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651 294 3593 phone
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A budget crisis is an opportunity for innovative purchasing

January 29th, 2009 by John La Plante

As Pat Anderson noted in her commentary in a recent weekly update , a top-down approach by the state to require that school districts share services has a number of problems.

While a mandate from Saint Paul may not be desirable, that doesn’t negate the fact that shared purchases of supplies and services can be a winner for taxpayers.

Four scholars with the Reason Foundation, a California-based think tank that focuses on making governments more efficient, explain why and how school districts can save money and improve their effectiveness by cooperating.

School districts might be able to share a large number of non-instructional services. Here’s a partial list: administrative computing and information technology systems; payroll and auditing; legal services; grant management; and staff training and development.

A district that shares services with other units of government (or even, in some cases, a private company) can get many benefits. Instead of having one person on staff who tries to wear three hats, a district can draw on an outside organization that has a full-time specialist.

Maybe less government is the answer after all?

January 26th, 2009 by Craig Westover

At MinnPost.com Doug Grow asks the question, “Will personal political agendas in Minnesota get in the way of good government?”

I would ask, “If personal agendas can get get in the way of good government, doesn’t it make sense to have less government for those agendas to get in the way of?”

Pat Anderson on Dan Conry Radio Program

January 26th, 2009 by Craig Westover

Minnesota Free Market Institute President Pat Anderson was a guest on the Dan Conry Show on KRWC-AM in Wright County on Monday morning 1/26/09. You can listen to the podcast from the show site here.

Taxpayer Dollars are Yours Too

January 23rd, 2009 by Craig Westover

The Star Tribune Tuesday reported this week that the Minneapolis Fire Department is hosing cold water on a long-sought-after federal grant of $1.3 million dollars. Minneapolis’s turning down the grant provides an insight in the actual cost of all that “free” federal money the state’s congressional leaders like to boast about. It also creates a teachable moment.
 
The $1.3 million Minneapolis has been seeking is a Homeland Security Department grant that would enable the city to add 12 firefighters to the ranks. The catch is the grant requires that the city gradually increase its share of the cost of the additional firefighters. Over five years that comes to a total of $3.8 million. If the city fails to keep the newly hired employees on the payroll for five years, it must repay the grant.
 Across the nation, Federal aid to state governments increased from $286 billion in fiscal 2000 to an estimated $449 billion in 2007. It is the third largest item in the federal budget after Social Security and national defense. Funds are distributed through some 800-plus programs. But all that money isn’t free — to the feds or to states like Minnesota and cities like Minneapolis.
Cato Institute director of tax policy studies, Chris Edwards tells us the theory behind federal aid to states is that federal policymakers can design and operate programs in the national interest to efficiently solve local problems. In practice, politicians see federal grants as just another subsidy for their states – not a tool to pursue broad national goals. Federal grants stimulate overspending by states, require huge bureaucracies to administer and come with a web of complex regulations that limit state flexibility.
 
Consider the process: We taxpayers send tax dollars to Washington where they are divided among some 800 federal programs and administered by thousands of employees. We also send tax dollars to St. Paul where administrators write grant applications to the federal government. No small task. The “Weed and Seed” school anti-drug program, for example, has a 74-page application kit that references 1,300 pages of regulations for schools to follow. The Grant applications are sent to Washington, where more bureaucrats evaluate them. If Minnesota is lucky enough to receive a grant, to get back some of the money we taxpayers sent to Washington in the first place, it comes with strings and usually a requirement for matching funds. Hence the problem for Minneapolis.
 
The inefficiency of the federal grant program is obvious, but there are also other insidious aspects affecting the state. Federal grants disrupt priority planning at the state level, encourage states to overspend on programs, create inefficient distribution of funds to states, burden states with regulation that inhibits innovative ideas, dilute the attention of elected officials from serious issues to competing for funds, and enable the federal government to usurp legitimate state functions.
 
Our GOP senator-in-limbo states on his web site that one of his “most important duties as your Senator is to secure federal funding for worthy Minnesota projects and initiatives.” One doesn’t find that duty listed, however, in the U.S. Constitution. Perhaps, and I’m just saying perhaps, that mentality is why our purgatorial senator is on the verge of becoming a fallen angel.

Coalition Forms to Gather Input on Budget

January 23rd, 2009 by Craig Westover

MinnesotaBudgetSolutions.com
FOR IMMEDIATE RELEASE                                                               

Contact: Pat Anderson

January 23, 2009                                                                                         

Ph: (651) 294-3593

Coalition Forms To Gather Input on Budget

 

ST. PAUL – A group of non-partisan, non-profit organizations have formed a coalition that will be gathering suggestions to solve Minnesota’s current $4.8 billion shortfall.  The coalition is seeking methods that can solve the state’s budget problem without adding to the tax burden of families and small businesses.

The coalition is asking for proposals from policy experts and ordinary citizens in order to begin a constructive dialogue for real budget solutions.  A new website has been launched at MinnesotaBudgetSolutions.com where anyone can help identify opportunities to restructure state spending and comment on budget proposals. 

“The partners in this coalition range from members of the construction industry to family advocacy groups,” said Pat Anderson, President of the Free Market Institute.  “Our goal is to make sure that during the state budget process the day-to-day challenges of average families are considered.”

Members of the coalition include:  Associated Builders and Contractors, Minnesota Family Council, Minnesota Free Market Institute, Minnesota Majority, the Minnesota chapter of the National Federation of Independent Businesses, Taxpayers League of Minnesota, and Campaign for Liberty.

“Our objective is to achieve more effective ways to allocate state funds and seek common sense solutions that won’t add to the burden Minnesota families already bear,” said Jeff Davis, President of Minnesota Majority.  ”Minnesota is home to some of the best and brightest individuals.  If we roll up our sleeves and work together, we can accomplish this goal.”

For more information go to MinnesotaBudgetSolutions.com.

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Study suggests diminishing returns from public spending

January 22nd, 2009 by John La Plante

With a $5 billion budget deficit looming, Minnesotans should ask “Are we getting our money’s worth from state and local government spending?”
The answer to the question is in part philosophical. The preference for high or low taxes and an active or restrained government is based in part on competing notions of justice, equity and constitutional interpretation.
Is there any way to use an empirical, objective measurement of government performance?

The John Locke Foundation, a Raleigh, North Carolina-based research group, recently attempted such a measurement in its report “Taxpayers’ Return on Investment.” (You can find the report on the foundation’s web site, www.johnlocke.org).
Daniel T. Hartgen, a fiscal policy analyst with the group, ranked the states. For each state he found indicators for several quality of life issues that are affected by government, and compared them against each state’s tax burden.
The five highest-performing states were Florida, Alaska, Texas, Wyoming, and Montana. The bottom five states were Wisconsin, Maine, Rhode Island, and … Minnesota, which tied with Ohio at 45.
The chief measure of taxpayer investment is the state and local government’s tax burden as a share of income in 2001. Those numbers were then compared with “measures of states’ improvements in the performance of school, health, crime, and roads over the next six years, as well as their growth in population and per capita income.” Minnesota had the 10th-highest tax burden, with 10.2 percent of income going to state and local government.
The best measure we may have for making cross-state comparisons of school systems is the NAEP, or National Assessment of Educational Progress. In 2000, 2002 and 2007, Minnesota outperformed the national average. Between 2002 and 2007, it ranked in the middle of the states—25—on improvements in mathematics and reading.
Minnesota ranked very well on health, at least if we consider changes in the death rate of people aged 65 to 74 years old. According to the Centers for Disease Control, Minnesota did second best on that measure, bested by Vermont. (Only in Hawaii did the death rate actually increase.)
According to the FBI Uniform Crime Reports, Minnesota did not do very well in reducing its crime rate. That went down a mere 2 percent between 2001 and 2007, putting Minnesota behind 39 other states. On the bright side, we’re already a law-abiding state relatively speaking, with a rate below the national average, as well as that of 31 other states.
Coletti drew information on the quality of roads from a report written by David T. Harget, a University of North Carolina professor. (I wrote about that report two weeks ago). Minnesota didn’t do so well on this policy area—35 states did better in improving their state highway systems.
Population growth is another way of measuring the success of a state: Is it an attractive place to live?
In Minnesota, we can’t do much about the weather. No matter how hot the prospects for educational quality, income growth or other factors, some people will be deterred from moving here simply by the weather. (To be fair, the weather will deter other people from moving to hot-and-humid states such as Florida or South Carolina.)
Even so, changes in population reflect in part the citizenry’s evaluation of a state and a verdict on the effects of its policies. Between 2001 and 2006, Minnesota’s population increased some 214,000, or 4 percent. The state was just below the national average in population growth, coming in with a rank of 27.
Finally, consider growth in income. It’s true that “man shall not eat by bread alone.” Still, whether the people of a state make more money now than they did four or five years ago is one indicator of how well the state is performing.
Between 2001 and 2007, Minnesota’s per-capita personal income grew 26 percent. That was more than Wisconsin’s 23 percent, but less than the rate of 31 other states. (When per-capita income itself, rather than its growth, is considered, the state ranks 11, higher than any non-coastal state except Colorado and Wyoming.)
Put all these policy areas together and Minnesota comes out a dismal 45. This isn’t to say that Minnesota is a policy hellhole, by any means. It does suggest, though, that the state is doing relatively poorly in using its tax dollars to improve the lives of its citizens.
The reason for that fact is another point for debate, but perhaps we’ve bought as much government as we can profitably use. Some government is better than no government, as casual observation of any war-torn or lawless area confirms. But increased spending on government—as with increased spending on food, housing, clothing, large-screen TV sets and indeed everything else—brings diminishing marginal returns at some point.
Relatively speaking, Minnesotans may have reached that point a long time ago.

 

(A slightly different version of this essay was first printed in the Saint Paul Legal Ledger on January 22, 2009.)

Obama’s Education Pick is a Modest Agent of Reform

January 15th, 2009 by John La Plante

President-elect Barack Obama has finished putting together his cabinet, which includes a new secretary of education, Arne Duncan. This appointment will likely mean some modest changes that could bear fruit down the road—and certainly more federal spending on what has traditionally been a matter for state and local governments.

Mr. Duncan is currently the superintendent of the Chicago Public Schools. With roughly 410,000 students, it is the third-largest district in the country. By comparison, you’d have to combine the enrollment in the 30-largest districts in Minnesota to approach that number.

What does the new secretary think about some of the key issues in education?

The biggest issue facing federal lawmakers is No Child Left Behind (NCLB). Duncan has taken all sides of the issue. He supports the concept of the law, which appeals to the law’s backers. But he also favors giving states more flexibility in how they comply with it, which appeals to school district managers as some political conservatives. He also favors doubling the money (currently $28 billion) that the federal government spends on the law. That appeals to teacher unions.

NCLB requires schools to make progress towards universal proficiency by 2014, but states have the power to create their own proficiency standards. Some have dumbed-down the standards, which has helped more schools comply with the law. Duncan advocates a national standard, but that would take the federal government further into the education business, which is not a wise idea.

 

To his credit, Duncan has been a reformer in teacher pay and recruitment. Some Chicago schools participate in a pilot program to give teachers bonuses tied to student performance. That’s the good news. He also has, however, pushed Chicago teachers to get certificated by the National Board for Professional Teaching Standards. Teachers who go through that program get a pay increase, but whether it actually increases their effectiveness is an open question.

Duncan has also been a fan of Teach for America, a national program that places liberal arts graduates in urban schools. Over 300 of its graduates, whose training is a refreshing alternative to the often stultifying schools of education, have taught in Chicago Public Schools.

Duncan has also managed to close some failing schools, sometimes reopening them as magnet or charter schools. He is also a fan of charter schools generally,  which is another bright spot in his resume.

Duncan favors two other reforms that could pay dividends down the road. The first is to create smaller schools, which have been shown to boost student achievement.

The second reform is “weighted student funding,” a method of budgeting that cuts out some school district overhead by giving more responsibility to school principals.

Duncan seems to be a person who tries to appeal to each party by giving them something they want. That’s an expensive approach to making headway in education reform, but if we’re lucky, he may, in a Democratic administration, be able to pull of something along the lines of a “Nixon to China” experience.

Still, his influence, for good or ill, will be limited by the permanent bureaucracy in the department, the Congress, his boss, and the various other players in education.

Budget solution is not a short-term proposition

January 13th, 2009 by Craig Westover

In the St. Paul Legal Ledger, Dane Smith, President of the progressive think tank Growth and Justice, chops at some trees without realizing he is in a forest. He uses Gov. Pawlenty’s statement that he (Pawlenty) didn’t know of any economists who favored raising taxes during a recession as the take-off point for a column advocating tax increases front and center for resolving the current budget crisis.

Smith tells us he took “a few minutes” to search the Internet, for support rather than illumination it turns out, and consequently he comes up with a number of economists – “credentialed and even celebrated” – who favor raising taxes during a recession. Take that Gov. Pawlenty!

Unfortunately, Smith’s random chopping away at the governor doesn’t create much of a path through the forest of implications growing from the current budget crisis. Smith’s short-term focus precludes any discussion of reform necessary for long-term financial stability of the state budget – the more important question.

Take for example Smith’s analysis, or rather lack thereof, of Nobel Prize-winning economist Joseph Stiglitz’s opinion regarding reduced spending versus tax increases as means to solving state budget problems. Stiglitz writes (emphasis mine) ““Tax increases would not in general be more harmful to the economy than spending reductions … The conclusion is that, if anything, tax increases on higher-income families are the least damaging mechanism for closing state fiscal deficits in the short run. Reductions in government spending on goods and services, or reductions in transfer payments to lower-income families, are likely to be more damaging to the economy in the short run than tax increases focused on higher-income families.”

Let’s look at the assumptions in that paragraph, which Smith ignores.

Painfully missing is the question of how we got into this budget mess in the first place. How can we solve a problem if we ignore its genesis? The poor economy is the spark that ignited the budget deficit, true, but the powder was a progressive governing philosophy that consistently expanded both the scope of government and the number of Minnesotans eligible for government programs.

The first question for policymakers, one which was ignored resolving the 2003 budget shortfall (and for which the governor can be justly criticized), is whether the objective is simply to solve a current budget deficit in the short term, or is the objective to make systemic reforms that increase the stability of the state budget in the long term.

In that context, Stiglitz may well be correct about the relative harm to the economy from tax increases compared to spending cuts in the short term, but that opinion contributes nothing to the question of whether the short-term strategy is the best approach to the budget crisis. Note Stiglitz’s language choice — both tax increases and spending reductions are described in negative terms (emphasis mine). “Tax increases would not in general be more harmful to the economy than spending reductions,” but both would be harmful.

It would seem if one finds oneself in a position where one must choose the lesser of two evils, one might want to give some consideration to correcting the situation in the long term rather than just opting for a short term fix. Better to cure one’s addiction than simply securing the next hit.

A second assumption, or rather an impression that Smith creates, is that “lower-income families” means the “poor and the destitute.” Not necessarily the case: The deficit we face today results from not just the expanding scope of government; it is also exacerbated by the expanding breadth of existing programs from “safety net” to “entitlement” status.

For example, under a special waiver, the federal government funnels funding for its health care programs to the state  – the State Children’s Health Insurance Program (SCHIP), Medicare and Medicaid) — through MinnesotaCare. Minnesota officials reallocate those funds. Minnesota has used consolidated funds to extend SCHIP coverage to families with higher incomes than SCHIP requirements allow. When federal officials balked at that plan, state officials agreed to abide by SCHIP funding requirements but shift the ineligible adults to the state’s Medicaid program – in effect extending Medicaid eligibility to people who don’t qualify for the program.

The rationale for SCHIP is that it serves people with incomes too high to qualify for Medicaid. Essentially, Minnesota has extended the “safety net” to people ineligible for either SCHIP or Medicaid. As Smith no doubt does, one may see conversion of targeted safety net programs to entitlement status as a humane societal response to economic conditions. However, that governing philosophy also has a cost, and it is contributory to the state’s current deficit problems.

The point is, whether a health care or an education or other government program, much of government expansion has resulted in expanding the notion of entitlement and increasing the number of people dependent on government programs. Certainly, cuts to those entitlements would be painful to individuals and possibly retard the economy in the short term as family budgets are adjusted. But long term, is it in the best interests of Minnesota (not just the DFL party) to continue to expand the number of people dependent on government assistance (paid by taxpayers)? Is it creating a class of people dependent on others to pay for a better Minnesota a sustainable strategy?

Smith goes on in his opinion to quote other economists favoring a “balance” of tax increases and spending cuts to resolve the budget shortfall with the same disregard for analysis of the assumptions underlying their positions. “Balance” has a nice ring to it, but as I have written before and will write again, before we can have any discussion of “balance,” we must understand the kind of governing process we want to have going forward.

Do Minnesotans want to trade their disposal income and freedom of choice for a plethora of monopolistic but “free” government services? Or do they want to retain the freedom of choice, manage their own lives at their own risk and cost but reap and retain the rewards of their efforts?

Answering that question requires a little less Googling and a little more analysis that Smith expends in his column.

Keep up the fight for smaller government

January 5th, 2009 by Craig Westover

By way of the Pioneer Press, from the Los Angeles Times, Richard Viguerie answers the question, “Is it time for conservatives to give up our fight against Big Government?”

“If, for conservatives, accepting the inevitability of Big Government constitutes pragmatism, it’s an oxymoronic form of pragmatism — one that doesn’t work,” he writes.

“Whether we win or lose, future generations will celebrate us as those who fought for freedom at a crucial time in our nation’s history. No one can guarantee victory. But if we do not fight, we guarantee defeat.

“If we give up our most cherished principle to attain political office, what do we gain? Who will trust us? Who will turn to us when, once again Big Government collapses in failure?”

It’s a good read.

Top Ten Myths about Government Provided Healthcare

January 5th, 2009 by John La Plante

Federal, state and local governments already spend roughly half of all health care dollars in this country, and they have a large say over how the other half is spent. As a result of the last election, it’s likely that government will have an even more significant influence—if not control—over how all health care dollars are spent.

So what can we expect? Nothing good, as far as I can see.

Sally Pipes has seen some of the future in her native Canada (she’s a naturalized U.S. citizen now) and she talks about Canada, and more, in her recent book “The Top Ten Myths of American Health Care.”

Pipes, president of the San Francisco-based Pacific  Research Institute, was a member of GOP California Gov. Arnold Schwarzenegger’s transition team, and she advised Rudy Giulianai’s presidential campaign on health care policies. She has served as president of the Canadian Association for Business Economics, and her commentaries have appeared in New York Times, Washington Post, USA Today and other leading newspapers.

At 150 pages before notes, Pipes’ book is short; it’s also written in an easy-to-read style. These are what she calls the Top 10 myths about government-provided health care.

1. Government health care is more efficient than the private sector.

2. We’re spending too much on health care.

3. Forty-Six million Americans can’t get health care.

4. High drug prices drive up health care costs.

5. Importing drugs would reduce health care costs.

6. Universal coverage can be achieved by forcing everyone to buy insurance.

7. Government prevention programs reduce health care costs.

8. We need more government to insure poor Americans.

9. Health information technology is a silver bullet for reducing costs.

10. Government-run health care systems in other countries are better and cheaper than America’s.

Let’s start with efficiency. Does government spend less on health care, since it doesn’t have to run a profit? Pipes notes, that according to the Medicare Trustees Report, administrative costs for Medicare are 1.5 percent of expenditures, versus 25 percent for some private insurance plans.

Does that make “Medicare for all” a good idea?

No, according to Pipes. First of all, other estimates question the validity or applicability of those estimates. The Council for Affordable Health Insurance, an Alexandria, Va.-based trade group, pegs Medicare’s administrative expenses at 5.2 percent and those of the private sector at 8.9 percent. And if the self-interested nature of that group bothers you, consider PricewaterhouseCooppers, which pegs private-sector expenses at 6 percent. Further, some economists would factor in economic losses stemming from money being diverted from the private sector to government coffers.

There are other costs to government programs that a simple look at their budgets dollars won’t reveal. Medicare and Medicaid are notorious for their low reimbursement rates, meaning that Medicare and especially Medicaid patients can find it difficult to find doctors who will take new patients. Another hidden cost, by some estimates, is that people with insurance pay another 10 percent just to help make up the difference for lowball rates from government programs.

There is still yet another hidden cost to government health programs, and that’s the enormous sum of unfunded liabilities (projected expenses less project revenue) hanging over Medicare and Medicaid. You’ve heard that Social Security has problems? Those problems are nothing compared with those related to Medicare. As a result, the Medicare payroll tax may have to reach 6.4 percent, a dramatic climb from its current rate of less than 2 percent. The effects will reverberate throughout the economy.

So whether government health care is measured by current dollars, future payments or delayed care, it is much more expensive than advertised.

With that myth discussed, Pipes spends the rest of the book addressing specific proposals for government action. Such actions would allegedly reduce costs, introduce efficiencies and give everyone insurance—except, according to Pipes, they wouldn’t. What they would do instead is have unintended consequences, she argues, including making us more sick and costing more (in dollars and much more) than we could ever know.

Take the myth that we’re spending “too much” on health care. Too much? Says who? We all have one life, and if we are spending more on health care than we used to, that’s because we can.

Trying to save money on drugs by squeezing drug companies or denying patients certain expensive drugs can incur greater expenses later on through causing fewer new drugs to be discovered or requiring patients instead to seek surgery.

Health technology, meanwhile, is worthwhile, but it should develop organically, not be imposed from a central location, Pipes says. Top-down approaches will likely lead to costly errors.

Preventive health programs may be the fad of the day. They are, however, a good example of how something that is individually rational may not be socially rational—and why focusing on the short term can produce inaccurate conclusions.

If we all stop smoking, start exercising, and lose weight—all things that government offices and some private companies are now prodding us to do—we will enjoy a greater quality of life. But we certainly won’t save money on health care, contrary to the premise of these “good for you” programs.

Why? People will live longer. That’s in itself a good thing. But people living longer also means they’ll rack up more medical expenses. And since the public purse covers most medical expenses for everyone older than 65, increasing longevity increases the risk exposure of Medicare.

Pipes says that “true reform of the health care system requires less government interference—not more.” Her closing recommendations propose to make more use of retail competition (retail health clinics, cross-state sales of insurance) as well as some standbys such as tort reform.

Whether anyone in Washington, or St. Paul will listen, is another story.  
(A different version of this appeared in the November 28 edition of the Saint Paul Legal Ledger)

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