Mis-spending the Imaginary Minnesota Budget Surplus: What both the Democrats and Republicans Get Wrong

The Minnesota DFL and Republican parties are about to do it again.  The “it” is engaging in irresponsible spending or tax cuts during an election year.   If either or both get their way the repercussions will be felt as soon as the 2021 legislative session when it makes the next biennial budget for the state. 

Minnesota  Management and Budget (MMB) in its November 2019 forecast projected that the State of Minnesota has a projected budget surplus of $1.332 billion.  As a result of this forecast the Minnesota DFL has proposed spending $500  million to subsidize day care costs.  The Minnesota Republicans want to use the total $1.3 billion to subsidize permanent tax cuts.  Both proposals are irresponsible, revealing a huge misunderstanding of budgeting.

Here are the basics.

The current two-year or biennial budget for the State of Minnesota that was agreed to in May 2019 is $48 billion.  The projected surplus of $1.332 billion is 2.8% of the entire budget.  Hardly anyone fiscally responsible would argue that 2.8% is really a lot of money, especially when the fiscal forecast is merely a projection.  It could vary up or down.  Moreover, many would argue that in budgeting one builds in contingency in case estimates are wrong.  The fiscal forecast assumes current obligations remain constant.  Except they do not.

The budget surplus is not really $1.332 billion. By state law, inflation is counted when calculating inflation while obligations are not.  The 2020 projected rate of inflation for 2020 is 2.5%, almost equal to the projected budget surplus percentage.  Inflation alone eats up the surplus.  There is no surplus for this budget cycle.  Even if there were, it could change if unanticipated expenditures occur; a surplus margin of error of 2.8% is very small.

Additionally, if one looks at the fiscal forecast it is important to remember that this is a surplus for only this budget cycle.  It is a one-time and not structural surplus.  Looking ahead, the MMB forecast notes that while at present the fiscal year 2022-2023  looks balanced,  all that assumes no basic changes in the revenue and expenditure projections  and that the economy will not experience a significant slow down that would impact tax revenues.  If any of this were to change, including adopting significant new state expenditures such as to subsidize childcare, or make some permanent tax cuts, then these projections change, running new risk of a structural deficit.

Both the DFL and GOP ways to spend the surplus are equally flawed.  Consider the idea of a one-time $500 million subsidy for childcare.  This sounds good, but what happens the second year?  The State will have to go subsidize again if the DFL want to make a permanent difference in costs.  This too assumes that a subsidy will address the cost issue—it does not in the long term. The reason in part why childcare is so costly is that there is a shortage both in the Metro and Great Minnesota areas.  Providing subsidies does little to address the shortage.  Moreover, offer subsidies and one may increase demand for childcare without doing anything to increase supply.  The result?  Perhaps even more costly childcare than before.  The subsidy sounds great but fails to address the underlying supply and demand problem.

The Republican tax cut proposal is equally irresponsible.  They seek to make a structural change in the tax code when the imagery surplus is possibly-one time.    They are confusing annual operating income with structural budgetary issues—a classic apples and oranges problem.  The current operating surplus is used to mask permanent tax code changes.  The last time this happened was during the Jessie Ventura administration. 

Back then when Ventura first took office in 1999 the State had a massive surplus.  It used that surplus and tax rebates (the “Jessie Checks”) to mask short term larger structural tax changes that eventually came to hurt the State when in 2002 Minnesota faced a massive shortfall, in part because of a combination of an economic recession and these tax cuts.  The result of that was the 2002 deal between then DFL and GOP gubernatorial candidates Roger Moe and Tim Pawlenty who as legislators agreed to change Minnesota law to count inflation for revenue but not obligation purposes.  It was that deal that has now created the image that Minnesota has a budget surplus now, when in fact it does not.

It was bipartisan irresponsibility a generation ago that yielded a host of problems that Minnesota has only recently and partially solved.  The DFL and GOP proposals for what to do with the $1.3 billion repeat those past mistakes.

The So-Called Nevada Democratic Presidential Debate

It was not a debate.  It was a debacle.  It might have been one of the worst examples of pettiness,
sloppiness, and simply meaninglessness that one could experience.  The Democratic presidential candidates did themselves no favors, and the American public learned little of value from it.
First, it was not a debate.  Debates, even loosely defined, are about something that matter.  They are about protagonists taking positions, using facts, evidence, and logic to advance positions and, in turn, doing the same to respond to antagonists.  Go back and watch William Buckley’s early  Firing Line as an example.

What we saw in Nevada was simply another media event–Jerry Springer with shoes on.  Reporters asked trite questions to encourage candidates to fight, and the candidates obliged. It would have been great to learn about how the candidates plan to address a record budget deficit, deal with future corona virus epidemics, address racial disparities in criminal justice, or lower drug costs.  Instead, the debate was over whether Sanders would release all his medical records or encourage his supporters not to be so mean.   It would also about each candidate carving one another up, pointing to the fact that Bloomberg oversaw a horrible stop and frisk policy or his sexist behavior in the past.  Or about Klobuchar noting knowing who the president of Mexico was and then reading off a fact sheet to try to show us how smart she was.

Warren is declared a winner but destroying Bloomberg.  Sanders wins by not being attacked as much as Bloomberg.  Bloomberg loses by revealing that he is like a typical CEO in a room with yes men who never question him and therefore he thinks he is a genius.

For the most part, we should not care.   At the end of the day does it really matter if one releases one’s full medical or tax records, or one’s supporters may be jerks?  These are all side shows and largely irrelevant. 

It is true, as Bloomberg said, none of the candidates are perfect and that all have done things wrong.  The issue is not whether someone has done something wrong in the past so much as it is acknowledging and learning from it.  It appears none of the candidates have done that.  Being rich, powerful, or running for president must mean you do not have to say you are sorry.

Yes, Bloomberg and Klobuchar have weak records on race.  All of them on stage do.  But what was telling was none were willing to say I am sorry, I was wrong, AND here are the policies going forward to remedy or address the problem.  Especially troubling, the candidates should have reasonably foreseen the questions coming and have been prepared with good answers.  They were not.  They failed to learn from past performances what their weaknesses were to address them going forward.

Bernie Sanders and the Revenge of the Superdelegates

Today's blog originally appeared in Counterpunch.

Unless Bernie Sanders wins enough delegates to capture the Democratic Party nomination on the first ballot, he is not going to be the nominee.  The reason will be that the superdelegates–those same people who were his wrath in 2016–will come back to deny him the nomination.

The Democratic Party’s superdelegates were a reaction to the 1970 McGovern-Fraser reforms that sought to open the party to the people.  Criticism after the 1968 Democratic Convention that party elites had too much control over the presidential nomination process–the proverbial smoke-filled backroom–led to a recommendation to create more political primaries. The goal was to let rank and file have more say on the party nominee.  Yet by 1980 party elites felt there was too much democracy within the Democratic Party; they, not the base, still knew best who the nominee should be and what the party should stand for.

In 1980 the Democratic Party’s Hunt Commission recommended that 30% of all the Democratic National Convention delegates be reserved for members of Congress and state party chairs and vice chairs.  These are the superdelegates.  That 30% figure was originally implemented at 14% but by 2008 the percentage rose to nearly 20%.  Their purpose was ostensibly to provide leadership, but in practice it was to maintain orthodoxy, serving as a check on primary voters who might make the wrong choice.

It was in 2008 that most Americans first heard of Democratic Party superdelegates.  When Hillary Clinton first ran for president in 2008 she was presumptively the presidential heir apparent, only to come in third in the Iowa caucuses and then fall behind Barack Obama in the delegate count.  Going into the Democratic National Convention she pulled one last move, convince the superdelegates to vote and throw the nomination to her.  She failed in that attempt.

Eight years later the ballot for the presidential nomination pitted again the presumptive presidential heir apparent Hillary Clinton against Bernie Sanders. As it was true in 2008, she was heavily favored to win the nomination, with initial polls giving her a 50%+ lead over Sanders.  She again floundered, with Sanders racking but victories and delegates.  While superdelegates were in theory supposed to be uncommitted until the convention, Clinton secured the support of many, included them in her delegate count, and encouraged the media to report them in her totals.  The purpose was to create the illusion that she had a bigger lead over Sanders than she did as part of her effort along with the Democratic leadership, as revealed in leaked emails, to make sure Sanders did not win.

Criticism from the left wing of the Democratic Party forced one change post 2016.  Superdelegates could no longer vote in the first round at the national convention unless a candidate had a majority of the delegates secured to win the nomination.  After the first round the superdelegates can vote.

In 2020 there will be 3,979 delegates to the Democratic National Convention who will be selected as a result of primaries and caucuses.    To win the nomination one needs 1,991 delegates.

If Bernie Sanders does not get to this number by the first round, the 771 Superdelegates will get to vote, and he will need 2,376 votes to win.  Fat chance!

Much in the same way that the Democratic Party and its leadership including Deborah Wasserman Schultz were stacked against Sanders in 2016, Tom Perez and much of the party leadership are opposed to him again.  Perhaps proof of this opposition is the disappointment in this year’s presumptive presidential heir apparent Joe Biden and the search for his moderate replacement in Peter Buttigieg, Amy Klobuchar, and Michael Bloomberg.

Despite coming behind Sanders twice in the popular vote in Iowa and New Hampshire, Buttigieg is seen in the media and party as the alternative to Sanders.  Despite fifth and third place finishes in these states, Klobuchar is seen as a winner and rising moderate alternative.  And without a delegate to his name but $400 million already spent, Bloomberg is the billionaire anthesis to Sanders who has pledged to take on the billionaires.  The moderate choice to Sanders is thus to vote for a billionaire or candidates who take money from billionaires.  In either case the message is clear, the Democratic Party establishment–one that has been pro-business, corporate, and complicit in shoving neo-liberalism down the throats of the American public and pushing white working class over to Trump and the Republicans—does not want Sanders.

By all accounts Sanders should be considered the populist frontrunner for the Democratic nomination.  Yet the plethora of candidates who are running and eating up delegates will make that hard.  Bloomberg on Super Tuesday when 34% of the pledged delegates are in play, stands a great chance of winning enough to reduce the mathematical probability that any candidates can get to 1,991 by the first round.  Should they happen, the superdelegates enter and they will no doubt cast the die against Sanders.

Rush to Judgement: What we Should or Should not Infer from Iowa and New Hampshire

There are 3,979 delegates to the Democratic National Convention.  To win the nomination one needs

1,990 delegate votes.  After Iowa and New Hampshire only 65 or 1.6% of all the delegates have been awarded.  The primary season has barely started.  Yet many pundits, political experts, and the media want to reach broad conclusions about what is happening.  On one level any inferences from Iowa and New Hampshire should be premature yet already we have declared winners and losers, with some candidates having already dropped out and others seen as frontrunners or not.

Bernie Sanders
On many counts Bernie Sanders is the frontrunner for the Democratic nomination.  While he is only one delegate vote behind Peter Buttigieg (22 to 21 out of the 1,990 needed to win the nomination), he has won the popular vote in Iowa and New Hampshire and he is ahead in the fundraising battle. 
Moreover, with the other liberal Elizabeth Warren coming in third and fourth  in the first two states, her campaign seems to be floundering, seeming to suggest Sanders is on the cusp of consolidating the progressive wing of the Democratic Party.  At the same time, the moderate wing, represented by Joe Biden, Mayor Peter Buttigieg, Senator Amy Klobuchar, and Mayor Michael Bloomberg, is more divided.
Moderates, worried at the prospects of a Sanders nomination, are touting Buttigieg and even Klobuchar post New Hampshire as winners, with the latter, despite a fifth a third place finish in Iowa and New Hampshire, now the latest alternative to a fallen Joe Biden.

Joe Biden
Based on two states, it looks like former Vice-president Joe Biden’s chances for the nomination are not good.  He has had two dismal showings (fourth and fifth in Iowa and New Hampshire respectively), and he appears to be behind two other candidates, Peter Buttigieg and Amy Klobuchar for the moderate vote, and behind the frontrunner liberal Bernie Sanders and even Elizabeth Warren.
Why has Biden done so badly?  Several reasons,   One, the center of the Democratic party has moved left from where President Barack Obama and Biden were when they left office.  Two, Biden has run a lackluster campaign and his debate performances have been weak.  Three, like Hillary Clinton in 2008 and 2016, he is running like he deserves the nomination.  Yet to rule Biden out would be a mistake for several reasons.
Yes the results in Iowa and New Hampshire will create momentum, media attention, and money for its winners, Yet Iowa and New Hampshire are very different from the next two states, and even the rest of the country.  The US overall is 60% White Caucasian, with Iowa and New Hampshire respectively 86% and 90%.  They are racially not representative of the country, let alone of the Democratic Party where according to 2016 presidential exit polls 71% of the electorate was White, but 74% of the votes for Clinton were from people of color.
The next two states, Nevada and South Carolina, are 49% and 64% white, with high percentages of the Democratic voters people of color.  These next two states are very different from Iowa and New Hampshire.  Joe Biden enjoys significant support among people of color, especially African-Americans, whereas none of the other candidates do well with minorities.  This may change the race for the nomination in many ways because candidates such as Buttigieg and Klobuchar will be challenged to reach out to a different racial demographic.  So far their appeal has been to run as Midwesterners with Midwest values, failing to realize that such designations are code words for “White” among people of color.  White may work in Iowa and New Hampshire, but it is less clear it will work in Nevada and South Carolina.  And even if they get the nomination for president, there is a calculus here.  How many White Trump votes can they move (when the evidence suggests Trump has 90%+ support of his base) versus how many people of color do they turn off?  The argument for the moderate Democratic candidate relies upon a net positive sum for this tradeoff, especially in critical swing states.

Michael Bloomberg
Michael Bloomberg now will be an increasing factor as he will appear in debates and in the primaries.  He has already spent more than $400 million in advertising, giving him a fourth if not better place in some national polls.  He appears to poll as well as any candidate in a head-to-head with President  Donald Trump.  Bloomberg’s money will be a factor for all of the candidates going forward, not just for the moderates but also for Sanders who will have to basically run against him.  This divide will be a major problem for the Democrats going forward.

Conclusion
More than 98% of the Democratic delegates have yet to be awarded.  The size of Super Tuesday and especially the frontloading of the California primary change the value of Iowa and New Hampshire.   It is not clear that one can really extrapolate from less than 2% of the delegate count to inferring much of anything.

Lessons from the So-Called New Hampshire Presidential Debate

What did we learn from the so-called New Hampshire Democratic presidential debate?  The simple answer is that if they keep it up the Democratic Party will debate itself into losing the 2020 presidential race.
The New Hampshire debate, like all of the previous ones over the last few months, was  not a debate.  They have been simply media events, Jerry Springer shows full of one-liners, petty attacks, and vacuous positioning on issues that hardly count as debates and  where CNN or the moderators egg on the participants.  Real debates are when individuals take positions on issues, argue to points, and provide reasoned arguments and evidence to support their claims.  This was not what happened in New Hampshire or in any of the previous debates. There was no substance here.  To recall a famous line Walter Mondale once used against Gary Hart: “Where’s the beef?”
What we saw in New Hampshire was predictably boring.  The front runners Buttigieg and Sanders were attacked by Klobuchar and Biden who has to recover from Iowa.  Warren, Steyer, and Yang did their best to be relevant, and all of them tried to argue that the reason to vote for them was that they hated Trump the most or they were the most electable.  None of them, bar Sanders, really spent much time articulating their narrative for why they should be president, what they hoped to do, or what they sought to accomplish in a meaningful way.  It was a boring Jerry Springer show. 
What one took away was a choice: Vote for an inexperienced frontrunner who takes money from billionaires or vote for a billionaire directly who was a mayor of a city 86X more populous, or vote for me because I tell  folksy Midwestern jokes, because I will do well in South Carolina, or because even though I did bad in Iowa and probably will do so in New Hampshire, I am still the most electable.
Moreover, the debate seemed to show that there is a collective action or tragedy of the commons problem with the Democratic Party.  By that, Ronald Reagan famously declared the Eleventh Commandment that: “Thou shalt not speak ill of any fellow Republican.”  For Democrats their Eleventh Commandment seems to be: “Thou shalt only speak ill of any fellow Democrat.”  It is in the collective interest of the Democratic presidential candidates and party not to attack one another, but it is in the interest of each on individually to do so.  The presidential candidates view the presidential race as a zero sum game, I win only if you lose.  The path to the nomination is dirty and attack everyone else, rendering you the last one standing,  fully damaged by the process.
The two biggest winners of the so-called  New Hampshire presidential debate were Donald Trump and Michael Bloomberg.  All agreed Trump needed to go but failed to say much beyond that in terms of a clear vision of where to go next.  All of them also could hear Bloomberg’s absence as deafening, feeling the need to attack him because as one watches his ads you get the sense that “Mike will get it done” gut the others are clueless regarding what its is or how to get it done.
The biggest losers were the Democratic Party and the American public.   This media event simply torn one another down and did little to repair the debacle of Iowa.  The American public, still registering high disapproval for Trump and yearning for an alternative, did not find it here, at least with the format offered.

Iowa and the Real Start of the 2020 US Presidential Election

Monday, February 2, is the official start of the 2020 presidential elections.  It is when the Iowa
caucuses take place.  Here are some thoughts.

What should we expect from this primary season?

The Democratic Primary season starts with the Iowa caucuses.  Traditionally the value of Iowa is that it serves as a testing ground and an way to winnow down the number of potential or viable candidates moving forward.

Based on the most recent polls, There is a cluster of four to six candidates who are still viable: Biden, Sanders, Warren, Buttigieg, Klobuchar, and Bloomberg.  Bloomberg is not contesting Iowa.  For the first five, to remain viable going forward one probably needs to finish in the top three.  Specifically, for example, Klobuchar, who has made Iowa the centerpiece of her presidential campaign, must come in the top three to remain viable.  Moreover, if she beats Buttigieg, or vice versa, the loser is probably also going to have a hard time going forward.  Similarly, Warren and Sanders are fighting for the progressive wing of the party and the one who comes out on top will be the leader for that side.

Right now, polls suggest it is Biden and Sanders who are in the lead in Iowa.  Sanders is also leading in New Hampshire.  After that, Biden leads in Nevada and South Carolina.  The point is that very rapidly I can see the race turning into a Sanders-Biden contest, with Bloomberg’s money making him a wild car going into Super Tuesday.  All this suggests that the Democratic Party is still torn between progressive and moderate wings, much like in 2016, and the challenge is finding a way to unite the party.  Which candidate can do that and how is an interesting question.

- What's on stake for the Democratic party?
Obviously beating Donald Trump is the big issue, but so is uniting the party, bringing in the next generation of Democratic voters, and taking back the Senate and making gains in the state legislative elections as one prepares for redistricting in 2021.  All of these events define important political events and challenges for the Democratic party.

- What's the biggest challenge they face right now?
Finding a viable message or narrative to defeat Trump along with devising a campaign strategy to beat him in the critical few swing states that will decide the election.
- Which candidate do you think is best equipped to win the nomination?
Right now it looks like Biden is better equipped to win if one follows a convention strategy.  But he may not inspire younger votes.


- Is there any chance to defeat President Trump?
It will be a close election.
The 2020 presidential race is effectively over in 44 states plus the District of Columbia.  Who will be the next president is down to a handful of voters in six swing states.

Based on recent elections, voting patterns, and polling, a Democratic Party candidate for president is nearly certain to win California, Colorado, Connecticut, Delaware, District of Columbia, Hawaii, Illinois, Maine, (overall state) Maryland, Massachusetts, Nevada, New Hampshire, New Jersey, New Mexico, New York,   Oregon, Rhode Island, Vermont, Virginia, and Washington.  This is a total of 19 states plus the District of Columbia.  In the case of Maine, Democrats probably will overall win the state and three of its four electoral votes.  The other electoral vote, which is for the Second Congressional district, goes to the Republican.  Democrats start with 222 electoral votes.

A Republican Party candidate will win 30 states plus part of Maine.  These states are  Alabama, Alaska, Arizona, Arkansas, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, (Second Congressional District), Mississippi, Missouri, Montana, Nebraska, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, West Virginia, and Wyoming.  Republicans start with 216 electoral votes. 

Yet there are six remaining states–Florida, Michigan, Minnesota, North Carolina, Pennsylvania,  and Wisconsin–totaling 100 electoral  votes, which are too close to call and they are the swing states that will decide the presidency.  The task for the Democrats is finding a candidate who can not only hold their base states but win enough electoral votes in these swing states to win the election.  Remember:  The popular vote does not matter and national opinion polls do not matter.

The road to the White House starts with Iowa and ends with these six states.