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A State That Works—Again

October 23, 2013 By Jeff Van Wychen, Fellow and Director of Tax Policy & Analysis

In his first inaugural address, Ronald Reagan declared that “Government is not the solution to our problem; government is the problem.” Minnesota was not immune to the anti-government sentiment that gripped American politics in the final decades of the twentieth century and that culminated with the 2002 election of Tim Pawlenty—the first Minnesota governor to sign a pledge not to increase taxes under any circumstances.

Part 1 of this series looked back to the iconic 1973 Time Magazine article proclaiming “the good life in Minnesota” and the policies of Governor Wendell Anderson that made Minnesota a “A State That Works.” This article will examine Minnesota’s experiment with “no new tax” fiscal policy and the state’s subsequent course correction.

True to his pledge, Governor Pawlenty successfully blocked almost every increase in state taxes.* Despite the election of a progressive governor in 2010, a right wing legislature successfully maintained the anti-tax agenda through the 2011-2012 legislative session. In the decade that followed Pawlenty’s election as governor, real per capita state and local government spending fell by seven percent—the fourth highest rate of decline among the fifty states. Despite an increased need for public expenditures resulting from an aging population and other trends, government in Minnesota shrank.

Proponents of the anti-tax, anti-government agenda projected that their policies would produce growth and prosperity. Unfortunately, that’s not what happened. In the decade preceding Minnesota’s experiment with “no new tax” fiscal policy (1992-2002), Minnesota surpassed the national average in GDP, employment, personal income, and median household income growth. Since 2002, Minnesota has lagged behind the national average in all four categories. Add to these dismal trends a decade of recurring budget deficits and two state government shutdowns.

During the 2013 legislative session, Minnesota returned to a progressive vision for the future, similar to what the 1973 Time article celebrated. As Anderson did four decades ago, a progressive governor and legislature did what they said they would do on the campaign trail: increase investments in key assets through a more fair tax system.

As a result, state funding for public school operating costs increased, partially replacing a sharp decline in state assistance over the preceding decade that led to school budget cuts and escalating property taxes. State dollars for all-day kindergarten and early childhood education—policies long endorsed by non-partisan experts—were approved. Tuition at state colleges and universities was capped after a decade of steep increases—thereby helping to make education more affordable for more students. A new homestead credit refund targeted property tax relief to homeowners based on the ability to pay. The number of uninsured Minnesotans will likely be cut in half through the new MNsure program. Other initiatives focused on job training and affordable housing.

The policies approved by progressive state policymakers in 2013 for the 2014-15 biennium are by no means a carbon copy of the policies pursued by Wendy Anderson in the early 1970s, nor should they be. After all, the challenges confronting the state in 2013 are not the same as in 1973. Nor is the state spending increase approved in 2013 anywhere near the size of the increases approved during the Anderson era; in fact, even after the budget increases approved in 2013, real per capita state general fund spending will still be over 10 percent less than it was a decade ago, at the beginning of Minnesota’s “no new tax” experiment. Furthermore, state and local government own-source revenue as a percent of statewide personal income in the current biennium will likely be less than it was in 1973.†

Nonetheless, the budget approved during the 2013 session represents a return to Governor Anderson’s vision of government as a positive force for good, as informed state leaders increased public resources and directed those dollars toward policies that in the long-term will make Minnesota a more prosperous state and a better place to live.

*The most notable exceptions were a 2008 gas tax increase which was enacted by overriding Governor Pawlenty’s veto and a 2006 cigarette tax increase which had to be designated as a “fee” in order to get Pawlenty to support it.

†This conclusion is based on an analysis of state and local government own-source revenue data from the U.S. Census Bureau and Minnesota Management & Budget combined with personal income data from the U.S. Bureau of Economic Analysis.

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  • Dan Conner says:

    October 26, 2013 at 10:02 am

    This article seems to omit Gov Dayton.  Gov dayton has been instrumental in turning Minnesota around and returning it to its upward trajectory in our nation.  He has reinserted Minnesota as a national leader.  He deid not do this easily.  He had to overcome significant obstruction, meanness,and trickery from the far right.  We are damned lucky to have Gov Dayton!!

    • Jeff Van Wychen says:

      October 28, 2013 at 9:18 am

      A fair point.  While the article did credit “progressive state policymakers,” it failed to mention by name the state’s most prominent progressive: Governor Dayton.  Without a progressive leading the executive branch, none of the accomplishments made during the 2013 session would have been possible.

  • Robert Nepper says:

    October 28, 2013 at 8:09 am

    If “Minnesota is working again” why do we still have over 150,000 workers still officially unemployed? Yes, Minnesota’s economy may be better than the nation as a whole, but definitely not good enough.

    To make Minnesota’s industry grow on a new trajectory, the legislature needs to pass the no-cost “Use or Return” initiative (SF 21). “Use or Return” would restore creative freedom to many employed Minnesotans by prying loose countless new, (but unwanted) products that employers are now free to block with impunity!

    Our current policy is like—“trying to water ski without lifting the anchor”!

    • Dan Conner says:

      October 28, 2013 at 9:24 am

      Of course jobs are still an issue in Minnesota, but far less so than the rest of the nation.  What is particularly different in Minnesota, is when you hear the Governor talk about jobs, jobs, jobs, he means it.  Republicans in the US Congress continually say jobs, jobs, jobs, but do nothing to increase them.  In facts, they obsess on abortion and contraception issues.  I think Republicans better start getting their collective heads out of women’s wombs and their faux Bible and start thinking about improving lives for all people in Minnesota, aside from the 1%.  Governor Dayton is doing his best to improve everyone’s life.  Pawlenty only cared about his, the 1%, and large corporations.  He nearly ruined Minnesota taking care of them.

    • Ginny says:

      October 28, 2013 at 12:20 pm

      Robert, what is “use or return”?

      • Robert Nepper says:

        October 28, 2013 at 3:44 pm

          Glad that you asked. Ginny
          Most large employers claim all employee inventions 24/7—as a condition of employment, but with no obligation to USE them! This missing obligation gives the employer awesome power to claim and then block any and all (unwanted) employee inventions (to keep employees focuses on assigned tasks ONLY)! How do new companies with all of their potential new employees, get started under these rules?

          To combat this wanton destruction of potential new business, new jobs and new taxes, we have introduced a “Use or Return” bill in the Minnesota legislature (SF 21). But the media has refused to expose either the problem or our proposed reform. So the legislature can’t be bothered with this “non issue”! WOW!

          SF 21 as written pertains to military veterans only (to help it pass - but we have lots of veterans). Our veterans are being denied their civil rights to creative freedom - one of the very freedoms they just risked life and limb defending! That is a despicable unpatriotic policy.

        To illustrate how powerful this reform could be, note the historic example of the fantastic Xerox copier. Chester Carlson invented the basic process in his kitchen on his own time (but under prevailing rules,  his employer already owned it)! Carlson assumed his employer would simply file it away and forget it, since he was producing auto parts and had no technology needed to develop it. So Carlson asked for a “release” of this invention so he could get it developed elsewhere. The demonstration of his crude apparatus requested by the employer produced absolutely terrible “copies” so his employer quickly released his invention as “worthless”. But once freed from the normal corporate strangulation of unwanted employee inventions, it spawned a huge $50 BILLION entirely new xerographic industry creating 500,000 (yes, a half-million) new jobs! (Wall Street Journal May 23,1989)  WOW Again!
          Try to imagine how many GOOD jobs might be created if we required employers to “Use or Return” all employee inventions! We don’t need many inventors to create a multitude of jobs—if we only give them the freedom to produce them! For more info call me; I am in the St. Paul book.

  • Dan says:

    October 28, 2013 at 11:12 am

    “Nonetheless, the budget approved during the 2013 session represents a return to Governor Anderson’s vision of government as a positive force for good, as informed state leaders increased public resources and directed those dollars toward policies that in the long-term will make Minnesota a more prosperous state and a better place to live.”

    It appears that there are going to be a lot of general fund dollars spent on the new Vikings stadium, contrary to what was promised.  That’s hundreds of millions of dollars that could have been spent far more wisely.  Instead, we’re left with a stadium that enriches the team owners while it puts going to a game, (and particularly buying season tickets), financially out of reach of most of us.  The stadium may provide some short term benefits to local businesses, but long term benefits are dubious.