated across the Dayton campaign, the state Democrat party, and the associated independent spending groups this fall.

But does it have any validity?  Let’s start with the 150,000 jobs claim.  There is simply no support for that figure.  Based on data at the U.S. Department of Labor’s Bureau of Labor Statistics, if you give Dayton credit for the high-water mark for jobs while he has held office (May 2014) and subtract the employment level from before his election (October 2010) you get only 111,626 net jobs created, a far cry from 150,000.

Reconsidering the Economics of Marxist Puppet Shows

In news from the arts world this week, In the Heart of the Beast Puppet and Mask Theatre announced that they are experiencing some financial trouble.  The Theatre has announced some temporary layoffs and a reduction in programming.  The St. Paul Pioneer Press reports,

"Heart of the Beast has been at the edge of financial collapse before and, every time, as a consequence of hard work and generosity and sheer luck, we've managed to come through it," [the Theatre’s Executive Director Loren] Niemi said.  "There's no reason we can't do that this time, too."

On Twitter, I tried to make the serious point that if a Marxist papier-mâché puppet show can’t thrive in today’s political and economic climate, who can?  With French economist Thomas Piketty’s tome on income inequality featured on the best-sellers' list and progressive Democrats firmly in control in both Washington and St. Paul, audiences should be clamoring for anti-capitalist puppet theater.

Alas, the proximate cause of the Theatre’s money troubles appears to center on a mortgage balloon payment coming due at a particularly untimely moment.  A Marxist puppet theater can be forgiven, if not excused, for not being good at the nuts and bolts of capitalism.  After all, the Theatre is pursuing a higher calling than the grubby pursuit of coin.

The Theatre is probably best knows for organizing the annual MayDay parade in south Minneapolis.  Don’t worry, the show will go on, as Minnesota Pubic Radio reports,

In the Heart of the Beast is committed to continuing the annual May Day Parade, Niemi said, but for the company to remain financially sustainable, the parade needs more financial support from the community.

“So over the next six months I’m going to be looking at how we might partner with neighborhood organizations — the Lake Street Council, Meet Minneapolis and all the other organizations that benefit from the existence of May Day—to have them participate in the ongoing costs and management of May Day,” he said.

Isn’t that the very essence of the Marxist critique?  That the proletariat does all of the work, creates all of the value, and the beneficiaries won’t pay their fair share?

As documented in my 2012 profile of the Theatre, public money has been a big funding source for the group.  In particular, the state’s Legacy Fund, which grants money from state sales tax revenue to arts and environmental groups, has provided the Theatre with more than $416,000 in direct cash payments since the Fund began,

Fiscal	Grant
Year	Amount	Purpose
2010	39,756	operating support
2011	60,000	arts learning
2011	39,756	operating support
2011	18,000	Are You Thirsty tour
2012	39,604	operating support
2013	84,646	arts access
2013	44,106	operating support
2014	50,434	operating support
2014	40,050	arts learning
Total	$  416,352

Unfortunately, having received state money every year since the Fund began, the Theatre is among a number of organizations thought to have acquired a property right to receive taxpayer funding in perpetuity.

At this point, one has to question the wisdom of continuing to supply taxpayer money to an organization—how shall we say this delicately—for whom money management is not among their strengths.  Instead of counting on “sheer luck” to come through again, perhaps the state should reconsider its policy of throwing good money after bad.