MN2020

Minnesota 2020 Journal: Building on, not trapped by, tradition

Fri, 17 May 2013 11:00:48 +0000

By John Van Hecke, Executive Director & Fellow

Grain elevators and small towns go together like grain elevators and small towns. They’re inseparable. The one doesn’t exist without the other. What happens to the town when the grain elevator disappears?

The old Walnut Grove-Revere Farmers Elevator is coming down. It will shortly be a pile of wood shavings destined for poultry bedding. It’s an ignominious end to a structure that sustained my hometown. But, this isn’t a romantic reflection on an idyllic past. Even in death the elevator serves the agricultural cycle while highlighting the opportunity for rural economic development that builds on tradition but isn’t trapped by it.

Midwestern prairies hold some of the world’s best, most productive farm land. In the 19th century, this raw potential compelled development. Unlike fur trapping or mining, the agricultural cycle is more deliberate. It requires a growing season, capital and skilled labor to produce a marketable crop. Federal policy guided Midwestern development, creating a framework for railroad-based trade while simultaneously attracting the growers necessary to turn prairie grassland into corn and wheat fields.

Because the federal government controlled huge public lands east of the Mississippi, dating to the Louisiana Purchase, it was able to drive rapid growth and expansion. The 1862 Homestead Act incentivized family farm development. In return for farming and improving a 160-acre claim over five successive years, families received the land title. The policy worked brilliantly. As railroad tracks were laid, farms immediately followed.

Rural Minnesota towns weren’t developed willy-nilly. They were platted according to a land survey-developed formula calculating the distance from farm to town. Towns were service centers but, critically, they were railheads, an intermodal transfer hub for moving commodities from horse-drawn wagon to rail car and delivering supplies from rail to wagon to farm. The grain elevator was the physical manifestation of this exchange. It allowed for the short-term storage of grain, the first link in a market chain reaching around the world.

Grain elevators were built to last, the cutting edge technology of their day. Yet, what worked in the late 19th century is woefully inadequate a century later. Structural obsolescence prompted the Walnut Grove elevator tear-down decision but functional obsolescence arrived 25 years earlier. Recognizing the elevator’s practical deficiencies—too small, insufficient storage, antique equipment, trucks couldn’t enter a facility built for horse-drawn wagons—the local farmers coop built a new, much larger grain elevator between Walnut Grove and Revere. They sold the old elevator to an area farmer. He used it for off-farm grain storage until its limitations prompted tear-down.

Old elevators look cool. Along with the water tower, the elevator is a town’s tallest structure, towering over the prairie’s expanse. There’s a temptation to see an old grain elevator as a historic asset much as a dairy cooperative’s old stone creamery is renovated as a community facility or retail business space. It’s not that simple. As the old Walnut Grove elevator reveals, the structure is exhausted, literally and figuratively. There’s nothing worth saving at a reasonable cost. Building new, as the farmers coop did, is smarter, better and actually creates jobs.

Starting over today, no one would site a small town every seven miles because agriculture production’s scale has changed. While rural communities’ founding logic is immutable, their future is cloudy. The old elevator’s destruction reveals the economic development limitations of growing commodities and shipping them elsewhere for processing. Technological innovation constantly reduces the labor needed to grow and ship a bushel of corn. Take away enough people and small towns lose critical commercial mass. A gas station and convenience store on the highway doesn’t support a community like a grocery store, a bakery, a bank and a pharmacy supports it. Population decline drives away service businesses.

Rural communities still have, however, the assets that drove their creation. They have potential. They have productive land. And, they have people. But, this combination can’t serve a 19th century economic development vision. It must leverage assets, reward capital investment’s risk, and create value.

Rural Minnesota needs a new Homestead Act. No, it doesn’t need a land-giveaway to populate the countryside; that’s already happened. Rural Minnesota needs forward-looking, engaged public policy that sees rural communities as an asset for economic growth, not begrudgingly born cost.

Public dollars didn’t build the Farmers Coop grain elevator, private capital built it. Cooperatives didn’t exist when that elevator went up. They came later as farmers found cooperative means for improving individual productivity and profitability. The same is true, today. Growing rural Minnesota’s economy grows Minnesota’s economy. Grain elevators aren’t iconic images of Minnesota’s past. They’re examples of smart public policy investments. That’s a vision that moves Minnesota forward.

Reimagining Transit

Thu, 16 May 2013 11:00:41 +0000

By Conrad deFiebre, Transportation Fellow

What if public transit operated more like a membership organization than an inexpensive shared taxi service? And what if the riders themselves helped govern it?

David Levinson, a skeptic at the University of Minnesota on all things transportation, asks these interesting, if slightly off-the-wall, questions in a new post on his lively and often counterintuitive blog The Transportationist.

"Membership ... changes the perspective from being a customer to being a member if not owner of the system," he writes. "As a member of a club, I want there to be more members, as it helps spread the costs and raises money for the services provided. I become an advocate for the organizations I join."

In addition, Levinson says, transit systems could adopt the model of institutions like museums and zoos and allow free "admission" with a local pass across the country. They could sweeten the allure with goodies like tote bags, mugs, newsletters and even a vote on governance. But, he adds, "I cannot find an example of a transit system that organizes and treats its riders as members."

These musings followed his suggestion that transit systems should use price incentives to promote the sale of unlimited ridership passes over one-time fares. Metro Transit, for example, offers monthly passes ranging from $59 to $113.50 -- or the $76 full-service Metropass for groups of at least 10 riders -- but barely one in eight trips is paid for like that.

To boost this kind of "membership," Levinson says, transit systems should consider cutting pass prices and raising individual fares: "At a relatively lower price, more people would get a Metropass. Possessing a Metropass would induce me to make more trips by transit (since the marginal cost of use would now be zero) ... People pay for the option of not having to think about price."

As you can probably tell from some of his buzzwords ("induce," "marginal cost"), Levinson relies heavily on economic analysis in much of his work. His blog, headlined "Club Transit," riffs off an earlier blog he co-wrote that examines pros and cons for public transit subsidies from an economics perspective.

I'll spare you most of the dismal-science details there (it's all in the link), but Levinson and coauthor David King come down largely on the anti-subsidy side. "Systems should over time pay for their own operation and maintenance from usage-derived revenue," they argued. "Like other public utilities, transit can and should be able to cover its operating costs from user revenue."

Any subsidies, they say, should be directed to disadvantaged riders from non-transportation revenues. "Perhaps the biggest problem with current subsidies is that they are place-based and not people-based," they wrote. "Why should the entire system be subsidized? Why should a professor pay the same fare as students?"

Further, Levinson and King say transit's initial and recurring capital costs should come in the form of ongoing value capture from properties the system serves -- places like downtowns and the Mall of America. This is a woefully underused policy that Minnesota 2020 supports. A UofM study has suggested eight property-based mechanisms to implement it; Levinson and King offer a different one: a tax on wages at transit-heavy employment nodes. At Minnesota 2020, we'd rather tax capital than labor, but in reality there's little movement here toward any kind of value capture for either roads or transit.

Metro Transit spokesman John Siqveland declined to comment on most of the Levinson-King proposals, but he did note that all Twin Cities transit providers charge the same fares and honor ride passes, which is not always the case in other metropoltian areas. "It's a service to our riders," he said.

As for dreams of a nationwide "transit club," Siqveland added, "numerous political, financial and logistical challenges" stand in the way of linking hundreds, if not thousands, of independent transit agencies in a common fare and pass structure.

For that matter, totally unsubsidized transit is at least as far a reach, especially as long as driving remains supported with many more non-user taxes. "One bad subsidy does not deserve another," Levinson and King wrote. "Just because cars are subsidized is not a reason to subsidize transit. It is an argument to remove the subsidies that exist. Technically (if not politically) it would be relatively easy to charge cars for their full cost via higher fuel taxes (or mileage fees)."

Politically, we know how relatively un-easy that is, with new proof just the other day. But we could have a more productive conversation about how best to finance a multimodal transportation system if the conservative transit-bashers would just acknowledge all the government largesse for motorways.

VIDEO: Paying My Fair Share

Thu, 16 May 2013 11:00:28 +0000

By Tom Niemisto, Video Production Specialist

"I'm willing to pay my fair share!" Those words were repeated by Minnesotans in all income groups to a crowd gathered at the capitol rotunda this week, signaling that our current tax structure is not working to move Minnesota forward.

For too long, strategic investments have fallen to the wayside in the interest of no new taxes and short-term budget gimmicks. The Joint Religious Legislative Coalition, a founding partner of Invest in Minnesota, is calling for new policy that brings fairness back to the tax structure.

For more information go to InvestInMinnesota.org

When Single Industry Towns Work

Wed, 15 May 2013 11:00:06 +0000

By Agata Miszczyk, Undergraduate Research Fellow

Editor’s note: As Minnesota’s Iron Range and wood products regions have learned over generations, single-industry economic dependence can lead to unpredictable, unstable local job markets. However, there are places like Rochester where sector specialization or clustering creates thriving, sustainable local economies, especially around health care. Former Minnesota 2020 Undergraduate Research Fellow Agata Miszczyk explored this topic for her Macalester College honors thesis. Over the next few weeks, we’ll bring you relevant excerpts from that research as the Mayo Clinic embarks on its plans to become a destination medical center.

Mayo’s Indirect Economic Impacts
In the next decade, Rochester expects to see 1,800 new bio-tech jobs, according to John Wade, President of the Rochester Area Chamber of Commerce. Most, he predicts, will result from smaller, innovative, start-up companies influenced by Mayo. Economist and urban theorist, Richard Florida, also points out Rochester as a place of fast growth, specifically in the creative class sector, a term that refers to many professions, including healthcare.

In Florida’s book The Rise of the Creative Class, he forecasts Rochester’s growth to be much higher than in cities such as Chicago or Los Angeles. Based on Minnesota Department of Employment and Economic Development (DEED) data, such a prediction is realistic. DEED estimates health care practitioner jobs could grow by 4,500 in the Rochester region. This would coincide with a proposed multi-billion dollar construction plan that will add thousands of direct hospital jobs and attract thousands of more patients from outside Minnesota.This will have a ripple effect on the wider Rochester area, creating a need for industries and services, including those in lodging.

Rochester welcomes 2.75 million visitors annually, 763,000 of which are patients and their families. The city has a very high number of hotel rooms for a town with 106,769 people (U.S. Census). As of July 2012, Rochester had 5,362 hotel rooms, according to a Post-Bulletin article, second to only Minneapolis. Such demand puts the average Rochester hotel room price at $95, much higher than other greater Minnesota cities. In June of 2012, Rochester hotels were running a 68% occupancy rate. Rochester houses specialty hotels usually not available in a city its size, including many extended-stay hotels, catering to patients with a long treatment time, and some high-end options.

Bruce Rohde of Facility Project Services at Mayo says that the Mayo Clinic does not partner with any private or corporate business in offering patient services that Mayo does not provide, such as accommodation. However, when Mayo sees a need for something they often bring this up to the City. Recently, patients illustrated a need for more high-end accommodations. The Kahler Grand Hotel in downtown Rochester responded by creating penthouses and suites on the top two floors.

Since Mayo patients spur much of Rochester’s lodging industry, many hotels provide shuttles to and from Mayo Clinic buildings, eliminating the need for some patients to rent cars.

As long as Rochester is predicted to grow, hotel development will continue to try to stay ahead of the demand, says Brad Jones, president of the Rochester Convention and Visitor Bureau.

Aside from industries geared towards patient and employee support, Mayo fuels many spinoff ventures.

“Having the Mayo Clinic, IBM, and now the University of Minnesota all located…[in Rochester] has spawned numerous businesses that want to take advantage of the opportunity to be close to global leaders in healthcare and technology. The Minnesota Partnership for the biotechnology and Medical Genomics is an economic development venture between the Mayo Clinic, University of Minnesota, and the State of Minnesota,” according to Olmsted County’s 2010 Comprehensive Annual Financial Report.

Numerous “spinoff” businesses have been started as consequence of the healthcare industry monopoly in Rochester.

Making Sense of State Business Climate Reports

Wed, 15 May 2013 11:00:02 +0000

By Lee Egerstrom, Economic Development Fellow

No need to jump for joy or hunker in despair, but Minnesota either has the fourth best business climate among states in America, or the fifth worst business climate.

These wildly contradictory findings are revealed in a new study, Grading Places: What Do the Business Climate Rankings Really Tell Us?, issued by the Good Jobs First non-profit, non-partisan research organization in Washington, D.C.

Economist Peter Fisher compares data and known methodologies from several state business climate reports and called them “politicized grab-bags of data.” As such, Good Jobs said, these alleged studies have no “predictive value” and shouldn’t be used in public policy formation. While the studies they analyzed set out to collect a wide range of data, they typically boil down to a limited number of tax-related metrics.

States that attempt to make tax systems more progressive, or generally more equitable, are always attacked as anti-business, anti-jobs, anti-family or anti-anything that might resonant better with the public than anti-tax haven.

As if on cue, the (anti) Tax Foundation group in Washington issued yet another state business tax climate report on the same day Good Jobs First announced its finding, intentionally for political purposes and unintentionally for what it also revealed.

First, it identified the 10 worst states in its skewed index that included Maryland, Iowa, Wisconsin, North Carolina, Minnesota, Rhode Island, Vermont, and, in the bottom three positions, California, New Jersey and New York. The 10 best states on its index included Wyoming, South Dakota, Nevada, Alaska, Florida, Washington, New Hampshire, Montana, Texas and Utah.

With a few exceptions that can be attributed to microeconomic factors, what the tax group shows is a linkage between taxes and where businesses want to locate and where people want to live. The “bad” business climate states in general have businesses and people; the “good” business climate states tend to be remote, under-developed states or have resource or other variables that make them anomalies.

There is an undeniable linkage between taxes and the infrastructure and amenities that support business success and quality of life, said Alex Marshal, senior fellow with the Regional Plan Association think-tank in New York. “Businesses go where there is infrastructure and where people want to live,” he said.

That point is driven home in several chapters of his book, The Surprising Design of Market Economies, published by University of Texas Press in the past year. It focuses on the importance of infrastructure.

Measures of such pro-business and pro-quality of life factors are not included in most state business climate rankings.

In releasing the Good Jobs critique, Fisher said his researchers found significant and elementary errors. “We found effects presented as causes,” he said. “We found factors that have no empirically proven relationship to economic growth. And we found scores that ignore major differences among state tax systems.”

Again, ideological organizations selectively use data to produce desired results. The study found Massachusetts ranks No. 1 in one index, 38th in another; Alabama drags in as 49th in one index, 7th in another; and Alaska varies from 4th in one list, 38th in another. As a result, Fisher discovered, 22 states “can brag they are in the top 10” while business lobbyists seeking business tax cuts can claim 24 states are in the bottom 10 for worst business climates.

Representative of this disparity, Minnesota ranks 4th, 10th, 13th, 18th, 35th, 35th, 39th, 40th and 45th on nine different ranking systems. As Good Jobs First said at the beginning of its report, that doesn’t shed helpful light on real business climate conditions.

Kevin Ristau, education director for the Jobs Now Coalition in Minnesota (not related to Good Jobs First), said measures of business conditions are influenced by demographics, uniqueness of business mix, resources and other factors. Even comparisons of basic measures such as state unemployment data can be misleading.

The U.S. Bureau of Labor Statistics shows Minnesota with has one of the lowest unemployment rates in the nation, at 5.4 percent – a drop of 0.3 percent from March a year ago. Texas, for comparison, was at a higher 6.4 percent; Wisconsin was a 7.1 percent, South Carolina was at 8.4 percent, and North Carolina—another state that has battled labor’s rights to organize—had March unemployment at 9.2 percent.

The neighboring Dakotas are anomalies given boom times in North Dakota with the Bakken energy fields, the chronically unemployed not being counted on South Dakota Indian reservations, and continuing out-migration from many rural counties.

What’s more, Ristau said, “Unemployment data count jobs as if all jobs are equal. They aren’t.”

In March, he said, data from the Minnesota Department of Employment and Economic Development (DEED) showed Minnesota job openings were up 127 percent in three years. However, job seekers still outnumbered full-time job openings by four-to-one.

A fourth of all openings were in two industry sectors. Retail trade accounted for 183 percent and hospitality (accommodation and food services) accounted for 224 percent of opening growth in the three-year comparison. The median wage for these two sectors was $8.31 per hour. Cost of Living research shows both parents in a family of four would need to earn $14.03 per hour to meet basic family needs.

This is why Jobs Now and its religious, nonprofit and community organization allies promote increasing the minimum wage law in Minnesota. It is also why lawmakers and people of conscience should carefully examine reports from interest groups on how data is assembled, how it skews results, and if it reveals anything of social or economic importance.

It isn’t enough to ask what the numbers say. We need to know what the numbers mean. Good Jobs First researchers show the latter can mean anything.

State Business Property Tax Revisions

Tue, 14 May 2013 12:06:36 +0000

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

While the Governor and legislative leaders have worked out the broad outline of a budget deal, many important details have yet to be resolved. One of the decisions that the House-Senate Tax Conference Committee has yet to make involves the fate of the proposed expansion of the state business property tax in the Senate omnibus tax bill.

The Legislature and Governor Ventura enacted the state business property tax in 2001 as part of large scale changes to Minnesota’s property tax system. As part of the 2001 tax act, the share of local property taxes borne by businesses was reduced, while the share borne by residential property and most other classes of non-business property was increased. In addition, the K-12 general education property tax levy was eliminated and replaced with dollars from the state general fund.

The decrease in the share of local property taxes borne by businesses combined with the elimination of the general education property tax provided a massive reduction in business property taxes. To offset this windfall of property tax relief—and to generate additional general fund revenue to help pay for general education*—state policymakers enacted a state business property tax. On a statewide basis, business property was taxed at a uniform rate calculated by dividing the state business property tax levy, which is set in statute, by Minnesota’s total business tax base.†

During the first year of implementation (2002), the business portion of the state property tax was approximately $560 million. In subsequent years, the levy was adjusted for inflation based on the Implicit Price Deflator for State and Local Government Purchases.

Over time, the state business property tax has turned out to be a pretty good deal for Minnesota business. The portion of business property taxes paid to the state was insulated from the effects of the aid reductions that were driving local property taxes upward over the last decade. In addition, while the business levy was adjusted upward each year due to inflation, it was insulated from the increase in public costs driven by population growth. The graph below shows the percentage change in real per capita business property taxes in Minnesota relative to combined residential and apartment property taxes from 2002 to 2013.

Since 2009, business property taxes have increased relative to residential property taxes as a larger share of the tax shifted on to businesses due to a much less rapid decline in business values. Nonetheless, over the entire span of the last eleven years from 2002 to 2013, real per capita business property taxes have grown by only 1.5 percent, compared to 23 percent for residential and apartment properties. The relatively slow growth in business property taxes is in large part due to the nearly nine percent real per capita decline in the state business property tax levy.

The Senate tax bill attempts to capture additional revenue from the state business property tax by increasing the business property tax rate to what it was in 2002—the first year of the state property tax levy. In future years, the rate would continue to be frozen at the 2002 level. This change is projected to generate $49.7 billion in additional revenue in state fiscal year (FY) 2014 and $93.9 million in FY 2015.‡

While the Senate tax bill would allow the state to generate additional revenue through the state business property tax, it is not necessarily doing so in the most efficient manner. A frozen tax rate makes sense for the income tax because the ability to pay taxes increases as income increases. A frozen rate also makes sense for the sales tax because an increase or decrease in tax revenue will be associated with increased or decreased economic activity in the form of consumption of taxable goods. However, the same logic does not apply to ad valorem property taxation. A change in property value is not necessarily associated with a change in either the ability to pay or economic activity.

Typically, property tax rates are not frozen. Rather, the jurisdiction levying the property tax determines the amount of revenue that it needs. This amount is then divided by the known value of taxable property within the jurisdiction to determine a rate. This rate, when multiplied by taxable property value, generates the amount of revenue specified by the jurisdiction.

However, this is not the case when the property tax rate is frozen; a frozen rate will generate less revenue when values decline and more when values increase—although the change in revenue generated will not necessarily be linked to the ability to pay, the level of economic activity, or the jurisdiction’s need for revenue. In short, the principal advantage of the property tax—predictability—is undermined when the rate is frozen.

Rather than freezing the state business property tax rate, policymakers should consider an alternative: adding a population growth adjustment to the existing inflation adjustment to the state business property tax levy. Adding a population adjustment would allow the state levy to grow so as to keep pace with the increased need for state services associated population growth.

A population growth adjustment to the state business property tax levy retroactive to the year of the tax’s implementation—2002—would generate nearly as much revenue as the Senate’s frozen rate in the short term and provide greater revenue predictability in the long-term, while at the same time doing a better job of linking future growth in the levy to the demand for public services.

Due to the real per capita decline in the state business property tax levy over time, the Senate was prudent to include changes to this levy in its omnibus tax bill. However, the goals of predictability and future revenue adequacy could be better served by further adjusting the levy for population growth rather than by simply freezing the tax rate.

*The revenue generated by the state property tax is not formally dedicated to paying for K-12 general education. Nonetheless, the state takeover of general education funding resulted in a significant new general fund cost that the state property tax helps to offset.

†Actually, during the first four years of the state property tax (tax payable years 2002 to 2005), businesses and seasonal recreational property were part of the same tax base and taxed at the same tax rate, calculated by dividing the total state property tax levy by the combined tax base of business and seasonal-recreational property. Beginning with taxes payable in 2006, the business and seasonal-recreational portions of the state property tax were separated into two distinct levies, each with a distinct tax rate; since 2006, the state business property tax rate has been equal to the business share of the state property tax levy divided by statewide business tax base.

‡The amount of new revenue generated in the first fiscal year—FY 2014—is significantly less than the amount generated in FY 2015 and subsequent years because only the first of the two calendar year 2014 property tax payments are included in the state’s 2014 fiscal year. (Fiscal year 2014 begins on July 1, 2013—six months before calendar year 2014.) Not included in these amounts is the additional revenue that the Senate tax bill would generate by imposing the state business property tax on public utility electrical generation equipment; this class of property is currently exempt from the state business property tax. By expanding the state business property tax to include electrical generation machinery, the Senate tax bill is projected to generate another $11.3 million in FY 2014 and $20.8 million in FY 2015.

Tuesday Talk: How will marriage equity make MN more competitive?

Tue, 14 May 2013 10:30:08 +0000

By Joe Sheeran, Communications Director

It appears Minnesota will make history by recognizing same sex marriages, a policy in which the state has trailed the private sector. Many Minnesota companies have been offering same-sex benefits for a generation, feeling it will help them attracts the best and brightest workforce.

From an economic policy standpoint, how will marriage equity make Minnesota a more competitive state?

National Perspective on MN Test Score Gap

Mon, 13 May 2013 11:00:16 +0000

By Caroline Hooper, Guest Commentary

Many education reformers seems to believe, and are certainly content to let the public believe that “…we have the worst education outcomes for children of color in the COUNTRY, in particular for Black children,” as one MinnPost reader recently commented. That is untrue. If it were true, it would be damning, but it simply isn’t true. Using recent National Assessment of Educational Progress (NAEP) test scores paint a different picture.

NAEP exams are one of the few tools that can be used to compare students across the country because students take the same tests at the same time. Using state level exams and tests, or even graduation rates do not provide reliable comparisons. States design their own state level exams and the definition of graduation rate differs from one state to the next, indeed from one school district to the next.

According to the most recent NAEP scores, fourth grade Black students in Minnesota outperform the national average for all Black students in both math and science. In reading, Black students in Minnesota score below the national average for all Black students, but by 8th grade that difference virtually disappears.

Furthermore, 8th grade Black students in Minnesota exceed the national average for all Black students in math and science too. That sure doesn’t seem like the “worst education outcomes for children of color in the COUNTRY, in particular for Black children.” Instead, it seems that Black children in Minnesota generally outperform their counterparts in other states, at least in terms of NAEP scores.

It is true that the test score gap is larger in Minnesota than the national average test score gap, but consider that white students in Minnesota generally score well above the national average for white students in all but one of the aforementioned areas. Still, this test score gap is a cause for concern and should unite Minnesotans in attempting to address and resolve it. That is difficult to do, however in the current climate where teachers are vilified and insulted, where rah-rah reformers bash teachers and trash schools.

Steve Perry, a Connecticut education reformer, recently came to town as part of a series of speakers connected to the RESET education reform movement campaign. Perry claims some pretty dubious stats from his rather selective magnet school. This leads to questions about computing graduation and dropout rates. I wonder how Steve Perry claims a 100% graduation rate while the fact is that many students “drop-out” of his school.

Measuring and comparing graduation rates is not as straightforward as one might imagine. When does a school begin a cohort—kindergarten, ninth grade, or tenth grade? Maybe later? Do we count kids with disabilities or recent immigrant who may have more time to finish? Do we count kids that transfer schools, withdraw, move? Graduation rates, as reported by individual states, are inconsistent to say the least.

Published in 2013, the Building a Grad Nation report is an in-depth analysis of graduation rates that attempts to control for the fact that states compute graduation rates differently. The Grad Nation report puts Minnesota in the solid center with a graduation rate of nearly 77%. The report does show an unusually large 35 point gap between the graduation rate for White and Black students, yet further on the report concludes that Minnesota is in the top ten of states in reducing the gap between Black and White students from 2003-2010.

It seems to me that while we should all be concerned about making sure that all students recognize the value of their education and achieve at high levels, we need also to have an honest discussion. Black students do not do worse in Minnesota. In fact, Black students do better here (at least according to the NAEP scores) than in most other states.

Instead of seeking to vilify teachers, destroy schools and fracture communities, reformers should get real about the issues and work for solutions instead of scoring political points.

Caroline Hooper is a Minneapolis high school teacher.

VIDEO: She’s an Entrepreneur

Mon, 13 May 2013 11:00:13 +0000

By Tom Niemisto, Video Production Specialist

The economic crash turned a lot of laid off workers into small business owners, especially women. What was a hobby making crafts or free professional help for a friend became cash for bills. Along the way, Minnesota's Department of Employment and Economic Development has helped some of these small business ventures thrive. However, more public policy work is needed.

We stopped in at WomenVenture, who facilitates DEED business programs, for its Spring Showcase where entrepreneurs shared policy ideas that could enable growth and foster local economic development.

Minnesota 2020 Journal: Conservatives’ Pizza Problem

Fri, 10 May 2013 11:00:22 +0000

By John Van Hecke, Executive Director & Fellow

Conservative policy activists have a problem. Minnesota is rejecting conservative policy prescriptions. Their policy product fails to deliver on its promise of a better life through fewer, lower taxes and a lot less government. Conservative activists are divided over the problem’s source. One side blames persuasion mechanics while the other blames tactics. Neither side believes that conservative policy might be their obstacle.

A pizza business case study, parallels the conservative policy quandary. Is the problem with the pizza or is the problem with the pizza box? Applied to conservative public policy, that roughly translates as which is failing, conservative policies or conservative messaging?

Domino’s Pizza started as a single Ypsilanti, Michigan, pizza joint called DomiNick’s. A timely purchase and renaming, combined with a desire to sell more pizza than greater Ypsilanti could consume set Domino’s on the road to national success through home-delivered pizza dominance.

Domino’s Pizza eliminated the dine-in option, a staple for many local pizza joints, focusing on producing and rapidly delivering restaurant-quality pizzas. Customer satisfaction keyed on ordering interface and speedy product delivery. But, as Domino’s eventually learned, a barely adequate product, even with outstanding delivery, can’t dominate the pizza business.

For much of its history, Domino’s understood that it produced average pizzas but, in the home-delivered pizza game, so did everyone else. As long as Domino’s delivered its adequate pizzas faster and in better, hotter condition than its competitors, low to modest quality wasn’t a concern. The pizza world, however, doesn’t stand still. The large, undifferentiated pizza business became increasingly segmented as competitors developed profitable niche sectors. Although it was a dominant industry player, Domino’s Pizza was being nibbled to death.

After closely examining customer service, delivery and marketing strategies, Domino’s Pizza realized that their adequate pizza was inadequate. The problem wasn’t their pizza box but with the pizza itself. To maintain profitability and market share, Domino’s needed a better pizza. So, they created one but that step didn’t solve their public perception problem. People assumed that “new and improved” meant “more of the same,” essentially discounting and discarding the company’s efforts. To overcome this barrier, Domino’s had to change the way that people understood Domino’s.

The campaign turned their liability into an asset. First, Domino’s “owned” their problem. Yes, they said, repeatedly, using a great deal of advertising money, we were making mediocre pizza. Now, we’ve changed; taste and see for yourself. Within their market, the strategy worked. Domino’s reversed its slide. But, what about conservative policy activists?

The conservative policy problem isn’t a simple as needing a better adequate pizza. I’m intrigued by conservative debate regarding self-perception. The choices range from tentatively suggesting moderation to doubling down on orthodoxy. Still, few conservatives doubt the appeal of limited government and no new taxes. Rather than examine policy performance metrics, conservative policy advocates continue pushing forward on faith alone.

Let’s apply the Domino’s lesson. Policy is the pizza. Good pizza satisfies the consumer just as good policy delivers widely-understood public outcomes. Law enforcement response times, library hours, road conditions and the entire host of public services color people’s perception of government success. Declining services and shifting reliance on the local property tax base to support lower effective tax rates on Minnesota’s highest income earners tends to undermine conservative policy success definitions.

That growing policy disconnect reflects fundamental policy flaws, not marketing problems. “Limited government” is increasingly revealed as limited government for some but not others. “No new taxes” means lowering state income tax while raising local property taxes. Public benefits accruing to fewer, wealthier people sit poorly with middle and low income earners.

The real problem lies with conservative public policy, not with its marketing. Delivery must match promise. Tax policy that asks more of Minnesota’s majority while returning less yet asks less of Minnesota’s top two percent of income earners while returning more is unsustainable. The problem is the pizza, not the box.

VIDEO: Citizen Water Testers in Action

Thu, 09 May 2013 11:00:23 +0000

By Tom Niemisto, Video Production Specialist

The 1972 Clean Water Act requires states to monitor river and lake health by measuring and reporting basic environmental data. That's quite a challenge in the land of 10,000 lakes, so every year the Minnesota Pollution Control Agency recruits volunteers to help monitor water quality.

As Laurie Sovell of the MPCA says, we all live down stream from somebody, and Minnesota needs to be a leader in keeping water quality at its best.

Senate Proposes Repealing Flawed Sales Tax Policy

Thu, 09 May 2013 11:00:11 +0000

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

During the 1992 legislative session, state policymakers were struggling to find a way to balance the state budget. One of the solutions was requiring non-school local governments to pay the state sales tax on all purchases. This solution was politically shrewd, but failed the smell test of good public policy. Fortunately, the Senate omnibus tax bill—Senate File (SF) 552—makes progress toward cleaning up the state’s tax system by repealing this flawed bit of tax policy.

The sales tax on local governments enabled the state to generate tax revenue without directly increasing the tax on Minnesota citizens. Instead, it imposed a new cost on local governments, thereby requiring them to increase taxes on their residents; the cost of the state sales tax on local government purchases most likely translated into higher property taxes. State government gets additional revenue, while local governments get blamed for raising property taxes.

However, the very feature of the state sales tax on local government purchases that made it appealing to state elected officials is the same feature that makes it bad tax policy. Transparency and accountability are undermined when one level of government is able to shift it costs to another level of government.

Some may argue that payments of state aid to local governments are also bad tax policy for the same reason: one level of government is collecting the revenue while another level is doing the spending. However, state aid to counties and cities—such as County Program Aid and city Local Government Aid—are different from the sales tax on local government purchases in at least three important regards:

State aid payments to local governments satisfy an important public need by helping all counties and cities provide necessary public services at affordable tax rates. The aid payments are based on each city’s need for revenue and their ability to generate revenue locally from their own tax base. In this way, aid payments are targeted to where they are most needed.* State aid payments help to make Minnesota’s tax system less regressive by reducing dependence on regressive property taxes and increasing dependence on state general fund revenue which are—in aggregate—much more progressive than local property taxes. Minnesota’s tax system would be more regressive than it already is without the state aid system. State aid payments are overt. The policy behind state aid payments is openly debated in the Legislature and the criteria on which payments are based are clearly defined in statute. Furthermore, the amount of aid that is paid to each local government is clearly listed.

Contrast this with the state sales tax on local government purchases. The only policy goal served is to generate revenue to pay for state services—and this could be done far more transparently by simply increasing a state tax. Furthermore, the state sales tax on local governments probably increases the overall regressivity of Minnesota’s state and local tax system through higher property taxes. Finally, the state sales tax on local governments is anything but overt; the policy is rarely debated openly and no one knows for sure exactly how much revenue is transferred each year from each Minnesota city and county to state government via the sales tax payment.

The League of Minnesota Cities and the Association of Minnesota Counties have long called for the repeal of the state sales tax on local government purchases. Numerous bills to repeal this tax have been introduced over the last twenty years; however, due to a scarcity of state revenue and the reluctance to increase state taxes, state policymakers were content to leave the sales tax on Minnesota counties and cities in place.†

Kudos to the Minnesota Senate for repealing this hidden tax in its omnibus tax bill,‡ which will reduce county and city costs by over $100 million annually. As the failed “no new tax” agenda loses its grip on the Minnesota legislature, bad tax policies like the state sales tax on local government purchases may finally be repealed during the 2013 legislative session.

*The new city Local Government Aid formula contained in both the House and Senate omnibus tax bills reforms the LGA program and does a better job of targeting state aid dollars.

†When it was imposed in 1992, the sales tax on non-school local governments was imposed on counties, cities, and townships. The state sales tax on township purchases was previously repealed. The tax on counties and cities remains in place.

‡In some instances, local governments provide goods and services that are also provided by private businesses, such as golf courses, campgrounds, and liquor stores. The sales tax exemption for local government purchases in the Senate tax bill does not extend to purchases that are inputs to goods and services that are generally provided by a private business. This was done so that local governments do not have an unfair pricing advantage relative to private businesses that are providing similar services. County and city organizations have no objection to this provision.

Shifting Power in the Energy Debate

Wed, 08 May 2013 11:00:52 +0000

By Alice Madden, Macalester College

This is the final installment of Minnesota 2020's series of environmental policy op-eds from Macalester College students. We hope you enjoyed this collaboration with Macalester College's Environmental Studies Department.

At the end of 2014, the City of Minneapolis has a big decision to make about its franchise agreements with the city’s two main power providers, Xcel and CenterPoint. These two 20-year contracts will expire, giving the city three major paths: 1) renew contracts with Xcel and CenterPoint; 2) renegotiate the contracts to include substantive commitments to affordable, clean, and local energy; or 3) drop Xcel and CenterPoint and form a Municipal Utility District (MUD) controlled by the city instead of large corporations.

Franchise agreements give these companies the right to use public space—streets, alleys, etc—to run distribution lines for energy services in exchange for roughly 3-5% of gross revenues depending on the customer class (i.e. commercial residential, industrial).

Renegotiation does have the possibility of achieving formalized commitments to affordability, renewable energy, and emissions reduction. But without significant leverage the city’s energy needs are merely requests—not requirements. Currently under state law, the city has exceedingly limited authority to impose targets for renewable sources or conservation on energy suppliers—so in essence there can be strong recommendations or goals, but they’re not binding.

The city is pursuing state legislation to expand flexibility and clout in franchise negotiations to ensure the next generation of local energy policy reflects citizens’ priorities.

The option to municipalize may seem attractive. And there are a number of similarly situated models on which to build a municipally owned utility, including Rochester, Minnesota. In fact municipal utility districts (MUD) supply one in seven Americans today, which unlike Investor Owned Utilities (IOUs) have no shareholders, limited tax burdens, and increased local flexibility to determine where and how their energy is produced.

Municipalization should be initiated with caution, of course, as it can have serious upfront costs. Acquiring and financing the takeover of existing energy distribution system (poles, wires, etc); as well as developing a management group to govern the MUD and monitor energy market volatility are two critical and challenging parts of this transition process.

Boulder, Colorado—client of Xcel and prospective MUD owner—will be a city to watch. Two years ago voters backed a measure to break away from Xcel and move toward municipalization. After Xcel remained relatively unresponsive to their requests for clean energy commitments, the city initiated an extensive process to research the feasibility and competitiveness of forming a MUD in Boulder. Xcel spent an impressive $1 million to campaign against the Boulder’s ballot measure for a municipal utility, and has spent another several hundred thousand dollars in to defeat a series of MUD ballot measures in that city as well.

Boulder’s final report on municipalization seems optimistic. According to the Boulder Daily Camera, the final report found that an MUD could offer lower rates, maintain or exceed current levels of reliability, reduce GHG emissions by more than 50%, and get 54% or more of its power from renewable resources.

There are a number of challenges and background studies to be completed before we consider the municipalization option. In the meantime, Minneapolis and other municipalities should continue working with state policymakers to allow cities more authority when negotiating with utilities to “progress towards… goals for sustainable energy, improved air quality, equity, and green jobs.”

Between now and the time these franchise agreements expire, you can do your part by learning more about the efforts in Minneapolis for greener more sustainable energy. Once you know the facts, get involved by connecting with city and state policymakers to ensure municipalities have the most leverage necessary in negotiating with utilities.

The Merits of Senate’s Sales Tax Reform

Wed, 08 May 2013 11:00:27 +0000

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

For over a year leading up to the 2013 legislative session, State Revenue Commissioner Myron Frans was touring the state making the case for tax reform. One of the Commissioner’s principal pitches was for the need to reform Minnesota’s sales tax. The Senate omnibus tax bill—Senate File (SF) 552—takes up the mantle of sales tax reform.

The sales tax in Minnesota is applied almost exclusively to goods, while nearly all services are exempt. This creates a problem in terms of state revenue collections, because consumer services are increasing as a percentage of all consumer purchases, while consumer goods are decreasing. This point is illustrated in the graph below, which is taken from Commissioner Frans’ tax reform presentation.

In 1950, the sale of goods comprised 61 percent of consumer purchases, while services comprised 39 percent. Over time, the relative position of goods versus services gradually shifted. By 2010, goods comprised just 33 percent of consumer purchases, while services had grown to 67 percent. By taxing goods to the near exclusion of services, Minnesota’s sales tax collections are linked to the shrinking segment of consumer purchases, thereby contributing to the decline in sales tax revenue.*

To rectify this problem, Governor Dayton’s original budget released last January proposed expanding the state’s sales tax base to include a wide variety of services, as well as items of clothing in excess of $100. This broadening of the sales tax base coincided with a reduction of the state’s sales tax rate from 6.875 percent to 5.5 percent. With one notable exception, the Governor’s original proposal did exactly what economists recommend: broaden the sales tax base and lower the tax rate. Broadening the sales tax base and lowering the rate adds stability to revenue collections and makes the tax system fairer by treating all purchases similarly.

However, the Governor’s original budget also did one thing that economists do not recommend: it taxed business-to-business (B2B) transactions. While economists generally favor expanding the sales tax to consumer services, they are reticent about expanding the tax to B2B transactions. By applying a sales tax to each business transaction, the tax load “pyramids” or accumulates with each transaction. In response to criticisms, the Governor removed all major sales tax changes from his revised budget, including both the B2B sales provisions (which economists do not like) and the tax on consumer services and the rate reduction (which economists do like).

The Minnesota Senate has resurrected the concept of sales tax base broadening, but without the unpopular and undesirable tax on B2B sales. A partial list of the items that would be subject to the sales tax under the Senate proposal includes:

Personal services, such as tattoos, piercings, haircuts, spa services, event planning, personal shopping, personal concierge services, etc. Repair labor for farm machinery, motor vehicles, and other tangible personal property Admission to exhibitions Digital products, direct satellite services, and digital video recording services Over the counter drugs Clothing Goods purchased on-line through retailers that have Minnesota-based affiliates.†

The Senate tax proposal also reduces the sales tax rate from 6.875 percent to 6.0 percent. In addition, the Senate tax proposal includes a clothing sales tax credit for eligible filers of $60 for a married couple, $30 for all other filers, $30 for the first dependent claimed, and a reduced amount for subsequent dependents.‡ The credit phases-out for households with incomes in excess of two times the federal poverty guideline.

The standard rap against the sales tax is that it is regressive. However, the sales tax base expansion in the Senate tax bill—combined with the rate reduction, the new credit, and other changes—is revenue neutral. Thus, the sales tax provisions of the Senate tax bill should do nothing to make Minnesota’s tax system more regressive. In fact, after taking into account the clothing credit which directs tax relief to low-income households, the sales tax provisions of the Senate tax bill may make Minnesota’s sales tax and overall tax system less regressive than it currently is. Combined with the income tax provisions in the Senate bill, the overall impact of the Senate tax bill is undoubtedly progressive.

The Senate omnibus tax bill reinserts needed sales tax reforms into the 2013 tax discussion. These reforms would broaden the sales tax base, stabilize state revenue collections, and reduce the state sales tax rate—all without increasing (and possibly reducing) the regressivity of Minnesota’s sales tax. For these reasons, the sales tax provisions of the Senate tax bill deserve serious consideration during the final weeks of the 2013 legislative session.

*Other the last decade, state sales tax collections have declined in inflation-adjusted dollars per capita and as a percentage of total state tax revenue. This decline occurred despite an increase in the state sales tax rate from 6.5 percent to 6.875 percent as a result of the Legacy Amendment to the state’s constitution approved in 2008.

†This provision, referred to as “affiliate nexus,” is also part of the Governor’s revised budget and the House omnibus tax bill, House File (HF) 677.

‡Assuming a sales tax rate of 6.0 percent, a credit of $30 would be sufficient to offset the state sales tax on $500 of clothing purchases annually.

Tuesday Talk: Moving MN toward zero waste?

Tue, 07 May 2013 11:00:41 +0000

By Joe Sheeran, Communications Director

Recycling in Minneapolis is getting a whole lot more convenient. The city is distributing big blue single-sort recycling bins, hoping the near effortless system will improve dismal recycling rates. Eureka Recycling—operating mostly in Ramsey County communities—is considering single-source and composting options. Check out what your community is doing at Recycle More Minnesota’s website. Despite all of these efforts, we’re still a long way off from Zero waste.

What are the barriers and opportunities in your community to expanding recycling, composting, and other initiatives that moves us closer to zero waste?

Time to Strengthen Next Generation Energy Act

Tue, 07 May 2013 11:00:05 +0000

By Yingxin Ye, Undergraduate Research Fellow

Rising global energy demand, paired with declining costs for renewable energy technology, make now a good time to seriously consider expanding Minnesota’s renewable energy standards (RES).

Bloomberg New Energy Finance reports lower prices for renewable energy could lead to three times more investment in the industry. In addition, the United Nation’s International Energy Agency (IEA) forecasts global energy demand, driven primarily by population and economic growth in developing nations, will rise by over 50 percent between 2010 and the year 2030.

Minnesota has no coal, natural gas, or oil to offset global demand. Even if we did, it wouldn’t drive down our costs much because these resources are typically priced for a global market. We do, however, have a natural hedge against rising demand that wouldn’t be impacted by global pricing: wind and the sun.

Minnesota is already on a good path toward more energy independence, but could perhaps be doing more. The 2007 Next Generation Energy Act set an RES for Minnesota utilities of 25 percent renewable by 2025 (30% by 2020 for Xcel Energy). Now that some utilities are on pace to exceed that goal, a broad coalition of faith, labor and environmental organizations are calling for an expanded RES of 40 percent renewable by 2030. Current Minnesota House legislation offers the most aggressive RES path.

A diversified energy portfolio can make certain there is a more resilient supply and more stable price for energy in Minnesota. Currently, more than 50% of Minnesota’s energy is generated by coal, and there is also an overreliance on the potential for natural gas. These fuels volatile pricing will contribute to further unstable energy costs, which makes Minnesota’s overall economic forecasting even more difficult. This answer lies in a moderated but stable price, not rock-bottom pricing with volatile swings. Thus, Minnesota needs a more diversified energy portfolio to keep our state economy healthy.

Solar power, for instances, matches the peak energy demand in daytime. That’s why it’s critical Minnesota also include an increased solar standard in RES legislation, which the House plan does by calling for solar to account for four percent of renewables. “Adopting more solar renewable energy and improving battery technology could be long-term solutions for the problem of renewable energy,” suggests Minnesota 2020 Fellow Salman Mitha. Battery technology is important because, according to Xcel energy, high demand times stretch into early evening, when the sun isn't as strong and Minnesota’s most readily available renewable source, wind, generates less juice.*

Together with solar power, wind energy can provide a stable energy supply to the market. “Improving electricity storage is one of the most critical problems needed to be overcome by the renewable industry,” says Mitha.

Increased standards should work to ramp up research and development and investment in Minnesota’s green energy industry, which saw an initial boost with the 2007 Next Generation Energy Act.

More than 100 companies, spread across a dozen Minnesota counties, are involved in the wind-related supply chain. More than 30 counties, most rural, have active wind farms or evolving projects.

Although Minnesota slipped to seventh in the wind power industry rankings, it is still one of the nation’s wind energy leaders. Minnesota should build on this success by creating a wider energy portfolio.

When it comes to solar energy, $1 million invested can create up to 14 jobs, according to the Political Economy Research Institute at the University of Massachusetts. Wind and solar also offer relatively quick turnaround from planning to operation, lasting several months to a few years compared with “coal, nuclear, and even natural gas energy generation projects [that] take 5 to 10 years from initial proposal to the point where a shovel finally hits the ground,” according to Solar MN, an industry group with broad environmental community support.

A diversified energy portfolio is not just a smaller carbon footprint, but also more sustainable from an economic perspective. It’s time to take advantage of this growing and quickly evolving sector.

*An earlier version of this story suggested that Minnesota energy demand is highest at night. The updated version more accurately reflects that high energy demand stretches from the afternoon into evening.

Senate Income Tax Increase Doesn’t Hit the Middle-Class

Mon, 06 May 2013 11:00:29 +0000

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

Like Governor Dayton’s proposal and the House tax bill, the Senate's a tax bill—Senate File (SF) 552—contains a significant income tax increase. The Senate tax bill extends further down the income ladder than the House's and Governor's proposals, but stops well short of affecting middle-class families.

Minnesota’s current income tax has three tiers:

The first tier consists of taxable income up to $35,840 and is taxed at a rate of 5.35 percent. The second tier consists of taxable income from $35,840 to $140,960 and is taxed at the rate of 7.05 percent. The third tier consists of taxable income in excess of $140,960 and is taxed at a rate of 7.85 percent.

For ease of comparison, this analysis will focus on the tier breakpoints (or brackets) for married joint filers; the corresponding breakpoints for single filers and heads of households are lower than those of married joint filers.

In order to target only high-income households, the Governor and House proposals each create a new fourth tier. Under the Governor’s tax proposal, the new fourth tier will include taxable income above $250,000 and will be taxed at a rate of 9.85 percent. This impacts the wealthiest two percent of Minnesota households.

Under House File (HF) 677—the House omnibus tax bill—the fourth tier will begin at taxable income of $400,000 and be taxed at a rate of 8.49 percent. Approximately the wealthiest 1.1 percent of all Minnesota households will be affected by the House’s new fourth tier rate. (The House proposal also imposes a temporary four percent surcharge on taxable income over $500,000 for tax years 2013 and 2014, with revenue generated within state fiscal years 2014 and 2015.)

An earlier version of this graph had the $0.3 billion and $1.2 billion on the bottom line incidentally flip flopped. It has since been corrected.

The Senate tax proposal takes a somewhat different approach. Given that the current third tier includes only the top seven percent of all full-year resident filers, Senate leadership decided that there was no need to create another tier to target high-income households. Instead, the Senate opted to increase the tax rate on the existing third tier to 9.4 percent. While the Senate’s rate increase would begin at a lower income level than the Governor’s proposal or the House proposal, it would not be far beyond the range of other proposals considered by the Legislature in recent years. For example, in his February 2011 budget, Governor Dayton proposed increasing the tax rate on taxable income in excess of $150,000.

Immediately the clamor arose from the right that the Senate was taxing the middle class. It is indeed a bizarre definition of “middle” that includes the top seven percent of all households.

An annual income of $140,960—the beginning of the third tier and the threshold above which the proposed Senate rate increase would apply—may not seem extraordinarily high by today’s standards. However, keep in mind that the $140,960 refers to taxable income, which is after subtraction of deductions, exemptions, and other adjustments. According to Minnesota Revenue Department data cited by Senate Tax Committee Chair Rod Skoe, the typical total income (before subtractions) associated with a taxable income of $140,960 is $194,000—which is well beyond the range of what most reasonable people would consider to be middle class.

One of the justifications for increasing the tax rate on high-income households is that state and local taxes per dollar of income for these households is far below what is paid by middle-income households. For example, the top two percent of all households—those that would be affected by Governor Dayton’s proposed fourth tier income tax increase—pay approximately 9.8 cents in state and local taxes for each dollar of income, which is 20 percent less than the 12.2 cents on the dollar paid by middle-income families.* (For purposes of this analysis, “middle-income” is defined as the middle 20 percent of all households by income.)

So what about the top 7 percent of all households—those affected by the Senate’s proposed income tax increase? These households pay approximately 10.2 cents in state and local taxes for each dollar of income.* This is still 16 percent less than what is paid by middle-income families.

Furthermore, those taxpayers at the lower end of the third tier would see only a small income tax increase under the Senate proposal. For example, a household with taxable income of $150,000 (corresponding to a typical gross income in excess of $200,000) would see an annual tax increase of $140 under the Senate proposal—hardly excessive for a household with annual income that is over three times greater than the statewide median.

The standard conservative attack upon any income tax increase is that it would be a “job killer.” However, recent studies from U.C. Berkeley (Zidar) and the Congressional Research Service (Hungerford) find no significant relationship between state income tax increases and job losses or lower economic growth. Using data extending from 1950 to 2013, Minnesota 2020 found that periods following a state income tax rate increase generally coincided with above average job and income growth.

The new conservative critique of an income tax increase—that it is hurting the “middle class”—does not fare any better. The Senate income tax proposal is not impacting “middle-income” households by any reasonable definition of the term “middle.” Furthermore, those households that are affected—the top 7 percent—currently have a state and local effective tax rate well below that paid by the average Minnesota family.

Conventional economic theory holds that the smart way to balance a state budget during a recession or a weak economic recovery is through a tax increase targeted to high-income households. This is precisely what the Governor’s, House, and Senate tax proposals do. All three approaches deserve serious consideration as the state struggles to recover from its most recent deficit and a decade of disinvestment in education, infrastructure, and other critical public assets.

*These estimates are based on data for 2010 from the 2013 Minnesota Tax Incidence Study (MTIS). The effective tax rates for the top two percent and the top seven percent are not reported in the 2013 MTIS. However, it is possible to get reasonably accurate estimates of the effective tax rates for both groups by interpolating data from the population decile and income decile tables. The estimates sited here were calculated by Minnesota 2020 using this approach.

VIDEO: Expanding Renewable Capacity

Mon, 06 May 2013 11:00:25 +0000

By Tom Niemisto, Video Production Specialist

Minnesota is on track to reach the goals set in the Renewable Energy Standard. This progess has prompted energy, environmental, labor, and faith leaders to call for even higher energy standards: 40% of total energy from renewable energy sources by 2030.

Minnesota 2020 Fellow Christina Motilall talks through the challenges and opportunities of this new call to action to get renewable energy off the back burner of energy priorities.

Minnesota 2020 Journal: Diabetes Makes Me My Brother’s Keeper

Fri, 03 May 2013 11:00:47 +0000

By John Van Hecke, Executive Director & Fellow

Diabetes makes the case for affordable healthcare reform in Minnesota. It’s a long-term, grinding, expensive problem that impoverishes families, isolates the afflicted and diminishes communities. Real policy change is required. Once we stop saying one thing and doing another, putting real resources behind reducing risk, Minnesota will move forward.

Diabetes is a group of diseases characterized by high blood glucose levels that result from defects in the body's ability to produce and/or use insulin. It is not caused by obesity. Obesity is a clearly identified risk-factor for developing diabetes. Obesity is a result of genetic factors, lifestyle and diet. Sugary snack cakes and soda pop don’t cause diabetes; avoiding them will decrease diabetes risk.

Individual diet and lifestyle choices affect diabetes risk profile but genetic factors are strongly determinant. If your parents, uncles, aunts and grandparents had diabetes, there’s an excellent chance that you’ll develop diabetes, too. You need a risk mitigation strategy.

The numbers are staggering. Almost half of all Minnesotans have or are at risk of developing diabetes or prediabetes. Even arresting diabetes’ forward progress would be an amazing gain, to say nothing of genuinely reversing the trend. Without change, diabetes’ related costs will compromise Minnesota’s health and productivity.

In the health clinic, diet modification is a clear concept. The data that mitigate risk factors translate clearly and unequivocally into food choices. On paper, it looks good; easy, even. Walking out the door, however, everything changes.

We live in a toxic food environment. We are surrounded by food choices that would astonish even early 20th century people. I marvel at food manufacturing’s capacity to create cheap, attractively presented calories. We have collectively overcome the life-determinative drive for food. Hunger and poverty remain challenges but very few people starve to death anymore. The knife that puts food on our tables, however, has now become the knife that risks slitting our throats.

The term “toxic food environment” was introduced by Yale epidemiologist Kelly Brownell, co-founder of the Yale Rudd Center for Food Policy and Obesity. Published in 2004, Brownell’s book, Food Fight: The Inside Story of the Food Industry, strongly makes the case for environmental factors contributing to increasingly poor personal health and to mounting associated healthcare costs. Brownell argues for greater legislative and regulatory intervention by government to responsibly address the problems.

The other side, which I characterize as conservative, asserts individual responsibility’s primacy as a public policy factor. No one, this argument goes, forces anyone to purchase and consume a one-pint, 175 calories bottle of cola. The public, conservatives like to insist, shouldn’t bear the cost of any individual’s poor diet choice. Your diabetes, in other words, is your problem.

It’s a seductive argument with a seemingly clear premise and conclusion. It’s also misleading and wrong.

Step back to the health clinic door. You’re leaving, diet plan in hand, prepared to actively reduce your diabetes risk factors through diet modification and increased exercise. The first thing you see? A snack-chip company truck rolls past, followed by the soft drink distributor’s truck. Those vehicles are part of a complex production and distribution system that creates food product ubiquity and omnipresence. High diabetes risk foods may be banished from the nutritionist’s desk but they’re waiting just outside the door.

I don’t believe this debate is as simple as more regulation versus personal responsibility. Complex processes require equally determined, ultimately complex responses. This is the logic driving affordable healthcare reform. It’s the conviction that what we’re doing is inadequate and isn’t working, compelling systemic change to create better and more affordable access to healthcare services and insurance. The Affordable Care Act does many things but fundamentally it’s trying to lower costs by increasing insurance pool size, spreading risk and cost among more people.

The key lies in collective effort, propelled by individual incentive. Diabetes care’s long term costs means that we have clear financial reasons to create better risk-mitigation and treatment protocols. But, this only works if we understand that better healthcare, yielding healthier lives, is a long-term play. Unraveling the toxic food environment will take time but it’s not an impossible task. It wasn’t so long ago that everyone smoked, tossed garbage from moving cars and discharged raw sewage into lakes and rivers. Tackling diabetes, like embracing affordable healthcare reform, gains speed when we collectively help each other overcome the organized effort that wants to keep us isolated, sick and alone.

Must Transit and Parking Go Hand-in-Hand?

Thu, 02 May 2013 11:00:38 +0000

By Conrad deFiebre, Transportation Fellow

Americans are so wedded to their cars that hardly anyone finds it surprising that parking places are an integral part of most construction projects. Businesses and places of assembly rouinely face local government minimum parking rules. The new Vikings stadium in Minneapolis must include 2,500 parking spots to supplement its light rail stop.

Even planners for the Southwest light rail line are proposing up to 3,565 park-and-ride slots along the 15-mile corridor from Eden Prairie to downtown Minneapolis. Apparently, we can't build alternatives to driving without also supplying places to stash what Strong Towns blogger Charles Marohn Jr. calls our "2-ton prosthetic devices."

Recent research has shown that park-and-ride facilities can actually be counterproductive to some transit improvements' ability to reduce driving and road congestion. A Dutch study found that many park-and-rides in the Netherlands induced people to drive to transit instead of biking there or making the whole trip by transit. Some parked and walked someplace nearby and didn't use transit at all.

"The logical conclusion here is that cities should impose parking fees large enough to remove the incentives of free parking but not so large that people drive all the way into work," Eric Jaffe wrote in a summary of the Dutch findings on the Atlantic Cities.

Given relatively steep parking rates in downtown Minneapolis and St. Paul, that's an idea worth exploring here. Metro Transit has hundreds of free parking lots serving bus and rail transit and even carpooling, and might place up to 15 more at stations along the Southwest LRT.

They won't come cheap. Surface lots cost around $3,500 for each space, ramps as much as $15,000 per space, pricier than many of the vehicles that will sit on them. Depending on the mix of surface and structure, the cost for Southwest LRT parking could range from $12 million to $53 million out of the $1.3 billion project budget, or more if some local officials' desires from more spaces yet are met.

Some think that park-and-rides could be coordinated with development of nearby or adjoining businesses, turning them into mini-commercial nodes in sprawling suburbs. This is being discussed along much of the Southwest line's route through the suburbs. Little if any parking will adjoin the line's five Minneapolis stations, but up to 1,200 spaces may be built at the Mitchell Road suburban terminal.

By contrast, no park-and-rides are planned the length of the downtown-to-downtown Central Corridor LRT, which launches service next year, and the only inner-city p&r on the Hiawatha LRT comprises a mere 170 spots outside the Lake Street station.

It can be argued that extending rail transit to distant suburbs with park and ride as an added incentive will only encourage sprawl that denudes the countryside and busts local-government budgets. But, as Joel Kotkin pointed out in the Daily Beast, and as news of a new Twin Cities suburban housing boom confirms, reports of sprawl's death have been greatly exaggerated.

"The Great Recession did slow the growth of suburbs and particularly exurbs—but recent indicators suggest a resurgence," Kotkin observed. "Ultimately the question of growth revolves around the preferences of consumers," who, he noted, still largely long for single-family homes on large lots.

How to keep more and more sprawlites from choking traffic in the city? Commuter rail, light rail and bus rapid transit can ease the burden on roads, but only if suburban commuters use them. The widening spread of suburbia can't be knitted together with an inner-city-style transit web at a cost anyone is willing to pay, so private cars will remain the chief transport mode there for the foreseeable future.

That's why suburban rail transit needs station-area park-and-rides. Even Jaffe, much more a progressive urbanist than the right-leaning Kotkin, acknowledged that. In the Dutch study, he said, "park-and-ride facilities deep in the suburbs that captured city commuters early into the trip performed well ... These facilities should certainly be monitored to make sure they're meeting policy goals—especially traffic reduction. Additionally, it seems clear that suburban or 'remote' park-and-rides fulfill more of that goal than those closer to the center city."

Our Metropolitan Council planners seem to have understood this from the get-go. High-quality transit will take different forms in different locations, drawing the self-propelled and bus riders in the big cities, motorists in the sprawling suburbs that are probably here to stay. An effective multimodal transportation system should strive to serve all the different residential styles of its constituents within fiscal limits.