In the 1950s, Minnesota was a run-of-the-mill, poorer than average state. As the post-World War II generation came into positions of civic, business and public policy leadership, smart decisions were made to make Minnesota a place of envy.
Investments in education - from reforms in how K-12 schools were funded to the expansion of public community colleges and four-year institutions - made the state’s workforce one of the most educated in the country. Innovative health policies, including nation-leading programs targeted to those with pre-existing conditions and the working poor, made the state’s population among the nation’s healthiest. Government, often led by progressive Republicans, made it a priority to protect the environment and assure fair treatment of Minnesotans in housing, employment and other areas.
This foundation of innovation and investment was the catalyst for a robust business community. The 2021 list of Fortune 500 companies included 18 based in Minnesota. In addition, some of the nation’s largest privately-held companies took root and became leaders in their fields. Real per capita GDP growth steadily outpaces the nation. In July 2022 Minnesota’s unemployment rate dropped to 1.8%, the lowest level any state ever had recorded.
Minnesota ranks second among the best states to live in the 2021 U.S. News study. The ranking is notable for its wide range of criteria - health care, education, economy, infrastructure, opportunity, fiscal stability, crime and natural environment.
WalletHub ranks Minnesota as the 9th best-educated state (2021 data). While the nation celebrates a record low 8% rate of those without health insurance, Minnesota has been at half that level - 4% - for most of the years following the Great Recession. The state’s poverty rate - a bit less than 9% - is less than half the rate in the worst state, Mississippi, according to Census Bureau data.
Along with benefits, though, there is a cost. The state’s biennial budget exploded in the late 1960s and 70s. General fund spending more than tripled in a decade, growing from $1.4 billion in the 1968-69 biennium to $4.9 billion 10 years later. The average biennium-to-biennium increase during that period was more than 38%. While growth rates slowed significantly since then, increases in state spending have been steady under both Democrats and Republicans. The general fund budget is about $52 billion today.
Minnesotans for years have ranked among the highest taxed people in the country. State and local taxes per capita reached $6,418 in 2021, the 9th highest nationally, according to the Tax Foundation.
Today, Minnesota leaders are faced with a fundamental question: Will the investments and policies of the past 70 years sustain a vibrant future or are major reforms needed? The facts would argue that spending on yesterday’s solutions - even if the investments are substantial - won’t solve tomorrow’s problems.
Consider just three of the huge challenges facing the state:
First, Minnesota’s workforce no longer is growing. For generations, Minnesota has grown its public and private wealth in good part through more people producing more goods and services. Today, and into the foreseeable future, the state’s population growth is stagnant, held down by a birth rate that hasn’t recovered from the Great Recession, immigration depressed by federal policy gridlock and incompetence and an inability of Minnesota to attract and retain young adults. The result is that the state demographer predicts that the work force will grow by a dismal annual average of 0.1% at least through 2025.
When the work force isn’t expanding, wealth creation has to come from productivity gains, the growth of new industries and the efficient use of resources. Achieving those goals will take innovation in public policy and private investments.
At the same time, the state can’t give up on efforts to attract new people. One of Minnesota’s most important resources for the future will be water. In an era of climate change, the availability of water for consumption, recreation and industry will be invaluable. Yet, today, we are jeopardizing this valuable resource. Outdoors columnist Dennis Anderson recently reported that in the land of 10,000 lakes, 3,000 bodies of water are polluted, a number that has grown 10% in just the last four years.
Second, state policies have not kept up with an economy that fundamentally has changed. In the early 1960s, agriculture, other industries based in natural resources and manufacturing were nearly 20% of the economy. By the first decade of the 21st century, they had shrunk to just over 6% of the economy while retail, the financial sector, other services industries and technology were about 80% of the economy.
Yet, Minnesota’s tax system, heavily dependent on the individual income tax, largely reflects that 60-year-old economy. The state collects more than half of its revenue from the individual income tax. In short, the state heavily taxes work and savings at a time when it needs to be rewarding both. Reducing the income tax would make the state more competitive. Increasing the sales tax (with safeguards for low income residents) would make the tax system better aligned with today’s economy.
In addition, today’s economy and culture have created new realities for working families. Metro families can expect to pay an average of $36,000 a year to place an infant and a toddler in a care center. While costs are lower in Greater Minnesota, fewer care options leave many families in limbo. Getting more workers into the work force (about one-third of non-institutionalized, working age Minnesotans are not in the labor force) will depend on smart policy responses to issues like the child care crisis.
The third challenge is outdated public service systems. Policymakers too often equate more money with reform. Look at public education. Education Minnesota, the dominant union of teachers, calls for “full funding” of K-12 schools, an investment they estimate to be in excess of $4 billion, nearly a 20% increase in the current budget.
Yet, it’s hard to find a good definition of what “full funding” even means. “Full” compared to what benchmark? Education Minnesota offers 2003 as the baseline year and there is a complicated study defending that mark. But missing is any discussion of accountability or whether the state is delivering education in the most effective way to deliver the best outcomes for kids.
Should the state invest more funds to close the achievement gap? Probably, but consider that one of the state’s best-funded school districts, Edina, has an achievement gap comparable to districts in low-income areas. Should teachers be paid more? Yes, but what skills will be most valued and most effective and how can the state recruit and retain the best and brightest young professionals in education during a time when the pool of potential young adult recruits isn’t growing? Are 330 school districts and the administrative overhead and duplicative programs they require the best use of public dollars in an era of technology advances?
If the focus is only on “how much,” the important questions around “for what” don’t even get asked, much less answered. And it’s not just education. The same issues demand evaluation in every public system, from public safety to health and welfare programs.
Former Minnesota Revenue Commissioner John James put it well in a recent opinion article in the Minneapolis StarTribune: “Legislative consideration of systems redesign is extremely rare, but could make better use of tax dollars. The advances over 150 years in transportation, communications, access to information, and specialized knowledge create opportunities. Government services could be delivered more efficiently through a regional approach involving, say, 10 or so regions, instead of a fragmented array of about 85 almost exclusively county-based delivery systems.”
Minnesota today has the resources to bring the kind of innovation and thoughtfulness to contemporary challenges that marked the leadership of those in the private, public and non-profit sectors over the past half century. The unknown is whether today’s leaders have the same courage as those of the last generation who made Minnesota a great state in which to live and work.
Additional reading:
“Let’s make Minnesota competitive again,” John James, Minneapolis StarTribune, Jan. 6, 2023;
“Walz has a chance to transform Minnesota,” Tom Horner, Minneapolis StarTribune, Jan. 3, 2023; https://tinyurl.com/hresfuhw
As always, Tom, a masterful analysis and context-setting.
You often wind up on the topic of education. What new context are we in when a middle schooler can use AI to write like Steinbeck? In the AI dominated future, what will we mean by the term “labor?” “Worker?” “work?”
How much of your policy proscriptions are based on a pre-AI paradigm defining the individual’s relationship to the State and the economy?