While Minnesota Reinvests, Wisconsin Disinvests

Tax cuts enacted in the Badger State in recent years have contributed to a more regressive tax system and recurring revenue shortfalls, as noted in the preceding article in this series. Meanwhile, tax increases in Minnesota have not only made the tax system less regressive, but also helped to produce a significant surplus after years of perennial budget deficits. The divergent fiscal situations of the two states has allowed Minnesota to reinvest in public assets, while Wisconsin has been compelled to disinvest.

For example, based on the U.S. Census Bureau’s annual Public Education Finances reports, 2010 elementary and secondary school current spending* per pupil in Wisconsin was six percent greater than in Minnesota. After adjusting for inflation, Wisconsin’s per pupil current spending declined by ten percent over the next five years, while Minnesota’s increased by one-half percent.

By FY 2015, Minnesota’s per pupil current spending was five percent greater than Wisconsin’s. In that year, Wisconsin’s per pupil spending dipped below the national average for the first time in the 25 years, while Minnesota’s per pupil spending was modestly above the national average. A recent North Star report noted that increases in real per pupil state operating support for Minnesota school districts have replaced a significant portion of what was cut during the decade from FY 2003 to FY 2012.

While increased spending on education may not lead to an immediate boom in a state’s economy, it is likely to produce a high return on investment in the long-term through improvements in the quality of the state’s workforce by giving our children the education they need to compete in the global economy. We can credit the decision of previous policymakers to invest in education with producing above average economic expansion and income growth in Minnesota relative to the rest of the nation. There is no reason to doubt that recent decisions to reinvest in Minnesota education will produce similar results in the future.

The two states have also taken different paths in terms of providing health care to working families. Health care in Minnesota has increasingly become more generous for working-class families since the Affordable Care Act passed in 2009, while policymakers in Wisconsin have dragged their feet on improving their health insurance market since the passage of the ACA. Minnesota was an early adopter of the Medicaid expansion, enabling families earning up to 138 percent of the Federal Poverty Level (FPL) to enroll in Medical Assistance (MA). Minnesota also significantly expanded eligibility for children to enroll in MA; families can apply for their children if they earn less than 275 percent FPL.

Wisconsin is one of 19 states that has not expanded Medicaid. Instead they have continued to utilize a state-run insurance program known as Badgercare Plus. This program covers children, pregnant women, and family planning services for those earning up to 306 percent FPL, and it covers childless adults and caretaker relatives up to 100 percent FPL. That means there is a gap for adults between 100 and 138 percent of FPL where enrollees must pay premiums ranging from $20 to $46 per month if they buy a silver plan and utilize the Advanced Premium Tax Credits. They also must pay deductibles for their plans on the marketplace, which are around $3,000 for silver plans for individuals (although cost-sharing reductions can reduce this exclusively for silver plans). If this gap were filled, adults without children could save thousands of dollars annually.

Minnesota has a state-run insurance program called MinnesotaCare, which covers adults between 138 percent and 200 percent FPL and Minnesota children, regardless of income. Minnesota uses a state-run health insurance marketplace known as MNsure, which aids Minnesotans looking to buy health insurance in finding the right plan for them, as well as maximizing subsidies so they pay as little as possible in monthly premiums. Minnesota has been considered a leader nationwide in administering health insurance, resulting in an uninsured rate of under 6 percent.

Wisconsin let the federal government set up their insurance marketplace, and they also used federal funds to run outreach programs, which will likely mean closing some offices and scaling back advertising before the open enrollment period. Additionally, the health plans that remain in Wisconsin’s marketplace will experience premium increases of roughly 20 percent.

Minnesota and Wisconsin have also deviated sharply in recent years in terms of approaches to labor policy. Wisconsin has made extensive efforts to curtail collective bargaining by passing a so-called “right-to-work” law (essentially allowing workers who benefit from union-negotiated wages and benefits to decline paying union dues) and severely limiting collective bargaining rights for most public employees. In addition, Wisconsin’s minimum wage has been frozen at $7.25 per hour (the federal minimum) since 2010; due to inflation, the frozen minimum wage represents a decline in the real purchasing power of that wage over time.

Meanwhile, Minnesota has not only resisted “right-to-work” and other anti-union measures, but has actively worked to protect and enhance the rights of workers. In 2014, for example, the state established a new Public Employment Relations Board (PERB) to hear unfair labor practices cases that had previously been litigated in the court system. Minnesota also led the way with a contract that guarantees state employees six weeks of paid parental leave so parents can bond with their newborn and adopted children. In addition, the state’s minimum wage was gradually increased from $7.25 to $9.50 and indexed to inflation in future years in order to keep pace with rising consumer costs.

The respective positions of these two states in regard to labor may have had an impact on the relative degree of income inequality in each state. Income inequality increased from 2010 to 2016 in every state in the nation except Alaska, based on Gini coefficients reported in the American Community Survey. The drift toward greater inequality, however, was significantly greater in Wisconsin than in Minnesota. In 2010, income inequality in Minnesota was significantly greater than in Wisconsin. By 2016, the situation had reversed, with income inequality slightly less in Minnesota than in Wisconsin. During this period, the increase in median household income in Minnesota was thirty percent greater than in Wisconsin, aggregate wage growth was 28 percent greater, and aggregate job growth was 25 percent greater.†

Income inequality is perhaps the most persistent and pernicious force impeding the development of a fair and prosperous economy, both nationally and in the states. As wages stagnate and an increased share of income is concentrated in fewer and fewer hands, the purchasing power of lower- and middle-income families is eroded, thereby inhibiting economic expansion and job growth. By increasing the minimum wage and protecting the right of workers to organize and collectively bargain, the policies pursued in Minnesota likely played some role in curtailing growth in income inequality and yielding superior economic outcomes relative to Wisconsin.

On the one hand, it would be simplistic to attribute differences in economic performance between states entirely to differences in public policy. On the other hand, neither are such policies entirely irrelevant to economic outcomes. Minnesota’s superior economic performance relative to Wisconsin in recent years likely has at least something to do with the more progressive and enlightened policy decisions made in the Gopher State.

 

Health Care Policy Fellow Pat Benner co-authored this article.

 

*Current spending is category of elementary and secondary school operating expenditures developed by the U.S. Census Bureau specifically to facilitate interstate comparisons. Update, 10/12/17: due to an update in the inflation indexes used, the FY 2010 per pupil current spending amounts presented in the graph and the percentage change in per pupil current spending from FY 2010 to 2015 presented in this paragraph have been revised relative to the amounts listed in the original version of this article.

These findings are based on U.S. Bureau of Economic Analysis information from 2010 to 2016 for median income and aggregate wages and from 2010 to 2015 for aggregate employment.