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Foundations urge lawmakers to think outside box on state budget

As Minnesota lawmakers struggle with framing a two-year state budget with a gaping hole, a group of the state's largest foundations asks that they think outside the box.

"Currently two strategies on the table are cutting services or raising taxes," says Connie Rhodes, president and CEO of the Saint Paul and Minnesota Community foundations.

Instead, a study by five of Minnesota's largest foundations seeks an alternative, one that gets better quality service for less money.

"The times are such and things are in a tough spot that maybe things are bad enough that we will save," Rhodes said this week. "Let's not Band-Aid it and get through one biennium and get to real reform later. Can we actually spend some time and energy now to fix it?"

The state faces a projected deficit of $6.4 billion in the next two-year budget cycle, but that shortfall becomes easier to take when $2 billion in federal economic stimulus monies is included.

"With the stimulus dollars, which are some one-time dollars, we have an opportunity to have some resources to invest in the redesign," she said.

The foundations enlisted Public Strategies Group, a Minnesota company nationally known for developing creative solutions to public problems, to gain input and prepare a report on possible budget alternatives. The foundations got input on the report, and now want to shop it to legislators and Gov. Tim Pawlenty.

"The parameters were that they should be significant items defined as $250 million a biennium or more," PSG partner emeritus Connie Nelson said of the study's findings. "And not just look at the dollar savings but look at whether results for Minnesotans could be the same or better while spending less."

The real bottom line, Nelson said, "is increased results for the dollar." And PSG was asked to look "at the whole budget, not just the margins -- the increases or decreases -- and look for major opportunities."

The report also looks at a four-year budget cycle, not two, as do the governor's and House budgets. The Senate DFL, which is proposing a 7 percent across-the-board cut in spending, does take a four-year view.

Some of the proposals echo others already made, such as a regional approach to delivering welfare programs, while others are totally new. Most, however, move state government from a provider of services to that of a provider of outcomes.

Some of the findings include:

-- Spending money on health outcomes rather than fee-for-services, saving $3.7 billion. State-subsidized health care would partner with others to take a bigger share of the health care marketplace and pay health care providers annual fees for keeping people healthy.

-- Delivering intenerated human services through multi-county shared services, costing $455 million less. Also a proposal by Pawlenty, the plan would create regional human services boards, which would become the purchasers of outcomes for the area's individuals in need.

-- A focus on outcomes for housing programs would spend $2.1 billion fewer state dollars by eliminating a little-impact ability to deduct mortgage interest and targeting the savings to housing subsidies for those most in need for homeownership.

-- Delivering better county services by reducing mandates and funding outcomes, to save $984 million. Also proposed by the Association of Minnesota Counties, the plan would seek the elimination of most state aid to counties, eliminating state control over inputs, focusing both the state and counties on outcomes and pubic reporting of those outcomes, giving counties additional flexibility in how to produce the results, and by removing levy limits.

-- Modest changes in special education by improving educational outcomes for children with disabilities while spending $645 million less. Changes include less paperwork by loosening time spent on Minnesota-specific reporting requirements, changes in an adversarial system which identifies and assigns service levels, and reducing errors in misidentifying youth as special education students through systematic prevention.

The proposal also offers ideas in corrections, tax expenditures, local service sharing, higher education, Local Government Aid and public pensions.

The foundations hope to raise the level of public debate with the budget plan, but because of their non-profit nature, can't lobby for it, PSG's Nelson said. "They definitely want to put the ideas into the mix of the conversation."

Lots of governments are used to paying for services or patient contacts or amount of time or effort spent, she said, and in providing a minimum of services. "They do maintenance of effort rather than maintenance of results or how to improve results."

What is asked is a shift, Nelson said, "and the foundations and our company would certainly want to encourage that shift to get to that outcome-based results focus of what we're getting for the money we're spending."

"It's about using our available resources for greater impact for Minnesota citizens," said Rhodes of the Saint Paul and Minnesota Community foundations, "to quit doing things inefficiently because that's how we have done it. If there are some new models that create some shared services and cost sharing, that we really should be looking at that because it is going to give citizens better service."

Some investments will be needed early on, but net savings are seen through the four years, she said.

"Generally, if it says we're going to improve the health of citizens while spending $3.7 billion less, there probably were more savings but in the early years and investment to transition to this system was factored in," Nelson said.

Foundations commissioning the study were Bush, Minneapolis, Minnesota Community, Northwest Area and Saint Paul foundations.

The report can be viewed at