Saturday, February 28, 2015

The Politics of the Minnesota Budget Surplus (Or why it is bad news for Minnesota)

Perhaps the worst thing that could have happened to Governor Dayton’s political agenda was for the
    The first point to consider is that there is not really a $1.9 billion dollar surplus.  It is much lower than that.  The last fiscal forecast from November 2014 which projected about a billion dollar surplus did not exist.  It did not because factoring current spending obligation in, inflation largely erased it.  By that, assuming a normal rate of inflation the $1 billion surplus would have been eaten up by current spending commitments. In their more candidate moments, both DFLers such as Ron Latz and Republican Kurt Daudt admitted that, but nonetheless everyone at the Capitol chose to ignore this.    The only way there is a surplus of $1 billion for the coming biennium is if there is agreement to cut $1 billion from the current spending.
    Let’s then cut $1 billion from the current $1.9 billion projection and we are left with $900 million.  This is sort of a surplus.  Why sort of?  Look at the fiscal forecast.  The surplus is largely a product of forces beyond Minnesota’s control.  A growing US economy, decreasing fuel prices, and a rising dollar.  These are macro and unexpected structural forces that can rapidly change.  Fuel prices rapidly went down and they could rapidly accelerate again, triggering economic events that affect the fourth reason for the revised budget forecast, higher individual income and sales taxes.  Minnesota’s economy is doing better, perhaps for some reasons attributed to state economic policy, including increasing income taxes on the wealthy a couple of years ago, but also for reasons having nothing to do with state policy.
    The remaining $900 million is a surplus so long as current economic conditions continue and so long as current tax rates do not change.  If one cuts taxes then this will pressure the surplus projection downward, and if the economy does not continue to grow along the way projected then too it will go down. Moreover, while the fiscal forecast projections into the biennium beyond the next one too offer a structural surplus, it too is based on assumptions about taxes and economic conditions that may or may not continue.
    But the fiscal forecast also misses something important–depreciation on state assets and deferred maintenance.  What is not calculated here are deterioration of state assets such as roads, bridges, water and sewer systems, and parks.  They all need maintenance.  Lost of value to them due to wear, tear, and deterioration have not been considered.  Yes they should be considered part of a capital budget and not an operating budget, but the state operating budget does not do a good job of factoring in necessary or delayed maintenance.  Factor them in and there is really no surplus.
    In many ways, Dayton is correct.  We still need a long term solution to generate the revenues to repair state infrastructure.  Proposals to use the state’s short term $1.9 surplus are both inadequate and short term.  That amount of money just does not cut it to address the current infrastructure needs of the state, let alone also allow for tax cuts, more K-12 spending, and all the other ideas on the wish list by many.
    So here is where the bad news for Dayton kicks in. He wants a structural solution to infrastructure along with other new commitments on spending.  All are worthy.  Yet news of a surplus has all but ended any hope of tax increases and a structural solution.  At least this is what Speaker Daudt has said.  It was already near impossible for the governor and the DFL to get tax increase before, now it will be impossible.  At the same time there will be pressures to cut taxes, which now doubt there will be  bi-partisan support for.  What we have here is a recipe for budget foolery and gimmickry that reminds me of the last time we had a huge surplus–1999.  Back then Ventura was governor, the DFL controlled the Senate and the GOP the House.  The economy was humming along and the surplus was near $5 billion.  Taxes were massively cut and money given back to all.  Then the economy tanked and it has taken until now–16 years–to recover.
    Now is not the time to talk of permanent tax cuts or rebates.  Nor is it the time to think of a  brief budget surplus as a long term solution to delayed maintenance and infrastructure costs.    Nor are one time cash infusions going to change state graduation rates or educational disparities or the rising costs of higher education.  Yet this “short-term-less-than-meets-the-eye” surplus will obscure  all of this, thereby making it more difficult for Dayton to achieve either his short or long term objectives.
recent fiscal forecast to now project a nearly $1.9 billion surplus for the coming biennium.  While money in the bank is not normally thought of as bad news, in this case it is, and it portends a possibility that his political agenda and timely agreement on a state budget could be derailed.

Saturday, February 21, 2015

How the Minnesota DFL Lost Their Narrative

    One can already see the Minnesota Republican political narrative for 2016 and it is not pretty for the Democrats.  Simply put the narrative is that the DFL is out of touch with middle class Minnesota, they are the party of gridlock, and GOP will defend the middle class and stop the bickering.  How did all this happen?
    The strength of the DFL narrative in 2010 and even though most of the 2013-14 session was its defense of the middle and working class.  They had a great narrative: an increased minimum wage, tax increases on the wealthy and cuts for the middle class, more money for K-12, and the Women’s Economic Security Act.  This is a terrific “We are on your side message.”  But somewhere along the way to the 2014 elections the Minnesota DFL lost their message and the battle for images and symbols.  Spending on a new state senate office building did not help and the messaging on taxes and spending fell flat, costing the DFL the House in 2014.
     Now the DFL are in trouble.  Dayton’s push for commissioners’ pay raises was simply politically dumb.  After years where most Americans if not Minnesotans have not seen pay increases, arguing for commissioners’ raises when they already make two to three times the median family income in Minnesota was not smart.  Nor were defenses of it by some DFL commentators that these individuals deserved raises or else government would not be able to recruit or hold talented administrators.  It sounded private sector business CEOs who whine they do not make enough.
    But then it got worse.  The Dayton-Bakk fight did not look good.  It painted a party as dysfunctional, undermining another narrative that the DFL had for the last two years–they delivered on their promises.  And then the deal to address the raises was brokered by Kurt Daubt–the GOP Speaker of the House.  His intervention sets up a narrative that the DFL cannot govern alone and that what is needed is unified Republican control of the legislature.  Moreover the deal he did broker did not take the pay raises off the table–it merely postponed them until later this year–even closer to the 2016 elections.
    And then this past week the State Auditor sharply criticized the mismanagement of MNSure.  Yes it has insured many more Minnesotans yet its managed was flawed and it needs to be fixed.
    Finally, while no one doubts we need to spend billions more on infrastructure and that the Republican proposal to spend the non-existent surplus on roads and bridges is an insufficient smoke and mirrors idea, the DFL have not messaged their proposed tax increases well.
    So think about 2016 and the issues Republicans will use.
    The Senate office building will be nearly done, standing as a monument to government excess; pay raises for commissioners while the middle class struggle; tax increases for infrastructure; health care mismanagement; and possibly a feuding DFL that cannot work together.  Together they paint a picture of Democrats as out of touch with middle class Minnesotans and as a party that potentially cannot get anything done (aided by Republicans who now have an incentive to drive the state into a budget impasse or shut down again and then blame it on the DFL).  This is a 2016 Minnesota replay of what the national Republicans did in 2014 when the ran against Obama and the Senate Democrats.
    What is perplexing is how the DFL lost control of its narrative again.  In the larger scheme of things they are probably do way more to help middle class Minnesota than the Republicans are, but they are simply terrible at messaging and one wonders if they can improve their ability to communicate and understand how these issues play beyond their metro base.

Tuesday, February 10, 2015

Burwell v Mata: Or the Fate of Obamacare and Same-sex Marriage

Let us speculate on the fate of two cases,   King v. Burwell (Affordable Care Act subsidies to health care exchanges run by the federal government) v Mata v Holder (same-sex marriage).

Given Justice Thomas’ dissent in the Alabama same-sex marriage stay some are speculating that Justice Roberts will vote to make it 6-3 in holding that the Constitution protects a right to same-sex marriage.  Assuming that is correct, there may be a several possible reasons for his vote.

Obviously one answer is that he thinks this is the correct constitutional answer.  Second, the Chief Justice is engaged in some smart politics and strategic decision making.  Should he vote to rule that same-sex marriage is protected under the Constitution he is in the position to write or assign the majority opinion.  He of course could assign the opinion to Kennedy (assuming which I do that he is the fifth vote) or he retains the right to pen the opinion himself, thereby giving him more leverage over what the Court opinion is or simply to ensure that the decision is at least 6-3, thereby strengthening its legitimacy.

Another scenario: He is leaning toward striking down the federal subsidies under the ACA.  This is not an impossible scenario and given rumors that he switched his vote in 2012 regarding the constitutionality of the mandate, it is possible that now he write a 5-4 opinion striking down the subsidies on statutory interpretation grounds.  Thus, voting to support same-sex marriage under the Constitution gives him some political capital or deflects away from his decision in Mata invalidating the federal subsidies.

Thursday, February 5, 2015

The Case for Mandatory Vaccinations

 Vaccinations provide public goods and address  free rider problems.  This is an ethical case for mandatory vaccinations. 
Please note:  Today's blog appears in the February 5, 2015 Minnpost as "The Case for Mandatory Vaccinations."