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Time to Phase-Out LGA

June 8th, 2009 by John La Plante

Since the Legislature and governor failed to cut spending by eliminating non-essential functions from the state budget, local officials are going to pick up the slack. Expect GOP Gov. Tim Pawlenty to make further cuts (unallotments) to local government aid (LGA).

At least this situation has one upside: It may bring some serious consideration to LGA.

LGA takes over $525 million collected from taxpayers across the state and distributes it to city governments. According to the Minnesota Department of Revenue, it helps governments whose “spending needs are greater than their revenue raising capacity.”

Most cities receive LGA: 763, or 89 percent of the state’s total, get some — meaning 91, or 11 percent, do not. The five largest cities that don’t receive LGA are Bloomington, Brooklyn Park, Plymouth, Eagan and Burnsville.

On the other hand, some cities depend on it a lot: Mankato and Albert Lea, for example, use LGA to fund one-third of their budgets. More than half of Austin’s operating budget comes from LGA. Duluth uses it for nearly 40 percent of its general fund.

Defenders of LGA, such as the League of Minnesota Cities, say that it is essential to “provide basic services that all people need.” That’s a high-minded description, but it doesn’t mean that LGA should be sacrosanct.

To start with, the definition of “basic” and “need” can be questioned. The website ThankLGA (www.thanklga.org) cites libraries and recreation centers as among the services that LGA funds, along with police and fire protection. Should taxpayers in Bloomington be forced to subsidize library patrons elsewhere, especially since libraries are moving into the entertainment business by loaning out movies and popular music? How about recreation centers? That’s what the Y is for.

Police and fire protection are certainly valuable public services, but even there I saw we should question cross-city subsidies. While some cities, such as Eagan, rely on volunteer firefighters, others, such as Minneapolis, use expensive, unionized forces.

Further, specifying that LGA is primarily for police and fire protection is somewhat misleading. Money is fungible, so if the state gives LGA funds for police, it frees up city money (or at least the local residents’ tolerance for taxes) for questionable purchases such as city-run Wi-Fi service and grass-covered roofs on municipal buildings.

But the chief problem with LGA is one of sound governance: It weakens the accountability of local officials, who can spend money without having to ask voters for it. They get the political benefit of offering services without shouldering the political burden of convincing local taxpayers to pay for them.

In crunch times, dependency bites back. As we’ve seen before (and will see again soon enough), if state officials fail to do their job, they can shove some of the burden off on local officials.

LGA is also opaque, distributed through a Rube Goldbergesque formula. For cities over 2,500 people, it’s based on a formula that includes, I kid you not, something called “transformed population.” A religious experience? No. It’s “the result of multiplying your city’s population … raised to the .3308 power, by 30.5485.”

If there’s any logic in this formula, it’s hard to see. Anytime government spending is involved, the definition of “need” is political, so I’m not surprised that the formula for determining LGA makes little obvious sense.

So what should we do with LGA? Make a plan to phase it out. Give cities the responsibility—and tools—for standing on their own.

Local officials complain that it’s unfair to cut LGA, given that the state imposes mandates on them and places caps on the taxes they can levy. And they’re right.

One objection to eliminating LGA is that doing so will contribute to inequality among cities. If a city with a wealthy population offers the same number and extent of services as a less wealthy city, it will be able to do so at a lower cost to the population. In itself, that’s true. But the pursuit of equality brings its own troubles, and no two cities are alike anyway.

In 1987, Michael J. Stutzer, an economist with the Federal Reserve Bank of Minneapolis, wrote that intergovernmental aid increases local government spending beyond what the public would otherwise demand. You can work out the reasoning through models from game theory, such as the prisoner’s dilemma, but a more commonsense approach works, too. If a central government is taking money from you and redistributing it anyway, you might as well plan to “get yours,” even if it means that you end up spending more in total.

LGA is sometimes defended on the grounds that it helps citizens who would otherwise have to pay disproportionately high amounts for local government. Stutzer concluded that if that’s your concern, it would be better to give grants to individuals (much as we do with homestead property tax credits) than units of government. At least that’s an improvement on opaque, government-to-government transfers.

Finally, LGA props up unsustainable units of government. The existence of a city doesn’t mean that it should continue to exist, especially if it requires people elsewhere to prop it up. Approximately 230 cities receiving LGA have fewer than 250 people, and close to 90 cities have fewer than 100 residents. Most of those city governments should dissolve or merge.

LGA hasn’t been with us for even 40 years. There’s no reason why we should have it for another 40.

A version of this commentary was published in the St. Paul Legal Ledger June 3, 2009

A Good Time for a Pause in State Spending Spree

May 29th, 2009 by John La Plante

Both legislative leaders and opinion leaders have criticized Gov. Tim Pawlenty for “not compromising” with the legislature-for refusing to increase marginal tax rates. But as citizens are making do with less, it’s time for state and local governments to do the same.

Let’s review a few of the ways in which the recession is already affecting people in the private sector-that is, people who pay for government.

We’re getting pink slipped. Nationally, unemployment is at a 25-year high, and the possibility statistic may increase is haunting everyone who is not a government employee.

We’re taking furloughs. Companies that prefer not to lose workers, especially highly skilled ones, are using furloughs. A survey earlier this year by the firm Watson Wyatt Worldwide Inc. found that 17 percent of companies had used furloughs. Some companies are using both furloughs and other temporary pay cuts, together with layoffs, to survive the recession.

We’re watching our dollars and buying less. We’re shopping less at Best Buy and more at Wal-Mart, replacing vacations with “staycations,” and repairing consumer products rather than replacing them.

On the other hand, the recession isn’t so bad if you work for government. That’s because it has been a tale of two workforces, one subject to the vagaries of the market and the other not. Steve Malanga, a senior fellow at the Manhattan Institute, drew this contrast in a recent op-ed in the Wall Street Journal:

“Some five million private-sector workers have lost their jobs in the last year alone, and their unemployment rate is above nine percent according to the BLS [Bureau of Labor Statistics]. By contrast, public-sector employment has grown in virtually every month of the recession, and the jobless rate for government workers is a mere 2.8 percent.”

Here in Minnesota, major private companies such as Best Buy and Thomson Reuters are laying off people, offering buyouts, and generally shrinking their workforce. Medtronic announced Tuesday it was parting ways with 1,500 to 1,800 companywide, about 600 in the Twin Cities. By contrast, the American Federation of State, County and Municipal Employees and the Minnesota Association of Professional Employees, two large unions for state workers, recently accepted a two-year contract. True, it calls for no increase in the pay scale. On the other hand, the unions have resisted any talk of furloughs.

The union leaders are doing their jobs – protecting the financial interests of their members. But when your income is down, you re-evaluate your spending priorities. It’s time for legislators, acting as the agents of the citizens, to apply the same discipline that we apply in our personal lives.

Since at least 1960-the earliest year for which I could find records-spending in Minnesota has gone up each biennium. This is true of both the general fund and of all funds as a group.

In the average biennium since 1960-61 in this state, all-funds spending went up 19 percent, and general-fund spending increased 20 percent. Over this same time, by contrast, personal income has gone up an average 13 percent per biennium. In other words, Minnesota residents are devoting a greater portion of their well-earned income to government.

All-funds spending went up 28 percent each biennium, until the Reagan area. Since the 1980-81 biennium, the average increase has been “only” 12 percent for both general and all-funds spending. Even more encouraging, personal income has actually grown faster than spending on government: Since 1980-81, personal income has grown 13 percent every two years, just slightly outpacing spending on government.

Still, the historic trend is clear. For every dollar Minnesotans earned in 1960, they earned $29 in 2007. But they have had an unsustainable appetite for government: For every one dollar Minnesota spent on state government in 1960, it spent $49 in 2007.

Minnesota has a long history of creating taxes, including an income tax in 1933 and a sales tax in 1967. It has continued to tighten the screws on taxpayers by extending measures such as ones requiring withholding (1961) and taxing out-of-state professional athletes (1989). Along the way, the states has enacted surtaxes (1949, 1981), increased them (1982) and extended them again (1983). It even put a surtax on the bonus our country gave to people who were drafted by the military (1957). And of course rate increases are nothing new, either: The first increase in the income tax came a mere four years after the tax itself was established.

Raising tax rates would certainly be consistent with Minnesota history. But it would deny citizens the opportunity to let the growth of government match (or better yet, lag) the growth of the private sector rather than exceed it.

Government should borrow a page from the private sector, in which hard times focus leaders’ minds on reevaluating business methods and jettisoning non-core functions and activities.

Should opponents of tax increases “compromise”? Only if they wish to waste the opportunity presented by the recession to bring the relationship of the political sector and the private economy back into balance.

Many of us have had to make do with less-and do less. It’s time for Minnesota and other governments to do the same.

(A slightly different version was printed in the May 21 Saint Paul Legal Ledger Capitol Report.)

Tax Those People!

April 30th, 2009 by John La Plante

In 2005, the U.S. Supreme Court ruled, in case of Kelo v. New London, that the U.S. Constitution is no bar to cities seizing property from one private landowner and giving it to another. Following that decision, a number of states changed their laws to restrict the powers of eminent domain.

Minnesota was one of those states, though it allowed existing projects to proceed. One of those was the Cedar Grove project in the south metro suburb of Eagan.

In the words of mayor Mike Maguire, who recently wrote an op-ed on the subject,

“The area went into a steady decline over two decades. Restaurants became engine repair shops, a gas station became a truck rental facility, a grocery store became a paintball range and the old mall housed fewer and fewer shops.”

My first thought upon reading this was “what’s wrong with engine repair shops?” In recent years, some members of the city council have complained that the city’s northern section has “too many” trucking companies and not enough “quality” development.

City government has invested seven years in an effort to redo the area. It used its power of eminent domain to forcibly acquire properties in the area. Together with a commercial developer and community activists, it developed grand plans. In other words, it substituted the political process for the free market.

During these seven years, the city has incurred carrying costs for the project, which it had hoped would someday pay off. But now, thanks to the tanking of the economy, those plans are had to be altered, once again.

Some city residents have recently complained about these changes, which cut back on green space. (Arguing against greens space is like arguing against every American having a 50-inch TV. The question, in both cases, is “Who’s going to pay for it?”) They don’t like the mix of land use in the current plan, and want the city to hold back on its current development plans until the economy improves.

Mayor Maguire argues that the city should go forward with its revised plans, citing further costs to the city from delay.

It’s certainly not an easy situation for Eagan officals or taxpayers. But the seven wasted years, and the costs incurred during that time, could have been saved had the city stayed out of the business of land speculation. After all, that’s what the free market is for.

PARKING LOT FAVORITISM
The Dakota County Regional Rail Authority has been busy with several new transit stations going up in recent years. The first “Bus Rapid Transit” station in the state was opened in Apple Valley this month, though required modification of the road system won’t begin until 2012.

There are a lot of things to be said about the service, including the effects of federalism (local officials have gone, hat-in-hand, to Washington) and whether the system will actually improve personal mobility.

But I was struck by the following description from a local newspaper:

“The primarily glass structures will have wave-like roofs and level boarding platforms for smooth entry onto buses. Other features include six hybrid vehicle-only parking stalls in the ramp, 10 bike lockers and three bike racks.”

Did you catch that symbolism? Six “hybrid vehicle-only parking stalls.”

Some people call the Toyota Prius the “Toyota Pius,” for the alleged good feeling that you get from driving a “green” car. That’s a little harsh. I say, if you want to spend more on a car for whatever reason, go for it; it’s your money.

Reserving spots for the handicapped is all and good. But reserving them for specific cars based on their method of propulsion? Gimme a break.

TAX THOSE PEOPLE!
My column last week on the morality (or lack thereof) of whacking the rich with punitive marginal tax rates drew some angry responses.

Here’s one:

“At what point, Mr. LaPlante did you stop doing what is best for this country and the people of this country? At what point did you become a syncophant of a small minority group of people who are driving this country into the ground just because they can’t stop their massive greed?”

Nothing like a little character assassination to advance your argument, right? And by the way, have you checked out the growth of government (and government-fueled non-profits) lately? Who’s being greedy?

Should the Rich Pay More? They Already Do; Calls for a new income tax rate should be rejected

April 27th, 2009 by John La Plante

The DFL majorities in both chambers of the Minnesota Legislature have proposed adding yet another tax bracket to the state’s income tax system, targeting the highest-earning households. That’s an unfortunate turn of events, though I’m certainly not surprised—“Soak the rich” must be the unofficial state motto. But for economic, moral, and political reasons, Minnesota and the nation need to end the obsession with income tax “progressivity.”

First, some numbers. According to the Tax Foundation, in 2006 the top decile (10 percent) of households by income earned report 47 percent of all AGI (adjusted gross income) in the nation. They paid 71 percent of federal income taxes. In Minnesota, the top decile earned 43 percent of all AGI but paid 66 percent of all the federal income taxes that Minnesota sends to the national government. The Congressional Budget Office, meanwhile, says that nationally, the top decile earned 39 percent of pretax income and paid 71 percent of all income taxes.

You can find a similar pattern in state income taxes. According to the 2009 Minnesota Tax Incidence Study, produced by the Minnesota Department of Revenue, the top decile earned 42 percent of all household income, but paid 57 percent of all income taxes.

The highest-earning taxpayers, in other words, already pay an outsized portion of the income tax.

Rather than making our so-called “progressive” income tax systems even more so, Minnesota and the nation should move towards some form of flat-rate system.

There are a lot of economic arguments against a progressive, or as I call it, graduated tax system, but I’ll stick with moral and political ones.

First, at some point, graduated tax rates resemble involuntary servitude. A 100 percent tax would be morally wrong—even if government in turn provided that person with food, housing, clothing, transportation, and every other need in life. Such an arrangement would be a form of slavery.

What percentage of personal income can government take before it gets to that point? I don’t know, but the logic behind raising taxes on the wealthy (“we need it, they don’t”) is troubling.

Placing extraordinary taxes on high-income earners is bad for another reason: That fuels majoritarian impulses that imperil our political system. The majority rules, but our national and political institutions do have checks on majority rule, including the U.S. Bill of Rights. These checks are useful—it’s a fact of human existence that small groups of people are vulnerable to rough treatment at the hands of the majority.

Indeed, our political history has been marred by majoritarian excesses, including vigilante justice, lynchings, wartime internment of American citizens and, at our worst, slavery.

By definition, people in the top decile of income earners are a minority vulnerable to being plundered for the benefit of the majority. It is true that a new marginal income tax rate is not as objectionable as mob violence. But it is an attack on the freedom of some people to reap the rewards of their labor.

A graduated tax system invites bad policy. To paraphrase the late economist Milton Friedman, you’re going to be a careful shopper if you buy something using your own money—and rather careless if you’re spending other people’s money.

And our governments spend far too much of other people’s money. According to the Tax Policy Center (a joint program of the Urban Institute and the Brookings Institution), 43 percent of the American population (65 million) pays no federal income tax. And, according to the Tax Incidence Study from Minnesota, households in the two lowest deciles here pay no income tax.

Some government programs work well. Others work at cross-purposes with each other, or have long since ceased to be useful. Too few people apply political pressure to fix or scrap dysfunctional programs. If a large portion of the public has little skin in the game, it’s not surprising that government doesn’t receive the scrutiny that it should.

But, you may ask, what about payroll taxes? The Center on Budget and Policy Priorities says these taxes are a larger burden for most Americans than federal income taxes. That may be true, but they fund two grossly underfunded programs—Social Security and Medicare—that the top decile will eventually be called upon to pay for. And if few people pay that little in federal income taxes, perhaps we’ve cut federal taxes too much at the lower end of the income scale.

Isn’t a flax tax regressive, meaning that lower-income people will pay more as a percentage of their income? Yes. Then again, a Toyota Prius, a Big Mac and a subscription to basic cable also claim a smaller portion of someone’s income as they earn more. In short, life itself is regressive.

Even with a flat tax—or even if the state doesn’t impose a new income tax bracket—the top decile will still be paying more than the rest of us. They buy more stuff, which means they pay more sales taxes. They buy more expensive houses, and thus pay more in property taxes. When people produce and consume more, they’ll pay more. In short, if “soak the rich” is your theme, you don’t need a graduated income tax.

This article was first published in a slightly different form in the April 23 edition of the Saint Paul Legal Ledger.

Legislation Could Help or Hinder Charter Public Schools

April 9th, 2009 by John La Plante

Minnesota was the first state to use charter schools as a way of bringing innovation to public education. While nine states have no legal provisions for charter schools, Minnesota has the strongest charter laws in the nation, according to the Center for Education Reform, a pro-charter group based in Washington, D.C.

And if legislators act carefully, Minnesota could have an even better policy environment for charter schools at the end of the session.

Charter public schools not only have their own governing boards, but they also have sponsoring organizations (sometimes called authorizers) that are responsible for ensuring they meet the academic, fiscal and governance terms of their charter. Minnesota leads the nation in charter schools, in part, because it allows multiple types of organizations (colleges, nonprofits, the department of education, etc.) to serve as sponsors. In some states, by contrast, charter schools must be legally and financially part of school districts. By embedding charters within districts, those states weaken the power of charter schools to serve as laboratories of innovation.

A key question about charter schools is “Who oversees the overseers?” And what happens when some sponsors are not up to the job?

Several charter school-related bills have been introduced this session, including H.F. 935 (sponsored by Rep. Linda Slocum, DFL-Richfield) and S.F. 867 (sponsored by Sen. Kathy Saltzman, DFL-Woodbury). Those two bills aim to rework laws governing charter schools, and especially chartering authorities.

(Much of the Saltzman bill was rolled into the Senate omnibus bill that the Senate passed on Tuesday. The House K-12 Education Finance Committee on March 10 heard Slocum’s charter school legislation. The committee laid over an amended form of the bill for possible inclusion in the House education omnibus bill, which will be unveiled on Monday after the Easter recess as a delete-all amendment. Committee members plan to review the omnibus bill on Tuesday, and are expected to mark up the bill at a hearing on Wednesday.)

Though any law can have unforeseen consequences, some parts of these bills have reasonable and commonsense provisions that should, as some charter public school fans have told me, strengthen public confidence in these schools. Clarifying and strengthening conflict-of-interest regulations is one example. Requiring charter school boards to create a development plan for administrators is another.

Saltzman’s bill also allows for the creation of two organizations specifically designed to oversee charter schools. While many of the nonprofits that oversee charter schools have done a good job, there’s something to be said about having new organizations that work only on charter schools – Minnesota could benefit from having some.

These are a few of the good measures contained in the current form of the legislation. But other ideas (some of which were removed from earlier versions of the bills) threaten the vitality of charter schools.

For example, an early version of S.F. 867 imposed a numeric cap on charter schools. Even if some schools need better governance, a moratorium on new schools is a poor response, and a blunt instrument that shuts off new schools. Even a temporary cap sets a dangerous precedent. Fortunately, it has since been removed from the legislation.

Another regulation, still in play, would prohibit for three years the establishment or relocation of a charter school within one mile of a district school that had been closed. Saltzman tells me that the limit is a “placeholder,” a way to recognize a problem: A school district may have too much classroom space. It closes a school, bringing enrollment and capacity into balance, but upsetting parents. A charter school opens nearby, and students leave for the new charter in droves – and the lesser number of students in a school district classroom leaves the district once again with too much empty space. Though the latest version of the bill allows the education commissioner to waive the requirement, its presence in the legislation privileges school administrators at the expense of students. Eugene Piccolo, executive director of the Minnesota Association of Charter Schools, tells me this one-mile, three-year provision is his organization’s primary concern with the bill.

Another risky proposition, discussed early on, was to require charter school leaders to have the same kind of licenses that school district leaders have. The Minnesota Association of Secondary School Principals, for example, has favored the idea. Fortunately, this provision is not in the current Senate legislation.

The thing is, many charter school leaders are effective despite – you might even say because of – their training and experience outside the usual career path for school administrators. One example is Paul Vallas, who was head of the Chicago Public Schools from 1995-2001 (he’s now head of the Recovery School District in New Orleans). Vallas had spent most of his career in finance, and was budget director for Chicago Mayor Richard M. Daley. But when Daley appointed Vallas head of the school system, Vallas became instrumental in starting reforms in the schools there. To me, that shows you don’t need traditional certifications to make a positive impact on schools.

The current Senate bill does not require a charter school administer be certified in the same way that a school district administrator is. But it does say that charter school boards have to lay out a professional development plan for their school leaders. While that’s a step towards layering schools with red tape, it could be worse. Saltzman tells me the intent is not to require, beyond broad categories, the content of a development plan, but to make sure that schools have one.

Can charter schools be better governed? Certainly. Any type of organization can be. But as school districts demonstrate from time to time, a sheaf of regulations and laws cannot eliminate malpractice or malfeasance. Vigilant parents, who value the fact that charter schools offer their children different curricula or environments, are important watchdogs as well.

As they work through the education bills, Minnesota legislators need to tread lightly. When it comes to charter public schools, it’s the aspects that make them distinctive that make all the difference.

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.

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.

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)

Universal preschool is a classic case of the perils of good intentions

December 11th, 2008 by John La Plante

No Child Left Behind has changed the shape of schools. Now there’s a move afoot reinvent childhood itself through universal preschool.

I’m worried about this trend.

Several states, including Georgia and Oklahoma, have “universal” preschool programs, and advocates across the country are calling for it as well—including some Republicans. Democratic presidential hopeful, U.S. Sen. Barack Obama of Illinois, has said that, if elected, he’d propose a $10 billion universal preschool program.

Advocates of universal preschool say that it can close the achievement gap between races and income levels. Another argument is that spending money on preschool now can save money down the road—$4, 7, or $14 for each dollar spent, depending on whom you listen to—through reduced rates of high school drop-outs, welfare use, or incarceration.

But the case for universal preschool is oversold—the glowing numbers won’t hold up.

In the fall 2008 edition of Education Next, Craig Ramey, a professor at Georgetown University in Washington, D.C., says that the evidence these programs benefit some children is “quite strong.” But he also says that the benefits of preschool exist “particularly for children from low-resource families.”

Who are these families? They are ones who have “limited parental education, very low family incomes, and/or parents unable to consistently provide high-quality learning opportunities” for preschool children. Ramey’s emphasis on the neediest families is echoed by other experts, such as Ron Haskins of the Brookings Institution.

They’re simply being smart with the public’s money, for it’s unlikely that the lofty numbers of a few programs can be maintained. Ramey says that’s “because many of the children being served [in today’s expanded programs] have relatively low levels of risk for school failure.”

Compare today’s programs with the Perry Preschool Program, for example. All the children in that program were developmentally or cognitively delayed—certainly not representative of children as a whole. Meanwhile, Head Start, the single-largest preschool program, has been a disappointment.
On the other hand, the advocacy group Pre-K Now favors pre-K programs “for all children.” Gov. Rod Blagojevich of Illinois is one politician who has led the push for a “preschool for all” program that includes three and four-year old children—even those of parents who could pay their own way.
Calling for universal rather than targeted preschool programs is a smart political tactic. That’s because public programs that are tailored to the poor don’t have the same political power. Over time, they don’t expand as rapidly as middle-class entitlements do.
Universal programs disappoint, though, since preschool is subject to the “fade-out” effect. That is, many programs have produced benefits that are observed one or two years but disappear in time. The research on the question of the permanence of gains is mixed. Some research says that preschool gives children cognitive gains, but causes them to regress socially.

The ultimate “fade out,” though comes in the K-12 system itself. Student performance generally declines as a class moves from elementary to middle to high school, suggesting that academic problems lie not in the early years of a child’s school career, but later on.

A universal preschool program is financially foolish and regressive. It consumes funds that could be used to reward teachers who achieve great results with students in the most challenging neighborhoods, and spends it on programs for middle-class. That’s the first way that it’s regressive. The second way is that it depends in part on taxes from the very poor. Though they may not pay much if anything in income taxes, they do pay sales and other taxes.

A universal program could strangle existing preschool and daycare providers. Today, families find a variety of options in daycare and preschool, including family care and centered-based care. A universal system could drive a number of those options out of business, by imposing an expensive regulatory scheme and favoring some providers over others.

But the most serious problem with universal preschool is that it is based in a flawed moral vision that does not respect the boundary between family and politics.

In a healthy society, a number of different institutions address the many different needs that we have as individuals, families and communities. Commercial businesses determine what’s appropriate behavior on the job, but we don’t expect them to set the rules for all of life. Religious institutions help us think about life’s ultimate meaning, but they don’t set interest rates.

Government has its place, too. But setting it up as a major player in determining what a successful childhood is like—something envisioned by the preschool advocates who call on government to organize stakeholders and then fund preschool enrollments—puts today’s public officials in the place of Plato’s philosopher-king, molding the next generation. Anyone who values freedom of conscience and religion, not to mention a civil society distinct from the political world, should be horrified.

In some limited circumstances, we might be served by limited, targeted, voluntary preschool programs. But a universal program is a classic case of the perils of good intentions.

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