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Overview of a 2017 “Mis”adventure: A mis-spent surplus, missed opportunities, and mis-direction on racial equity….as D.C. threatens

by Dane Smith, President of Growth & Justice

As we sift through all the assessments of the 2017 Legislature from the many groups in Minnesota working with disadvantaged and vulnerable populations, variations of  the syllable “mis’’ keep popping up.

We see a consensus on these “misses”:  a misspent one-time budget surplus on permanent tax cuts mostly for the most affluent, missed opportunities to invest more in everything from affordable mass transit to college cost reduction, and misdirection on racial equity after a promising start in 2016.

All of which would be alarming enough, in a vacuum.   But the 2017 legislative misadventure is especially worrisome because of a looming crisis, namely, the likelihood of deep damage coming from Washington D.C. in the next couple of years to the basic safety net for health and economic security.

The state’s chief budget officer, Minnesota Management and Budget Commissioner Myron Frans, in a recent MinnPost article, warned that “because of the uncertainties at the federal budget level, we do feel like we are closer to that line of teetering away from structural balance.”

Many of our allies in coalitions serving vulnerable populations and racial equity are saying it “could have been worse’’ and that at least deeper budget cuts proposed earlier in the session were averted in the final showdown with the governor.

And to be sure, state government did not shut down, as it has in previous years of divided partisan control between the Legislature and governor.   A shutdown and suspension of state and local government services can cause much havoc in the lives of low-income people in particular.  Moreover, the restocking of budget reserves in recent years, to about $2 billion, means that at least temporarily our safety net programs are funded and we have larger budget reserves than in previous years.  Finally, also on the plus side, the Minnesota economy is faring better than most other states where public investments are skimpier, workers are paid less and where tax cuts have gutted programs and services.

Nevertheless, the misses were legion and add up to a wasted chance to improve the lives of our neediest Minnesotans and others on the wrong end of all our various disparities.

Surplus misspent on high end tax breaks
We at Growth & Justice agree that too much of that one-time surplus goes to permanent tax cuts, mostly benefiting higher-income households.  Among the largest beneficiaries are owners of business property, heirs of multi-million dollar estates, and our more affluent retirees and Social Security beneficiaries.  Tobacco companies and their customers also inexplicably got tax cuts for some of their products.

Seeing so much of the $650 million in tax cuts going to Minnesota’s most well off, when it could have served Minnesotans more broadly and as an investment in our economic future, is frustrating.     Numerous studies document growing overall inequality and even our own Federal Reserve Bank of Minneapolis, through its new Opportunity and Inclusive Growth Institute, is warning that growing inequality threatens our long-term economic health, as successful folks at the very top are acquiring an ever greater percentage of total income and wealth.

Although there were a few progressive provisions in the tax package, such as those that improve the Working Family Tax Credit and help college students with high debt, we agree with the North Star Policy Institute’s overall analysis that the net effect was regressive and imprudent.  Even the much ballyhooed income tax exemptions for Social Security, sold as protection for the vulnerable elderly, tend to benefit higher-income seniors the most.

Missed opportunities for health and human services
Minnesota’s total Human Services budget was cut by almost a half-billion from base budgets and projected needs over the next two years.  In signing the 2017 human services bill, Gov. Dayton praised the Legislature for some modest improvements in programs for the Minnesota Security Hospital, for protecting seniors from abuse in nursing homes, and for retreating from original proposals to cut human services by even more.  But bottom line, Dayton said in his letter announcing signature of the agreement, “bipartisan priorities such as early childhood, dental care, community health centers, home care workers and child protection were not sufficiently funded.”

Indeed, despite bipartisan and growing rural-urban agreement that the state faces a crisis in child-care affordability, the Legislature failed to fully fund the Child Care Assistance Program, and it fell short in providing more for family home visiting for at-risk families and teen parents, a proven intervention.  The Legislature and Gov. Dayton earlier in the session agreed on a package of $300 million in emergency aid for mostly middle-income families whose private-market health insurance premiums skyrocketed last year, but most observers regard that fix as a temporary band-aid, which will do nothing to move Minnesota toward affordable, high-quality health care for every resident.  Meanwhile, the state is left with an emerging crisis in cost and access to both mental care and dental care for a million Minnesotans who are on Medicaid and Minnesota Care, particularly in Greater Minnesota.  We recommend detailed overviews of impacts on children and mental health that are available online from the Children’s Defense FundNAMI-MN, and the Minnesota Budget Project.

There were a few other bright spots, from more dollars for early childhood development, to an ample bonding bill for construction projects (long delayed), to sustained funding for local birth-to-career education partnerships in both inner-city and Greater Minnesota communities.  Original House and Senate proposals for more draconian cuts in foundational institutions- from colleges, to human services, to transit systems- were thwarted.

Despite overwhelming demand and consensus between business leaders, promoters of Greater Minnesota roads-and-bridges, and metro area transit advocates –– the Legislature failed once again to enact a comprehensive long-term transportation and transit funding package.  Opposition to any form of general tax increase by anti-government and anti-transit factions in the House and Senate majorities remains a key obstacle.  Original proposals to slash transit funding by 40 percent were defeated, thanks to vigorous opposition by Twin Cities chambers of commerce.  We strongly agree with Minnesota’s leading CEOs, who took anti-metro and anti-transit forces to task in a recent op-ed making the business case for light-rail and transit investment.  The failure to invest translated rather directly into transit fare hikes, which of course bear heavily on workers and students with the lowest incomes.

In the end, the Legislature did come up with $300 million per biennium in ongoing funding from general revenues (instead of new revenue, thus adding to “tails” in future biennia) and an additional $300 million in one-time investment from the bonding bill.  This amount falls woefully short of the estimated $900 million current shortfall in transportation-transit investment.  We are members of the Transportation Forward coalition and embrace their statement that “Better transportation options are essential to growing jobs, spurring economic development, and improving quality of life across the state.”

Misdirection on racial equity
In last year’s Phillips guest blog wrapping up the session, we optimistically declared that the 2016 session had at least “one big gem.’’   That redeeming feature was the elevation of racial equity and disparity reduction as a separate budget category and bipartisan concern and support for same.

We were a little too optimistic.  Bipartisan embrace of racial disparity remediation seemed to disappear in the wake of a 2016 election outcome that was interpreted in both parties as public disenchantment among white voters with groups such as Black Lives Matter or “political correctness.’’   The amount earmarked for “disparity’’ and which mostly goes to Career Pathway models that primarily serve communities of color, was maintained at $17.5 million in base spending.  But little or no further initiative was taken on the many provisions and great ideas spelled out by equity advocates, such as those in the Voices for Racial Justice agenda.  Worse than inaction, the House and Senate majorities sent unfriendly signals to people of color with many proposals, including high-profile efforts to increase penalties for protesters who  block traffic and an effort to prevent undocumented residents from obtaining driver’s licenses, which Gov. Dayton is still fighting to reverse.

The Onslaught: Congress poised to shred safety net?
Meanwhile, Minnesota is bracing for an onslaught from Washington D.C. on the basic economic security safety net for vulnerable households, not just through repeal of the Affordable Care Act and deep cuts in Medicaid, but on a broad front with a proposed budget from President Trump that slashes everything from housing assistance to legal services to food stamps.  What happens next could overwhelm Minnesota’s ability to protect and nurture its at-risk children and families, and the Legislature did little to insulate us against this future shock.

Ben Horowitz at the Minnesota Budget Project reported recently that Republicans in the U.S. Senate were working on two proposals that would be “a disaster for Minnesotans.”  Both the Better Care Reconciliation Act (BCRA) and the Obamacare Repeal Reconciliation Act (ORRA) would make billions of dollars in cuts to health care supports that reach more than a million Minnesotans.  Policymakers continue to discuss minor tweaks to these fundamentally flawed bills.  That means Minnesotans, including the elderly, people with disabilities, and those with low incomes, still face threats to their ability to find affordable health care.”

Division in the ranks between the U.S. House and U.S. Senate, between GOP moderates and conservatives, and between President Trump and Congress have prevented any dramatic disinvestment or repeal and replacement so far.  We might muddle through somehow over the next two years, especially if the economy stays strong and unemployment and poverty rates continue to decline or stabilize.  But recessions have proven inevitable throughout our economic history and we may enter the next one with the weakest safety net in modern times.

In summary, we agree with veteran state Sen. Dick Cohen, a senior member on the Finance Committee with 40 years of legislative experience, who summed up the session in a recent op-ed thusly: “With ongoing expenditures spent only as one-time money and accounting shifts, an uncertain economy, possible continued decreases in projected revenue, an unsustainable tax bill and a small budgetary balance in the future, it is quite possible, if not probable, that in two years we will face a significant deficit.”


Dane Smith is the president of Growth & Justice, a policy research and advocacy organization that aims to broaden prosperity and reduce economic and racial disparities in Minnesota. Smith is a former journalist with 30 years of experience covering government and politics for the Star Tribune and the St. Paul Pioneer Press.




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