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Underfunded Minnesota: Collective Investment for a Brighter Future

by | Feb 23, 2023 | News

The current budget surplus represents an important opportunity to improve the quality and affordability of life for Minnesotans. For decades, wages have largely stagnated, while workers and families have incurred steeply rising costs for major expenses like childcare, housing, and college. This is especially true in Minnesota’s communities of color, which experience some of the country’s worst racial disparities. Difficulty in accessing life’s necessities is a problem not just for those struggling to make ends meet, but for Minnesota’s collective prosperity, which depends on a healthy, educated, and hopeful population. Guaranteeing the foundation of broad social and economic inclusion is the inherent responsibility of the government, and the challenges facing Minnesotans today result from the neglect of essential public goods and services.

Amidst an unsatisfactory status quo, policymakers, researchers, and commentators are increasingly concerned about long-term population decline. Experts do not fully understand what is causing women and families to have fewer children, but there is a broad bipartisan consensus that a dying world would be a bad one. An aging, shrinking workforce will weaken the economy and impede the state’s ability to maintain a functional society; America will no longer be able to fall back on an endless labor supply to make up for its lack of investment in individual workers. Left unchecked, economists predict that these conditions will concentrate even more wealth in the hands of the few, further limiting economic mobility. This threatens a dangerous spiral, as research has linked stagnant quality of life with decreased fertility. 

Both long-felt economic precarity and looming demographic threats are rooted in barriers to living, working, and raising a family in Minnesota. In confronting these challenges, there is no substitute for the direct provision of basic needs like childcare, healthcare, and education. These investments are the clearest way to bolster the current workforce, remove obstacles to parenthood, and attract new residents. The use of tax cuts and small-scale investment, on the other hand, has failed for decades, failed in other countries, and will continue to fail here. 

This report demonstrates: 

Inadequate support for basic public needs is resulting in higher costs and a smaller workforce, and potentially driving a decline in birth rates.

  • Minnesotans face substantial barriers to economic participation, including inadequate housing and transit options, which limit labor market access.
  • By failing to adequately resource public schools or provide affordable childcare and college, Minnesota is failing to maximize the productivity of its workforce.
  • Research has found that financial concerns, as well as generalized social pessimism over issues like climate change, are contributing to declining fertility.
  • The government is the sole actor with the power and ability to address these fundamental challenges and lead the state in a more hopeful direction.

Despite common conceptions, Minnesota is not an especially high spending state. 

  • Measured as a share of the economy, Minnesota now spends less on public goods and services than it did 30 years ago—a shortfall equal to $13 billion in the current biennium. 
  • Public sector workers have suffered the majority of this decline; state and local payroll dropped 28% relative to personal income since 1993 and the state now employs 9% fewer public sector workers per 1,000 residents than it did 30 years ago.
  • In total, Minnesota state and local governments spend just 6% more than the national average, down from 120% in the 1990s. As a share of its total economy, Minnesota’s expenditures rank 23rd nationally, and 3rd out of 5 neighboring states.
  • While every other country’s ratio of public spending to total consumption increases with wealth, U.S. expenditures remain on par with the poorest nations in the world.

The direct provision of universal public services is the best way to reduce costs for Minnesotans and lower barriers to living, working, and raising a family in Minnesota.

  • Tax cuts cannot make up for the lack of basic services—for example, the total tax liability of a median earner equals less than two-thirds the cost of one year of childcare.
  • Similarly, economic growth will not compensate Minnesotans for the cost of programs they are going without: $2 billion of statewide income would give each household in the bottom 80% $373 per year, while households in the top 1% would get nearly $12,000.
  • Countries with broader, more robust public investment in families, children, and a generally high quality of life have successfully stabilized birth rates around replacement level, while those pursuing limited interventions have seen birth rates fall more steeply.
  • Supplying insufficient or indirect support for public goods often results in waste and higher costs elsewhere, such as police costs associated with criminalizing the homeless or fraud resulting from privatized systems with limited oversight.

Arguments that Minnesota’s taxes and government spending are hurting economic growth or causing residents to leave are unsupported and deeply flawed. 

  • Data shows that Minnesota has long had the strongest economy in the region and has experienced more population growth than most regional neighbors.
  • Arguments about tax flight center on cherry-picked data points covering convenient timelines or comparing Minnesota to states in different, incomparable regions.
  • Minnesota gains residents from most states in the region, while notable exceptions cannot be readily explained by differing tax policies.
  • States that have cut taxes in hopes of mimicking the economic success of Texas and Florida have failed to improve growth and have created budget challenges.

The report concludes: Policymakers should use all available resources to directly improve quality of life for Minnesotans. With a comparatively robust public sector, Minnesota is well-positioned to provide a wide range of public services that will ease barriers to living, working, and raising a family in Minnesota. These investments should break with decades of privatized and means-tested policymaking, and embrace a universal approach where everyone pays and everyone benefits. Public investment must center not just on household finances, but on building a more hopeful collective future. Minnesota should lead the nation.

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