President Obama’s proposed jobs bill would support jobs, economic growth in Minnesota

September 27, 2011

The American Jobs Act proposed by President Obama could create or support more than 26,000 jobs and inject at least $1.5 billion into Minnesota, according to estimates by the Obama Administration. Those jobs include teachers, police, firefighters, engineers, construction workers and more. The Jobs Act is a package of tax cuts for employers to provide incentives for hiring, infrastructure investments, assistance to those looking for work, and tax cuts for individuals.

The proposed strategies include some of the most effective ways to support economic growth. The Center on Budget and Policy Priorities reinforces in a recent statement:

We need to boost the economy in the short run by enacting legislation that would, for example, extend unemployment insurance benefits and the temporary cut in payroll taxes beyond their scheduled expiration at the end of this year, provide more assistance to states to temper their need to impose more layoffs and cut more spending to balance their budgets, and create programs that would put people back to work on projects such as renovating and modernizing America’s schools. Such temporary policies would help boost growth and employment now without adding significantly to long-term deficits and debt.

Some of the main components of the bill, and the impact on Minnesota estimated by the Administration, are:

Tax cuts for employers

  • Payroll taxes would be cut in half for employers’ first $5 million in wages. In Minnesota, an estimated 120,000 employers would benefit from this cut.
  • Employers who increased their payroll (by adding new workers or increasing the wages of current workers) would pay no payroll taxes on up to $50 million of the increased payroll.
  • Employers would receive tax credits of $5,600 to $9,600 for hiring unemployed veterans, and a $4,000 tax credit for hiring long-term unemployed workers.

Infrastructure investments

  • The bill invests $50 billion in highways, transit, rail and aviation. The highway and transit portion alone would provide an estimated $608 million in Minnesota and support a minimum of approximately 7,900 jobs.
  • Layoffs of up to 280,000 teachers nationwide would be prevented. The bill would also support hiring thousands more teachers and keep police and firefighters on the job. Minnesota would receive an estimated $504 million. These funds would support up to 6,900 teacher and first responder jobs.
  • At least 35,000 public schools nationwide would benefit from school infrastructure investments. Minnesota’s share totals $275 million and would support up to 3,600 jobs.
  • Hundreds of thousands of vacant and foreclosed homes and businesses would be rehabilitated. Minnesota could receive approximately $101 million, and could apply for more through a competitive bidding process.
  • Facilities at community colleges would be modernized. Minnesota could receive $88 million.

Pathways back to work

  • The Unemployment Insurance (UI) system would be reformed to help the long-term unemployed transition back to work. An estimated 71,000 Minnesotans are among the nation’s long-term unemployed.
  • Unemployment Insurance benefits would be extended, preventing at least 13,400 unemployed Minnesotans from losing their benefits during the first six weeks.
  • Low-income youth and adults would access work opportunities or obtain job training in growth industries through the Pathways Back to Work Fund. This could place 6,500 Minnesota youth and 1,700 Minnesota adults in new jobs.
  • Hiring discrimination against the unemployed would be prohibited.

Tax cuts for workers

  • The payroll tax cut passed in December 2010 would be expanded to cut workers’ payroll taxes in half in 2012. A typical Minnesota household with an income of around $56,000 would receive a tax cut of approximately $1,740.

When releasing the Jobs Act, President Obama emphasized that the bill would not add to the federal deficit. He proposes to pay for the bill through tax changes including new limits on itemized deductions for high-income Americans (individuals with incomes above $200,000 a year and families with incomes above $250,000 a year), by closing tax preferences for the oil and gas industries, and by changing the depreciation rules for corporate aircraft.

While it is highly unlikely that Congress will approve the entire bill, discussions have begun on Capitol Hill to determine whether agreement can be reached to pass parts of the bill. The continuing weak economy and high unemployment increase the pressure on the Administration and Congress to act.

-Steve Francisco


Racial disparities grow in Minnesota as poverty increases, household income declines

September 22, 2011

Earlier this month, we learned the distressing (but not surprising) news that poverty is increasing and median household income is declining in Minnesota. The U.S. Census is out with another report showing even worse news. Minnesota has an unfortunate history of racial disparities, with communities of color experiencing worse economic outcomes than their white counterparts. Thursday’s release of the American Community Survey (ACS) reveals that racial disparities in the state continue to grow.

In 2010, 11.6 percent of Minnesotans were living in poverty, up significantly from 9.5 percent in 2007 (just before the last recession). This overall number hides the much deeper levels of poverty within Minnesota’s communities of color. In 2010, 17.8 percent of Asians were living in poverty, as were 24.4 percent of Latinos and 37.2 percent of blacks. Although poverty among white non-Hispanic Minnesotans increased from 7.1 percent in 2007 to 8.4 percent in 2010, poverty among American Indians increased from 30.7 percent to 39.5 percent.

Income disparities also continue to persist in the state. In 2010, the median household income for the Latino, black and American Indian communities fell significantly below the statewide median household income for whites. And those gaps are growing. Among white non-Hispanic households in Minnesota, median income fell by five percent between 2007 and 2010. However, black households experienced a 16 percent drop in median income and American Indian households a 22 percent drop. In 2010, the median household income for both of these communities stood near $27,000, less than half the statewide median of $55,459.

Minnesota tends to come out ahead when we examine national averages, but it is shocking to see how our communities of color are faring compared to other states. The poverty rate among white Minnesotans remains significantly below the national average for whites, while the poverty rate among blacks, Asians and American Indians is significantly higher than the national average for these communities. For example, among blacks and American Indians, Minnesota’s poverty rate is at least ten percentage points higher than the national average.

The persistent disparities between whites and people of color in Minnesota contradict our most deeply held values. Minnesotans believe that hard work should pay off, that people who work full time should be able to support their families, and that everyone who is willing to work should have the opportunity to succeed. The levels of economic inequality we are facing is not simply the inevitable result of a bad economy. The problem has been compounded by poor policy choices that have increased the challenges facing already-struggling families. The new data again put the pressure on state and national leaders to address racial disparities.

-Christina Wessel

Minnesota losing ground on poverty, income and the number of uninsured

September 16, 2011

It seems oddly appropriate (and a little inconvenient) that I was out of town at a conference on the day the U.S. Census Bureau released the latest statistics on poverty, income and health insurance coverage in the United States. It reminded me that for many years, fellow policy wonks from other states have looked at Minnesota with envy as a place that consistently ranks high on almost all of the good stuff, and ranks low on almost all of the bad stuff (although it’s important to acknowledge that these rankings overlook the deep racial inequities that have long plagued our state.)

But Minnesota is starting to lose its great reputation. With the release of the U.S. Census Current Population Survey (CPS) on Tuesday, we can look back and see that 2000-2010 represents a decade of decline for Minnesota. The CPS offers a preliminary look at state-level trends. Our poverty rate and level of uninsured may still be below the national average, and our median income remains above the national average, but we are headed in the wrong direction.

Poverty in Minnesota is on the rise. Over the last decade, the percentage of Minnesotans living in poverty has risen from 6.5 percent to 10.8 percent, according to preliminary statistics from the U.S. Census Bureau. That means one out of every ten Minnesotans is living below the poverty line (a stunning $22,113 for a family of four). With the threshold so low, it’s not surprising that families with incomes above the poverty line still struggle to meet their basic needs. Sadly, many are living with that reality: one out of four Minnesotans is surviving on an income below 200 percent of the poverty line ($44,226 for a family of four).

We are also seeing a dramatic drop in median income in the state. The preliminary data released by the U.S. Census Bureau shows that over the last decade, Minnesota’s median income fell from $65,120 to $54,785, after adjusting for inflation. That’s a drop of more than $10,000. Only Michigan experienced a larger decline in median income over the decade. More definitive state-level data on income will be released September 22 as part of the American Community Survey.

To complete the trifecta, the share of Minnesotans without health insurance has increased 2.1 percentage points over the last decade, hitting 10.2 percent in 2009-2010. How people are getting health coverage is also changing. The share of Minnesotans receiving employer-sponsored health care has fallen by nearly nine percentage points over the last decade. Public health insurance – like Medical Assistance – has picked up much of that slack, thereby preventing an even sharper increase in the number of uninsured Minnesotans.

You might think that times have been very tough, and surely every state is facing the same bad outcomes over the last decade. That’s not the case. Many states have managed to hold their ground in the face of two recessions, and a few states have even managed to show improvement (North Dakota and West Virginia saw an increase in median income, and Massachusetts reduced its percentage of uninsured). 

The economic turmoil that has contributed to the increase in poverty and fall in median income may be beyond our ability to influence, but Minnesota’s policymakers can make better choices to reduce poverty, build the middle class and improve the state’s economic future.

-Christina Wessel

State’s revenues on track, but forecast looks grim

September 13, 2011

The odds are increasing that Minnesota state government will face a new revenue shortfall when the Legislature reconvenes in February. This July, the Governor and Legislature passed a balanced budget for the FY 2012-13 cycle, which runs through June 30, 2013. But a weakening economic outlook raises the prospects that a mid-biennium shortfall will open up.

Minnesota Management & Budget (MMB) recently released its July/August Economic Update, providing current state revenue numbers and a look at economic trends. Minnesota closed FY 2011, which ended on June 30, 2011, $355 million, or 2.3 percent, above what was projected in the February Forecast. However, this is not a sign of an economic turnaround. More than 60 percent of that increase came by collecting Wisconsin income tax reciprocity payments earlier than expected (in FY 2011 instead of FY 2012.)

For July and August, the first two months of FY 2012, MMB said revenues “appear on track.” Although revenues are down $93 million, or 4.4 percent below the February Forecast, part of that resulted from collecting Wisconsin income tax reciprocity payments in FY 2011. Further, the state government shutdown in the first half of July slowed tax collections.

The big concern is for the future. Global Insight, Minnesota’s macroeconomic consultant, has downgraded its economic forecast. Its September baseline forecast predicts that the nation’s economy, as measured by GDP, will grow 1.5 percent in 2011 and 1.8 percent in 2012. That is down from its February baseline forecast that anticipated GDP growth of 3.2 percent in 2011 and 2.9 percent in 2012. Such an economic slowdown would mean that more Minnesotans will be struggling, and the State of Minnesota would collect less revenue than it budgeted for in the coming months.

Global Insight gives a 50 percent probability that its baseline forecast is correct. It gives a 40 percent probability that a recession will start this fall, saying the U.S. economy is “dangerously close to stall speed.” According to the July/August Update:

Global Insight’s concern is that in its current weakened state the U.S. economy is unlikely to be able to withstand a policy mistake in either Washington or the Eurozone. And, given the counterproductive political stalemates observed in both Europe and the U.S. in recent months, the risk that policy adjustments will not be made quickly enough to avert another economic downturn is high.

Minnesota faces a potentially weakened economy in a tenuous situation, the result of both economic forces and political choices. Minnesota came through very difficult budget negotiations this year without finding a long-term solution to funding our state’s priorities. Further, Congress spent months stuck on what should have been a routine vote on the debt ceiling and did not move a jobs agenda.

MMB will issue another Economic Update in October, with new revenue numbers. Its November Forecast will provide a more comprehensive picture based on a more current economic forecast and updated revenues and spending estimates, and determine if the Governor and Legislature will need to act in 2012 to bring the budget back into balance. If so, policymakers will have the opportunity to take a balanced approach, including raising revenues, that prevents deeper job losses, maintains the services that Minnesotans are turning to during these tough times, and lays the groundwork for our future prosperity.

-Scott Russell

Unemployment rate is high, but still underestimates the challenges facing many Americans

September 2, 2011

As we approach Labor Day, it is sobering to remember that the national unemployment rate stands at 9.1 percent. For comparison, during the last two recessions, the rate never rose above 7.8 percent. Experts are predicting that unemployment will remain above eight percent for five years running.

And sadly, a new report from the Economic Policy Institute (EPI) suggests the human impact is even worse than the monthly unemployment figures suggest.

Many more Americans are underemployed, including individuals who have accepted part-time work when they really want full-time work, or individuals who have become so discouraged that they have given up actively seeking work. While these individuals are not counted in the official unemployment rate, they represent a group of workers who are not finding adequate employment in the current job market. As of July, 16.1 percent of American workers were unemployed or underemployed. An amazing 31 percent of the workforce was unemployed or underemployed during some part of the year in 2009.

The recession has hit people of color the hardest. In 2009, 36 percent of blacks and 41 percent of Hispanics were unemployed or underemployed during some part of the year. Currently, unemployment or underemployment affects roughly one out of four minority workers.

For many, the search for work has been a long one. Almost half of all unemployed people have been out of work for more than six months.

The depth and breadth of the current unemployment crisis has serious consequences for all Americans, including those who are employed. The nation has experienced the slowest wage growth in the last three decades, a decline in median household income, and a substantial rise in poverty. According to the EPI report,

[T]he adverse effects…also include long-term “scarring”: young people who cannot get a proper footing at the start of their careers suffer lower lifetime earnings, older workers see their retirement security vanish, and the productive potential of the economy falls as innovation and investment suffer.

Here in Minnesota, the jobs picture remains troubling. According to EPI, Minnesota continues to face a “jobs deficit.” We have 124,600 fewer jobs today than we did when the recession started in December 2007. We would need to add another 73,300 jobs to keep up with population growth since the recession began. That means Minnesota needs to add 197,900 jobs just to regain our pre-recession employment rate – a number roughly equal to the populations of Rochester and Duluth combined.

But that’s not likely to happen anytime soon. The most recent job vacancy survey shows the state has one job opening for every 3.6 people looking for work. While this is an improvement from one year ago, many of these openings are for part-time, temporary or seasonal employment. The median wage offer for all vacancies was just $10 an hour.

This Labor Day, let’s not forget about the people behind the numbers. Most Americans have been affected in some way by this deep and prolonged period of unemployment. So, instead of focusing on the latest news from the stock market, policymakers should turn their attention to addressing the challenges facing the nation’s millions of unemployed and underemployed workers.

-Scott Russell

Proposed constitutional amendment would lead to more bad budgets

August 22, 2011

Minnesota is still reeling from a contentious legislative session and a state government shutdown. Now some policymakers are advocating for a constitutional amendment that would permanently undermine our ability to arrive at common-sense solutions to balancing the state’s budget. The amendment would guarantee gridlock by creating extra hurdles for passing a responsible budget, leading to more budget gimmicks as policymakers seek to fund critical state services.

Last Thursday, a group of Republican state representatives held a news conference to announce their 2012 legislative agenda. A major element is likely to be a constitutional amendment that would require a supermajority vote in both houses of the Legislature to raise taxes. With such a supermajority requirement in place, just a minority of legislators could block critical legislation, even if the legislation had broad public support.

Supporters of the amendment claim that raising the bar for increasing taxes will lead to better budget outcomes. But we already know that isn’t true. Minnesota has essentially been living with this restriction for years: we haven’t passed a statewide tax increase since Governor Pawlenty agreed to raise the tobacco tax in 2005. So we have seen first-hand what happens when policymakers are prevented from using all their budget-balancing tools. Fewer budgeting options leads to legislative gridlock, and ultimately pushes policymakers to agree to compromises that rely heavily on short-term budget gimmicks.

Advocates of the constitutional amendment want to force policymakers to concentrate on spending cuts to balance the state budget. Policymakers did agree to deep spending cuts in the 2011 Special Session. Over the next two years, the state will invest fewer general fund dollars in higher education, public safety, transportation, the environment, agriculture, and jobs and economic development than we did in the last two years.

However, many policymakers also understand that balancing the budget through cuts alone would eliminate vital investments that Minnesotans value. Cuts that deep would devastate families, erode our public infrastructure, and ultimately undermine the state’s long-term economic growth.

Just as water forges a new path when it encounters an obstacle, so policymakers find ways to meet the needs of their constituents. But the danger is that if state tax increases are essentially off the table, policymakers turn to less transparent funding methods to avoid spending cuts that would fundamentally damage Minnesota’s economy. Just this last session – after plenty of gridlock – lawmakers finally agreed to use $2.8 billion in timing shifts and borrowing from the future to balance the budget. They failed to find a permanent solution to the state’s ongoing needs, so the state will be back facing deficits in another two years, if not sooner.

Minnesotans are tired of the gimmicks and want policymakers to arrive at a permanent solution using a balanced approach, according to recent public opinion polls. For example, a recent survey commissioned by the Bush Foundation found that nearly two-thirds of Minnesotans felt that borrowing funds and delaying payments shouldn’t be used to pay for current budget deficits. And 57 percent agreed that policymakers should use both spending cuts and revenue increases to address any future deficits.

The state doesn’t need a constitutional amendment that limits the ability of policymakers to pass a responsible budget. And we know that the public doesn’t support the gridlock and gimmicks that flow from these kinds of restrictions. We do need to try something new to get our budget on the right track. That new idea is a balanced approach that relies on spending cuts and revenue increases to sustainably fund the state’s priorities.

-Christina Wessel

New analysis looks at details of the 2011 budget agreement

August 15, 2011

As the dust settles from the nearly three-week state government shutdown and the whirlwind special session, many advocates have been sorting through spreadsheets and bill language to figure out just what happened. At the Minnesota Budget Project, we’ve just released our new analysis of the budget compromise reached between Governor Dayton and the Legislature, 2011 Budget Decisions Will Undermine Current Recovery and Hurt State’s Long-Term Economic Success.

Unfortunately, the agreement reached between Governor Dayton and the Legislature fails to find a sustainable way to fund the state’s priorities, cuts services that help Minnesotans who continue to struggle during the slow economic recovery, and does not invest in the state’s long-term economic success. The agreement delays $2.2 billion in payments to school districts, borrows $640 million from the future through tobacco bonds, and reduces funding for vital public services by more than $2 billion.

Impact of FY 2012-13 Budget Proposal on the General Fund

Our new analysis provides more details on what the compromise agreement will mean for many valued public services, such as K-12 education, health care, child care, services for the elderly and those with disabilities, higher education, workforce development, transit, public safety, and taxes.

-Christina Wessel

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