Toward a more competitive state
Jay Kiedrowski and John Gunyou, Star Tribune Commentary, August 15, 2006 –
Rather than just debate taxes in Minnesota, let’s focus on where and how those resources are being invested.
Taxes are always an issue in any election year, and this one is no exception.
Growth & Justice recently jump-started the tax debate with its report, Invest for Real Prosperity. The liberal think tank maintains that higher taxes are needed to fund more public investment so that Minnesota can prosper in an increasingly competitive world.
Conservative tax opponents were quick to respond, touting our recent fall out of the top 10 states in taxes. They argue that tax cuts benefit Minnesota’s economy by encouraging private investment.
Here’s the perspective of a couple of fiscal moderates: Rather than simply debate taxes, we should be focusing on where and how we invest those resources to strengthen Minnesota’s competitive position.
Of course taxes have to be reasonable, but not at the expense of the public investments that made this state great. The disturbing reality is, we’re slipping behind other states, and that does not bode well for the future.
In 1992, the average Minnesotan spent 17 cents out of every dollar of their income to pay for public services. Today, we’re spending 16 cents. That means we’re now spending a smaller share of our income on public services.
While that’s good news for advocates of lower taxes and smaller government, it’s troubling to those of us more concerned about Minnesota’s future. Here’s why:
In 1992, Minnesota ranked 15th among states in total education spending as a share of personal income, even after all the cuts to solve the state’s last budget crisis. We’re now 36th among states. Minnesota might be out of the top 10 in taxes, but we’re nearing the bottom 10 in our support for education.
We’re doing even worse with Minnesota’s transportation infrastructure, the other cornerstone of our economy. MnDOT classifies more than one-third of state roads as “too far gone,” and for the first time in 20 years, Minnesota’s road quality index is declining.
Minnesota has long been a higher tax state, but that’s not inherently bad — it all depends on how we invest those resources. If our tax dollars are invested in the right public services, our competitive position is strengthened.
That strategy worked for decades. Moderate Republicans and centrist Democrats collaborated to create a superior education system and built the infrastructure needed to sustain economic growth.
During past recessions, governors of all parties raised taxes and reduced spending to weather those storms. This time, our governor instead chose to cut services and use accounting gimmicks to avoid raising state taxes.
That means class sizes increase from Woodbury to Eveleth, and college tuition doubles. That means local streets continue to deteriorate, and our metro freeways remain parking lots. That means our competitive position is weakened.
Here’s what we need to do to strengthen that position:
First, return to investing 17 cents per dollar of our income into public services over time. For the next few years, the growth in tax revenues is expected to keep pace with ongoing needs, but we still need to fix the problems caused by those shortsighted service cuts.
Most important, we must reverse the slide in our support for education. Minnesota has never been below average, and certainly not lower than Alabama, Arkansas, Louisiana or Texas — states we used to make fun of.
We also need to reinvest in the transportation infrastructure that drives our economy. MnDOT estimates an annual need of at least $1.7 billion to sustain our road and transit systems, and the only plan in sight would meet less than one-fifth of those needs.
But as we restore those investments, we must also work harder to reform how we are spending our public dollars to get more accountability. A decade ago, major bipartisan education, health care and welfare reforms were enacted. Emerging from this latest fiscal crisis, we have little to show, other than smaller budgets.
Minnesota has led the nation in economic growth — until now. For the first time in years, our growth is lagging behind other states. Minnesota’s gross state product per capita only increased 0.6 percent in 2005, compared with 2.5 percent nationally.
Let’s hope that was an anomaly, and not a harbinger of the consequences of shortsighted leadership. Strategic investments in human capital and public infrastructure always have been, and should always be, the key to Minnesota’s economic prosperity — not tax rankings.
Jay Kiedrowski is a senior fellow in public and nonprofit leadership at the University of Minnesota’s Humphrey Institute of Public Affairs and was commissioner of finance under Gov. Rudy Perpich. John Gunyou is Minnetonka’s city manager and was commissioner of finance in the Carlson administration.