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Falling public investment drags state down

Nearly a decade ago, "No New Taxes" politicians told us that shrinking government and cutting taxes would bring economic prosperity. We tried it their way.

In fact, no state has cut the taxes, fees and other charges more than Minnesota since 2002. Sadly, the decline in public investment corresponds with a decline in Minnesota's performance in key areas such as employment growth, pupil-to-teacher ratios and road conditions relative to other states.

What this tells us is that the "no new taxes" years have not improved Minnesotans' quality of life. These are among the findings of a new report from Minnesota 2020, a public policy think tank based in St. Paul.

According to the report, public revenue and spending per $1,000 of personal income in Minnesota has gone from significantly above the national average in 2002 to below average today. In terms of the total amount of taxes, fees and other payments collected from state residents, no state has cut more than Minnesota since 2002. Adjusted for inflation, total taxes and other payments have declined by $220 per person from 2002 to 2007 -- $46 more than in the next closest state.

"No new tax" politicians have argued that shrinking the relative size of government in Minnesota would improve Minnesota's relative economic performance. Unfortunately, that's not what the numbers show. Once a national leader in areas such as education and employment, Minnesota is now sliding toward the middle.

The Minnesota 2020 report, "On Our Way to Average: Ranking Minnesota's Economic Performance," examines 13 economic performance indicators, ranging from income, to job growth, to the condition of the state's roads. On nine of the 13 measures, Minnesota's performance relative to the rest of the nation has fallen. On the other four measures, there was no change.

One of the most disturbing trends is in the area of job growth. Minnesota ranks 39th in employment growth since 2001; in other words, only 11 states have done worse than Minnesota in job growth. From 2002 to 2009, total U.S. employment increased by 2.5 percent; meanwhile, the number of jobs in Minnesota fell by 1 percent.

The report identifies several other disturbing trends. From 2002 to 2008, median household income grew by 1 percent nationally, but shrunk by 3 percent in Minnesota. While the typical U.S. family income has increased, the typical Minnesota family income has declined.

In education, an area in which our state has been a long-time leader,, Minnesota's rank on pupil-teacher ratios in public schools slid from 25th to 37th since 2002, while our rank in the percentage of students performing at or above the "basic" level in math and reading slipped from third to eighth.

Minnesota's ranking on the condition of our roads has fallen dramatically from eighth to 27th. In fact, the percentage of Minnesota roads in poor or mediocre condition has more than doubled since 2002.

Minnesota is by no means an economic "basket case;" the state still ranks high on a number of indicators. However, in general, Minnesota's performance relative to other states has slipped during the "no new tax" era. We are headed in wrong direction.

In recent months, our state economist and state demographer have attributed Minnesota's strong economic performance over the last half century to smart investments in education and infrastructure. If the state policymakers of 50 years ago had bought into the "no new tax" mentality, many of these investments would not have occurred and much of our progress would not have happened.

With the state facing massive budget deficits for the foreseeable future and with declining investment in education and infrastructure, Minnesota needs to reverse the trend of declining public resources. Minnesota's ability to restore a bright economic future lies not in a slavish devotion to shrinking public revenue, but upon identifying the state's long-term investment needs and funding them appropriately.

Jeff Van Wychen in a Fiscal Policy Fellow at Minnesota 2020, a St. Paul-based think tank. He has been a policy analyst for various local governments and non-profit organizations. Before becoming a consultant in 1998, he was a fiscal analyst for the city of Minneapolis and, prior to that, for the League of Minnesota Cities.