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Minnesota Horizons-Turning Point to the '90s

This document is made available electronically by the Minnesota Legislative Reference Library as part of an ongoing digital archiving project. http://www.leg.state.mn.us/lrl/lrl.asp

Minnesota Horizons­Turning Point to the ~90s

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Minnesota Horizons-Turning Point to the'90s, a three day informational program forlegislators, builds upon a strong tradition ofpast Horizons programs to provide vitalinformation about .Minnesota and itspeople. This year's Horizons program, heldin mid-January, focused on Minnesota'stwo-tiered economy, human selvices, andthe state's taxation and financial structure. Inhis welcoming remarks, Senate MajorityLeader Roger Moe said that the Horizonsprograms provide legislators with the kindof background material necessalY forinformed decision making. In addition, Moesaid, "I think that it is important periodicallyto assess where we have been and wherewe are today. ..and to allow some time forreflection about what the future holds." Tothat end, staff from the state demographersoffice prepared a series ofpapers outliningimportant demographic trends. Legislatorswere then able to place information in thecontext of a broader portrait ofMinnesota.

The program was held mornings at the St.Paul TVI. The first day was devoted to adiscussion of the international, national andlocal economic forces that have shapedMinnesota's urban and rural economy. Thesecond day focused on the human selviceneeds brought about by changes in societyat large and in Minnesota. The thirdmorning concentrated on a discussion ofMinnesota's financial relationship with thefederal government, local governments andresultant revenue policy questions.

"The reason for Horizons is to give us achance to get together with recognized

Minnesota experts who have followedrecent history and set the benchmark intoday's setting ofwhere we are so that wecan investigate, through the options wehave before us, the solutions to problemsfacing Minnesota," Moe said. Featuredspeakers included Dr. Philip Raup, Dr.James P. Houck and Kathlyn S. Keeley on"Minnesota's Economic Situation inPerspective." Moderator Linda McDonnell,an economics reporter for the St. PaulPioneer Press-Dispatch, directed questionsfrom the audience to the panel of speakers,The topic of "Human Services/HumanNeeds in Perspective" was handled by Prof.Esther Wattenburg with panelists Jan Smaby,Dr. Richard Green and Dr. Michael D.Resnick. "Minnesota's Ta.'I: and FinancingSystem in Perspective" was covered byStanley E. Collender, Dr. Julia M. FriedmanandJohn F. Schannon, with Stephen Alnesacting as moderator. The concludingspeaker, Alan Rosenthal, director of theEagleton Institute of Politics, outlinedchanges in state legislatures and what thosechanges represent for the institution.

Although the legislators are the ones whomust make the final decisions in the areascovered by the program, Moe said, the hopeis, with a program like Horizons, that wecan make better, informed decisions. "Thisis the fourth Horizons program since 1975.The issues we discussed then are differentthan the issues talked about today. Issueschange, and that highlights the dynamicnature of those public policy decisions wemust face today," he said.

Table of contents:

4 Minnesota's economyin perspectiveSpeakers place Minnesota in national, international economicframework

8 Human services goal: self-sufficiencyTransition from income subsidy to self-sufficiency defines humanservices' new mission.

13 Taxation, budgeting are lawmakers greatest challengesFiscal policies shape states' economic strength.

15 The "new" legislature profiledLegislators vital to the evolution of the institution.

Writers: Karen L. ClarkSteve SenykKathy]. KainzCateMurphy

Layout and Design: Steve Senyk

Photos: David]. Oakes

On the cover:

Top photo: Dr. Philip Raup was among theseveral guest speakers invited to addressstate legislators during the MinnesotaHorizons program, which was held at theSt. PauIAVTI. Lower left:]an Smaby. Lowerright: Majority Leader Roger Moe.

Audio and video tapes of "MinnesotaHorizons - Turning Point to the '90s" areavailable from Senate Media Services, Room95, State Office Building, St. Paul, MN 55155.(612) 296-0264.

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Minnesota's dual economy- rural and urban- is symbolized by the grainelevators below and, at right, the newWorld Trade Center-Building.

Minnesota's economy in perspectiveby Kathy J. Kainz

"A tapestry of events" has caused Minnesota'seconomy, and that of the nation as a whole,to shift from a dependence onmanufacturing and agriculture to aninformation and service based economy,said Dr. James Houck at the opening sessionof "Minnesota Horizons - TUrning Point tothe '90s." The extent and effects of thechange, along with whether the emphasison services will ever actually dismantle oursystem ofgoods production was the subjectof the first seminar focusing on "Minnesota'sEconomic Situation in Perspective."

AUniversity of Minnesota Agriculture andEconomics professor, Houck spoke aboutMinnesota's connection to the internationaleconomy, the current trade situation andpolicy maneuvers for dealing with foreigntrade. Although imports contribute to thequality and diversity of goods, importsprovide competition and tend to createlower prices, Houck said.

The impact of international trade issometimes hard to pinpoint because its

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effects are often diffuse; they flow acrossstate and regional lines. Or, the effects maybe acutely obvious as is the case withMinnesota's agricultural, mining and timberproduction areas.

SenatorJim Gustafson, commenting on theissues raised at the seminar, said the declinein the demand for our taconite and foodgoods has been drastic enough to reversethe history of a traditionally successfultwo-tier economy. He summed up thecurrent economic elements as "One that isstill prosperous and viable and one that isnot."

"If all of the farms in Minnesota closeddown it probably wouldn't have an effect onthe world-wide glut. There's such a surplusof farm products. The same thing hasoccurred with our taconite and our timber,"Gustafson said. But the downturn in thegoods economy has been coming for a longtime, he added.

"Historically Minnesota has been a veryfertile state in terms ofgrowth in industryand education," he said. "The economy ofMinnesota developed into a two-tier sort of

economy and for a while that was reallyokay. The non-metro area having veryprosperous farm areas, very prosperouslucrative mining areas, timber areas, justgenerally good natural resources. Alsosprinkled in the non-metro area was asecondary economy ofsmall businesses andsmall manufacturing firms. Really, that wasthe strength ofMinnesota. Much of thewealth flowed into the Twin Cities area," heexplained.

Gustafson said part of the reason for thedownturn was the feeling that Minnesotawas immune from inflation. Rather thanconcentrating on improving the businessclimate and encouraging job growth,commercial and industrial taxes wereraised, he said, and whereas there used tobe a dependance on outstate mining taxes,"Now, with high-tech industries and so onwe're not that dependant anymore eitherfor services or for taxes coming in fromoutstate. They're still important but not likeit was in the 20's and 30's when the metroarea lived off rural Minnesota."

But even today, Gustafson said, "There's

tremendous amounts of money fromtaconite, as depressed as they are, stillflowing into the metro area."

Senator Donald Storm's opinion was that "aneed exists for goods and services but weneed fewer people to produce them." Hesaid our country is in a period of transitionand that there is a need to help people whocan no longer make a living in mining,manufacturing or agriculture to adjust to thenew situation. He said people should bemade aware of the positive attributes of thechange and that they can fit into emergingjob markets.

Storm said past attempts to assist failingindustries were not velY successful becausethe causes were of an international nature,mainly that of foreign competition formarkets. He said the state can help ruralareas by encouraging business to relocateor expand into outstate Minnesota. Thebusiness climate in those areas could bemade better by revamping property,income, corporate and equipment taxes, hesaid. An able and educated work forcecertainly exists in the rural areas, he added.

The trade deficit owes much of its existenceto federal policies, according to SenatorJohn Brandl. Federal taxing policies havedriven up interest and exchange rates, hesaid. This has taken place after smallbusinesses had attempted to expand underlower interest rates and liberal loanopportunities. The federal governmentappears to be "backing away from farmers"and other small business owners, Brandlsaid. He added that the state can, and does,help out with interest rates and farmer­lender mediations. But, "I don't think thestate is able to guarantee a higher price forcrops because the state, on its own, cannotaffect the international economy," he said.

Brandl, too, said that the manufacturing andmining decline is parallel to what happenedwith agriculture. He said the existingsituation calls for more education andtraining so that high wage jobs may beattained. He pointed out that manyprofessionals in service jobs do earn highwages and that not all are low-wagesituations as has been charged.

According to Brandl, the state should notheavily rely on taconite as a source ofincome in the future but should encouragemaking taconite more competitive so that itmay continue to contribute to the economy,although it will continue to do so on a muchsmaller scale.

Even given our declines in taconiteproduction and manufacturing, the UnitedStates' industrial output since 1979 hasgrown faster than any other country, exceptJapan. Yet, jobs in industry have declined 10percent since 1979, Houck said. In

companson, service employment is up 15percent since 1979, equalling one millionnew jobs. In Minnesota, strengths in servicejobs are in retailing, finance,communications, education and insurance,according to Houck.

But many argue that the new selvice jobsare extremely low-paying and offer fewbenefits. And, as Senator Pat Piper pointedout, many of those jobs are held by womenwho are trying to improve the quality oftheir lives.

"If you live on a minimum wage job yoursalary is about $6,000 a year. With nomedical benefits, $6,000 a year can hardlysupport one person. It surely cannot

photos by David]. Oakes

support children," Piper said.

In modern society we want to do more toassist those in need, she said. Piper listedmedical programs for the aged, programsfor the mentally ill and expanded nursinghome facilities as just a few of the areastaking our focus, and money, away from oureconomic concerns. "As a society desiresmore you need more income to satisfythose desires," she said. As individuals, wedemand a much higher standard of livingthan our parents and grandparents.

Minnesota's dual economy-one in declineand one stable and buoyant-was the focusof Dr. Philip Raup's message. Raup, ProfessorEmeritus, Agriculture and Applied

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photo byJoey McLeistereconomy to a service economy but stated,"We cannot divorce ourselve~ from a basIcreliance on the natural resources of soil,water and people for economicdevelopment or redevelopment."

The value of crop land acreage hasplummeted 23 percent since 1981, mostly inthe southeast section of the state, Raup said,and added that the decline is partially aresult of not understanding inflation and ageneral belief that our natural resourceswould not be depleted.

Raup's recommendation to the legislators,in dealing with the rural economy, was toadjust property taxes so that they betterreflect current land values, encourage creditagencies to "clean up" their credit balances,and encourage rural areas to take advantageof the computer age and the growingdemand for information services. Unlikemanufacturing, marketing can be done inany location, he said.

Focusing research and technology ondeveloping new markets and new productsto increase the potential for profitability inrural areas is one way in which the statecould offset the downturn, according toDavis.

The final portion of the seminar wasdevoted to remarks by Kathryn Keeley,President of the Women's EconomicDevelopment Corporation. She spoke to thelegislators about the importance ofentrepreneurship in the state. Shesupported not only the "true entrepreneur"as she called those with venture capital toinvest, but also women at home who starttheir own cottage industries. Kelley saidindividual efforts to manufacture andmarket a product, no matter how small thescale, should be encouraged by the state.Families need the added income, she said.

Sen.Jim Gustafson

Economics at the University of Minnesota,said the consumer debt and a glut economyhave contributed to the decline of prosperityin certain areas of the state over the pastfour years.

Pinpointing agricultural areas, Raup saidsome farmers will have experienced highearnings in 1986 but that farmers whobought land and attempted to expand bypurchasing new equipment a few years agoare currently facing severe hardships.Farmers affected the most are those whohad taken advantage of low interest ratesand readily available financing frombanking and lending institutions.

Because of the gradual shift from goodsproduction toward information and servicesjobs "the reasons for the existence of citiesare crumbling beneath our feet," Raup said.We no longer need to gather in cities towork, he added.

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Whereas our state once depended on ourabundant natural resources for our wealth,we have turned instead to manipulating theraw materials. The amount of cropscurrently harvested matches that of thevolume of crops harvested after World WarII, yet only half the crop land acreage is inuse. We have become so efficient andproductive that we need less space, fewerpeople and fewer other resources toaccomplish the same outcome, Raupexplained.

For that reason we should, according toSenator Charles Davis, "work at developingalternative job opportunities as incomesources and at the same time foster thespread of information and education onalternative farm enterprises with new anddifferent markets."

Davis noted that it is evidently true that weare moving away from a goods based

"It's no longer possible to be a single wageearner for a family," said Keeley. She saidthat if it is taken into account that half of thenew service jobs in our state pay under$7,000 per year, it's not realistic to assumethat workers can remain self-sufficient, andthus she supported the minimum wage bill.The proposed bill would raise the minimumwage from $3.35 an hour to approximately$4.10 an hour.

Senator Don Frank, a co-author of theminimum wage bill, said that if theminimum wage cannot be raised, "You'reasking people to live in perpetual poverty$4.10 or $4.20 an hour is hardly gold dust.That only brings yearly wages up to $8,000or $8,200." In answer to those who do notagree that raising the minimum wage wouldbe good for all sections of the state, Dr.Raup among them, Frank said, "I don't careifyou live in a small town or not, you stillneed to have a basic minimum. For a familyof four poverty is defined at $11,000, not

Below: Panelists Dr. James P. Houck, Dr. Philip M. Raup and Kathryn S.Keely answer questions from the audience. Lower right: Sen. Don Frank. photos by David]. Oakes

$7,000 or $8,000. In this economy, theminimum wage salaly is often what awoman or man earns to supplement thefamily income." He said in the case of manyfarmers, the supplemental income is what iscanying them through the farm crisis.

Keeley, in her presentation, expressedconcern about people who experience "thehassle and the hug factor" of barriers tostarting a business. She said the role ofgovernment should be to create anenvironment conducive to business andindividual workers. That would involverestructuring workers' compensation,dismantling AFDC, expanding job trainingand child care programs, raising theminimum wage and providing challengemoney for business endeavors, according toKeeley.

Frank explained that, although the entirearray of factors affecting our economy weretouched on during the seminar, somewould argue that improving the structure ofour economy, not only statewide butnationwide, is dependant on the way weaddress social programs, businessdevelopment and trade policies. Thedecisions which are made affecting thoseareas may benefit some but they alwaysextract a cost from others. A5 he pointedout, "TfL'i:payers, if you want the program,you've got to pay for it."

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The new human services mission is to provide transition aid to help individuals attain self-sufficiency.

Human services goal: self-sufficiencyby Cate Murphy

At a time of-enormous economic uncertainty,a slim budget, and increased demands onthe state and national level for improvedand continued welfare programs, legislatorsare being urged to assess the structure ofthe current welfare system. The ultimateconcern, according to legislators andhuman service officials, is not only how toprovide welfare recipients with support, butalso to help them become self-sufficient andindependent.

In 1935 the federal government created theSocial Security Act, closing the door onthree centuries of ignoring the conditionsof the poor. It was the first role the federalgovernment was to play in assisting theeconomically disadvantaged. And while itclosed one door, it opened another, notedProfessor Esther Wattenberg of theUniversity ofMinnesota School of SocialWork, who introduced guest speakers at the"Human SelviceslHuman Needs inPerspectives" seminar on Wednesday,January 14.

Wattenberg also discussed current human

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service trends in the United States, notingthat the poverty rate in the country is highand persistent; there is a growing populationof persons without health care; there is anincreasing homeless population; there arenot enough jobs that pay sufficient wages;there are more at-risk students; and thereare more children born into welfaredependency today than ever before.

After fifty years, local, state and federalgovernments are still uying to assess how tomost effectively and efficiently shape thewelfare system. In many ways it has becomeone large ambiguous system. Today thereare over 36 million social selvice recipientsin the country. They are the unemployed,the sick, the illiterate, the elderly, the blindand the chemically dependent. Theprograms run the gamut. Yet, as humanselvice officials have noted, with so manymillions on one or more of the availableprograms, the system is in trouble; morethan ever, Americans are turning to thegovernment for financial assistance. Mostimportant however, is the fear of apermanent underclass. As Wattenbergexplained, if a person has not worked by theage of 26, chances are he, or she, never will.

Jan Smaby, President of the Spring HillConference Center and former Director ofthe Hennepin County Department ofEconomic Assistance, spoke to legislators toask for their full support in reassessing thestructure of the current welfare system. Witha national welfare bill of $132 billionannually and of $2 billion in the state ofAUnnesota, almost one-half of everyhousehold in the United States receivessome assistance from the government. Theproblem with the system, and the Aid toFamilies with Dependent Children (AFDC)program speCifically, is that while time andmon~y are spent filling out forms andshuffling paperwork, as part of thebureaucratic process, the basic root of theproblem is not recognized: recipients needto learn how to become self-sufficient.Unfortunately, said Smaby, "the obsceneweight of these regulations is brought aboutby our concern in this society that we haveto distinguish between the deselving poorand the undeserving poor, and I think it isimpossible to distinguish between the trulyneedy, the truest, and the neediest."

There are 180 federal transfer paymentprograms in the countty, said Smaby. Almost

JanSmaby

photos by David]. Oakes

Dr. Richard Green

one-half of all federal expenditures arespent on social service programs. Thirtymillion Americans receive medicare andonly 10 million receiveAFDC. "But whenwe speak of the poor, we think ofAFDCrecipients. The overwhelming majority ofwelfare recipients are homegrown," Smabysaid. They are women who have been out ofthe work force or have lost a major wageearner in the famil), Fifty percent of themothers have a high school degree, but theydo not know how to adequately provide forthemselves or their children. The majorityof the women do not have subsidizedhousing and without the aid ofAFDC, theycannot take jobs because the jobs theyqualify for don't provide medical insuranceor benefits, and don't pay enough tosupport transportation and day care costs,said Smaby

For many AFDC mothers and children, theprogram is short-term. Fifty-six percentreceive AFDC for two years or less. However,forty percent of the women will go off theprogram because they remarry Smaby saidthis "transfer of dependence is a negative. Ifwe have not successfully educated ortrained women before they get offAFDC,then they transfer their dependence fromone welfare system to another." As a result,noted Smaby, many of the women whoreturn, return because of another failedmarriage.

Unfortunately, the trends are increasing, notreversing. An affordable alternative, saidSmaby, is to provide recipients with theopportunity to get their high schooldiplomas, in addition to providing jobtraining assistance programs, whilegradually working their way off the system.

Looking ahead into the 1990s, state senatorsrecognize the need for fundamental welfarereforms. "We have to help people who arehaving difficulty supporting their families tomake the transition into becoming self­sufficient," said Senator Linda Berglin, chairof the Health and Human ServicesCommittee. "Unfortunately, I think thefederal government has taken a lot of thatflexibility away and we, as a state, arestruggling to find ways to put the programstogether," she continued.

"There are a lot of things we need torealize," said Senator Howard Knutson, whoplans to propose a transition assistanceprogram this session. Knutson noted thatwhile recipients can find jobs, they oftenturn them down because they find that thesalaries offered will not cover the expensesthey require. "We would be prepared, to sayto the recipient, 'we'll cover these costswhile you make this transition move,' " saidKnutson.

According to Senator Don Samuelson,

proposals being prepared for introductionthis session include a program designed tohelp teenage mothers get their high schooldiploma, additional child care programs,and a residency requirement program.Samuelson also hopes to help develop awork incentive program. This programwould allow AFDC mothers to continuereceiving some of their grant money whileworking. "The program will probably havesome cost," said Samuelson, "but it providesan incentive for mothers to get off theprogram." Additionally, legislators will tty toencourage cOllnties to enforce child caresupport, he said.

While the idea ofwelfare reform hasswitched from monetary subsidy tomonetary subsidy and training, SenatorGene'Waldorf believes that "it is going totake some aggressive programming to gettraining that helps AFDC mothers canyfinancial burdens." "I don't Imow exactlywhat is going to take shape," he continued,"but being eligible for a minimum wage jobis not a solution. We can do better than that."

The purpose of the welfare system is toprovide basic necessities for a short periodof time. What has happened, however, asSenate Minority Leader Duane Bensonnoted, is that cultural and economicconditions have changed over the years.There was a time when a family took care of

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its elderly, its sick, and its poor. In a mobilesociety, the family can no longer providethat support and those in need turn to thegovernment for help. "From an historicalperspective, the growing dependence onsocial service programs occurred in the1930s and 1940s. At that time there was aneed that no one else could fulfill and wehave come to build on that. Now, the costsand the demands of the system havebecome greater and greater," said Benson.

One institution looked at more and morefor providing support to curb the demandsof social service agencies and for providingadequate training is the educational system.

Minneapolis Public Schools SuperintendentDr. Richard Green stressed the need forearly childhood education programs, sayingthat the most important investment is thepersonal development of the zero to fiveyear old child. Green also asked legislatorsto consider legislation that would provideparent training programs focusing on issuessuch as child care, sex education, and AIDSeducation. Parent training can improve achild's school performance, stated Green.

These programs need to be established,urged Green, citing recent studies that

indicate there will be an increase in thenumber of at-risk students in the 1990s.Typical at-risk students, said Green, wouldbe children from single parent homes,children from low-income homes, childrenwho don't link up with the value system,children with a poor academic successrecord, or children who are emotionallyunprepared. "We must make certain we donot have a poverty of spirit in the schools,"said Green, stressing the idea that evetystudent ought to be provided with educationand training opportunities that will fosterthe development of individual potential anda commitment to responsibility.

Green believes that by developing earlychildhood programs, ideas and creativitieswill be nurtured throughout the child'sdevelopmental years, thereby increasing hisor her chances for future academic success."Children don't suddenly becomedisconnected. Technology is important, butthere has to be a fourth dimension involved,and that's the caring capacity," he said.

The value and role of the school is changing,said Green. More and more training isrequired for programs such as pregnancyprevention, drug abuse, and public health.Where it was once assumed that the school

prepared its students for the purpose ofcareer development, it now has addedresponsibilities. Green believes that byworking in partnership with the city, withhealth care centers, and with day carecenters, "we can restructure our servicescorrectly. "

Above: Day care assistance is a vital element in the formula for self-sufficiency. Top right: Dr. Michael Resnick.

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"We need cooperation right away," saidSenator Donna Peterson. "Cooperationfrom schools and social service agencies toprovide kids with the programs they need,"she added.

Others however, may question this action.Senator Gene Waldorf believes that schoolsshould provide students with necessarytraining, but is concerned that the schoolwill reach a point where it will educatepeople from "cradle to completion." That,he believes, is "not the objective ofeducation."

According to Senator Linda Berglin, thereason schools are being asked to take onthese added responsibilities is becausethat's where the kids are. The role of theschool, she said, is to provide students witha good education, and to help themconceptualize and plan for the future. "Butthe schools need more money and morediversified personnel," she said. "We needto give the schools the resources they needto tackle the problems, othelwise we needto make sure the schools interact with otheragencies that are able to provide theseservices to kids."

Senator Gen Olson believes that schoolsneed to provide the students with anenvironment that will nurture the desire of

Sen. Howard Knutson

learning and working. This, she said, "isoften lost along the way When you lose thedesire to learn, your motivation andexcitement for learning, school becomes aplace where peer dependence can becomea negative. We've got to learn to use ourresources in restructuring the educationenvironment. "

Prevention of disease and promotion ofhealth are also major concerns of the 1990ssaid Professor 1'vlichael Resnick from theAdolescent Health Program at the Universityof Minnesota. In his presentation to thelegislators, Resnick stressed the need tocoordinate health and human supportservices with the schools.

"There are limits to our resources," saidResnick, "but through education, we canstrive to create a climate of motivation toprevent diseases, and specifically to delaythe on-set of sexual activity among youths."Health problems, said Resnick, come notonly from biological causes, but socialbehaviors. According to Resnick, there is adirect correlation between poverty andhealth. The destructiveness of poverty, saidResnick, leads to a destructive behaviortoward the human body and spirit. As aresult, he continued, the poor are at ahigher health risk than the middle class andthe wealth),

photos by David]. Oakes

Sen. Donna Peterson

The critical questions concerning healthissues in the 1990s, noted Resnick, are whoshould have access to what services, whatlevel of quality should be given and whoshould pay for these selvices. Those in mostneed in the next decade will be children,young women, middle-aged women, theelderly, and those needing long term healthcare. Considering that the United States isthe only industrialized nation in the worldwithout a national health insurance policy,Resnick suggests that the way to deal withthis is to build partnerships among healthagencies and the schools.

"It is important for people to learn aboutwellness, how to prevent illness and thespreading of diseases," said Berglin. "Goingto school isn't just learning to read andwrite, it is also becoming prepared to live afull life in the world, learning to keepyourself healthy"

As]an Smaby, Dr. Richard Green, and Dr.Michael Resnick noted, the government, thesocial service agencies, and the schoolsneed to work together to improve livingconditions in the present and the future.Human service issues will change fromconcentrating on income maintenance tothe development ofpeople. According tothe legislators, efforts during the 1987session will not be to reduce or to increasethe welfare benefit structure but to createprograms that will encourage welfarerecipients to become independent andself-sufficient. Furthermore, the educationsystems will begin focusing on establishingprograms that will foster personaldevelopment and growth. "This is a realbreakthrough," said Senator Nancy Brataas,"I think the most encouraging aspect ofwelfare reform this session is the emphasison redefining the mission ofAFDC, focusingon a transition assistance program andeducation."

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Top left: Dr. Julia M. Friedman. Top right:Stanley E. Callender. Bottom: John F. Shannon.

photos by David]. Oakes

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a ation, bu etingare lawmakers

reatest challen esby Steve Senyk

Chief among the legislative issues thissession is Minnesota's taxation and financesystem. Governor Rudy Perpich proposedsweeping changes in these areas, andlegislators are forming their own proposalsto make Minnesota financiallv stable andefficient. To help lawmakers prepare for thedecisions ahead, the J1-1innesota Horizonsprogram examined the effects of national,state and local policies on Minnesota'srevenue and budget processes.

Providing a national perspective, Stanley E.Collender, Director of National Policy Issuesand Federal Budget Policy for Touche Rossand Company, discussed the impact of thefederal budget and the deficit. John FShannon, Executive Director of the AdvisoryCommission on IntergovernmentalRelations, offered a state viewpoint on histopic, "Structuring a state/local revenuesystem to achieve multiple objectives." Thethird speaker, Dr. Julia M. Friedman,presented a local perspective with herspeech, "Paying for local governmentservices in the 1990's."

"News from Washington is not good andwill not be good for some time," Collandersaid in his opening remarks. The amount offederal aid to states will not increase duringthe ne;>,,'t five years and may be reduced, heexplained. "Plan for it," Collender advisedstate lawmakers. "Expect very little in[additional Jdollars than what you aregetting now," he added.

What that means,Collender said, is thatMinnesota, as well as other states, will notbe able to depend on the federalgovernment for financial help in resolvingnew or growing problems. Congress willstill be pressured to reduce the federaldeficit, and aid to state and localgovernments is a vulnerable area for cuts.

While states can expect little help fromCongress, they can enact policies topromote economic development andstabilize revenues, emphasized Shanon.Minnesota could greatly improve itseconomic competitiveness among otherstates by changing its tax structure, he said.

Sen. Gene Merriam

Shannon suggested that the state scale backits t<L'C rates, broaden its tax base andmoderate its spending on goods and publicservices to make itself more competitive. Tobuild in equity, the state should shield morelow income residents from tmcation.

Because of the fierce interstate competitionfor jobs, "Most state must avoid thereputation of[havingJ a bad businessclimate," Shannon said. That would includean above average local tax burden; a highlyprogressive income tme structure; no capitalgains exemption; and above average t<L'Crates for unemployment and workerscompensation," he explained.

Shannon said the least objectionable statet<L'C systems are those that balance andmoderate their income, sales and propertyt<L'Ces and user fees. According to Shannon,Minnesota's tme revenues exceed its t<L'Cationcapacity in all areas except general sales.Compared to other states, Minnesota'sincome tmo:: "sticks out like a sore thumb,"he said. Minnesota's other t<L'i:es are near theaverage of other states.

Friedman suggested Minnesota would dobetter if it replaced its system of local aids

and credits and instead targeted assistanceto jurisdictions with low income residents.Under the current svstem, Minnesotaprovides property t~x relief to allMinnesota's residents, but not necessarily tothe needy taxpayers. If property t<L'i: creditprograms are to be revised, considertargeting relief to the needy; preserve aprogressive relief system and preservescarce revenues, she suggested. Friedmanfurther indicated that Minnesota shouldsimplify its property t<L'i: system.

Collender, Shannon and Friedman providedstate lawmakers with an important message:states must review their tax and spendingpolicies when addressing policies to assurerevenue stability and economic growth. Togauge how the Minnesota Legislature mayrespond to its spending and t<L'i:ingpriorities, "Perspectives" interviewed fourstate lawmakers.

One person who will playa key role inshaping Minnesota's funding policies isSenator Gene Merriam, chairman of theFinance Committee. Merriam said the stateshould not accept "carte blanche" Shannon'scontention that Minnesota should reduce its

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Sen. Gary Laidig (left) and Sen. William Belanger confer in the Senate Chamber.

progressive tax rate and trim public goodsand services.

"Highly progressive ta;" rates, I believe, areimminently defensible," ]\'lerriam said. "Itseems just to me that ability to pay is relatedto what your income is. That's the notion ofa progressive tax system. But, at the sametime, you've got to be mindful of what thatdoes in term of other states and the publicperception. I understand the mood toreduce the top rates, but I hope we cankeep [the t~'[ system] fairly progessive," headded. Merriam said that he's not convincedthe state is now providing unnecessatygoods and services.

Tinkering with Minnesota's progressiveincome t~'[ system also was of concern toSenator Steven Novak. Novak said thepresent system has contributed toMinnesota's fine educational system. "Ithink a progressive tax base is essential [forproviding] a diversified and completeeducation in Minnesota, which I think is adriving force in economic development,"he said. "In Minnesota, we historically havehad a progressive tax base and we havebeen historically recognized as having asound educational system. We have to becareful in altering that relationship," headded.

While Merriam and Novak expressedcaution about altering Minnesota'sprogressive tax system, Senator Gary Laidigsaid the degree of the state's income t~'[

progressivity is important when consideringMinnesota's economic competitiveness withother states. "The number one goal for us insetting t~'[ policies is establishing fairness.Along with that, you have to say your're notan island. &ld what you do in terms of t~'[

policy has to make us competitive," he said.

Scaling back Minnesota's progressive t~'[

system and moderating the state's taste forpublic goods and service, was sound adviceaccording to Senator William Belanger. "I'vealways felt that ifwe're going to stabilize ourt~'[ system and avoid these constant specialsessions, we're going to have to take someof the progressivity out of the income t~'[.

On the sales tax side, we have to broadenthe base by expanding the sales t~'[ to atleast clothing and services," he said.

''As for our appetite for governmentsetvices, I think that in a state like Minnesotathat has a long history of providing a lot ofgovernment setvices, I'm just not sure youcan wean people from that," Belangercontinued. "Some of these [setvices] arereasons people came to Minnesota...someprefer to pay the higher tax and get thesetvice," he added.

Belanger said that the cost ofgovernmentwill continue to rise even if the levels ofspending remain constant. In order tocontrol state spending, he suggested

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looking at the cost-effectiveness of eachprogram. "If it isn't cost effective, then Ithink we have to modify it, or we have to getrid of it," he said.

Merriam said that studies show Minnesota'svolatile revenue system is not necessarily aresult of its narrow t~'[ base. What the statelooses by expanding its tax base isprogressivity in its tax system, he said."While I agree that in some areas the taxbase ought to be broadened, I'm not so sureit should be a goal unto itself," he added.

An area in which Merriam contends the t~'[

base could be expanded is the corporateincome tax. "OstenSibly, we have thehighest corporate t~'[ rate in the commyBut, what never gets mentioned is that wehave the most favorable allocation systemfor multi-state corporations. We provide at~'[ benefit to companies who sell a lot inMinnesota and locate very little in the way ofplant or employment. I've always thoughtthat was wrong. We ought to eliminate t~'[

breaks for those companies who are verydependent upon us for sales, but have noinvestment plans," he said.

Laidig agreed with Shannon that the state'shighly progressive tax rates are affectingMinnesota's economic competitiveness. Heexplained that Minnesota's high income t~'[

hurts its recruitment of corporateexecutives. "We rely too heavily on theincome t~'[," he said. "Diversification of thet~'[ would help, but we must consider howmuch revenue would be gained [bydiversification]. I would be reluctant todiversify into areas where people would gethurt by it-t~'[es on food and clothing-if itdoesn't raise that much [revenue]," headded.

To help stabilize state revenues, Friedmansuggested revamping the state's property t~'[

program. Belanger said that is an issue thatthe state cannot afford to ignore; in fact, hesupported reducing state aid to localgovernments. "Property taxes are going togo up in communities," he said. "But, Ithink if we do that, we cut back on oursetvices and we force city governments outthere to justify every dollar they spend."

However, Belanger said targeting propertytax relief could cause problems. "In themetro area, I think we've [targeted relief]through fiscal disparities. I would hope wewouldn't do that state wide, because thenthe metro area would be the big contributorto the whole state. But if we could come upwith some other system for rural Minnesota,comparable to what we've done with fiscaldisparities in the metropolitan area, thatmight work."

All senators agreed that the state can beginstabiliZing revenues by getting bettercontrol of its budgeting and forecastprocesses. According to Laidig, "We have toget a pretty good lock on what thoserevenue projections are. I would like toknow where those shortfalls occurred. \)\lemust examine the shortfalls and see if thereare trends d1ere. I would hate to talk aboutreducing income t~'[ or extending the salest~'[ if the problems are in the ag economy."

Merriam said that the Legislature hascreated much of the volatility in the revenuesystem because it has not looked beyondthe coming biennium when making budgetdecisions. Legislators, Merriam said, shouldbe "thinking not only how [the budget] willaffect us untilJune 30, 1989, but how it willaffect us in 1990 and beyond."

photo byJoey McLeister

The "new"legislatureprofiled

photo by DavidJ. Oakes

Alan Rosenthalby Karen L. Clark

The final speaker at i\'1innesota Horizons­Turning Point to the 90's sounded apleasantly surprising note for the assembledlegislators at the conclusion of the program."I am here today to praise the Legislature,"said Alan Rosenthal, Director of the EagletonInstitute of Politics at Rutgars Universit),Rosenthal compounded the surprise byadding, "I come to praise Legislatures ingeneral and Minnesota's in particular. It is aresiliant institution that has evolved,changed and adapted."

It is easy to lampoon state legislatures,Rosenthal said, citing the familiar adagecomparing the sausage making and lawmaking processes. Yet, he went on, "thesurprising thing is that it works - perhapsnot as well as we like but better than couldbe expected."

Each legislature is unique, Rosenthalexplained, and the biggest differences camein comparing those states with full timelegislatures and those with part-timelegislatures. Rosenthal said that he has beenobserving legislatures since the mid-1960's,and that he has noticed in manv states, a"new" legislature. And, the neV:, lelgislaturethat has taken shape is one that hasundergone a metamorphosis. According toRosenthal, the new legislature is one withan enhanced capacit)' because ofcomputerization and the high qualityprofessionalization of staff. In addition,Rosenthal cited the democratization of thelegislative process as an important factor inthe maturation of the "new" legislature. Nolonger are legislatures controlled by just afew powerful leaders, he said. Now everymember can participate in the decision

making process because legislativeresources are more equally distributed.Other factors leading to the metamorphosisof the "new" legislature are the revolutionin representation stemming from theone-man one-vote decision of the SupremeCourt. This revolution in representation has,said Rosenthal, led to more consituentservices, with legislators paying moreattention to their districts. In addition,legislative bodies are more representative,with more women and more minoritiesbeing elected. Public participation is on therise, Rosenthal said, because the "new"legislature is more open. This publicparticipation has led to the formation ofcitizen lobbies to express divergentveiwpoints.

Afinal element in the rise of the "new"legislature, Rosenthal said, is that legislativepower has increased. Legislatures are nowco-equal partners in state government-nolonger functioning as either a rubber stampor obstruction to the executive branch ofstate government, he said.

According to Rosenthal, these six factorsleading to the development of the "new"legislature have all had the effect ofenhancing the qualityof public policy development. It was thestate legislatures that met the recession ofthe earlv 1980's head on and took therespons'ible actions necessary, he said. Itwas the state legislatures that met thechallenge of education, and he remarkedthat Minnesota is a leader in the area ofeducation. In fact, he said, state legislaturesmet the challenges head on in liabilit)'insurance, in environment, in transportationand in economic development, and createdsound public policy

However, the legislature is under stress,Rosenthal cautioned. Legislatures, asinstitutions, need nurturing, he said, andthey are not getting it. Legislatures asinstitutions, he continued, are the sum totalof the experiences, traditions, customs andprinciples devloped over a long period oftime and placed under the guardianship ofthe legislative leadership. In today's climate,though, leadership often has more pressingconcerns, such as partisan strategy andintergovernment negotiations, than thestewardship of the institution. Thus, theprofessional staff has been delegated theresponsibilit)' for the institution, Rosenthalsaid. He warned though, that for resourcesto be properly managed, the staff needs theinvolvement of legislators. "We need tohave legislators minding the store," he said.

In addition, the legislative process itselfneeds to be reviewed, he said. The role ofconference committees and thedevelopment of the state budget are twoareas that need scrutiny, according toRosenthal. In addition, he said, there needsto be media education in order to reducenegative stereotypes and provide anaccurate picture of the legislature.Leadership needs power, he said, to carryout its proper legislative function.

In concluding his address, Rosenthalreminded legislators that "the legislature isnot only a means to an end, but an end initself." The people ofMinnesota areeA1:remely fortunate to have one of thenation's finest legislatures. Rosenthal thenchallenged his audience with the requestthat legislators leave the institution betterthan they found it, "that is what we expect ofyou and what you should expect ofyourselves."

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Senate Members ~ 1987 Session

PARIY PHONE SENATOR ROOM* DIST. PARIY PHONE SENATOR ROOM* DIST.DFL 296-5981 Adkins, Betty A 235 Cap. 22 DFL 296-4136 Lessard, Bob 328 Cap. 3IR 6455 Anderson, Don 153S0B 12 DFL 8869 Luther, William P. 205 Cap. 47DFL 5713 Beckman, Tracy L. G-10Cap. 29 DFL 5645 Marty,]ohn]. 235 Cap. 63IR 5975 Belanger, William V.,]r. 107 SOB 41 IR 1279 McQuaid, Phyllis W 135 SOB 44IR 3903 Benson, Duane D. 147S0B 32 IR 8075 Mehrkens, Lyle G. 127S0B 26

DFL 5094 Berg, Charles A. 328 Cap. 11 DFL 4154 Merriam, Gene 122 Cap. 49DFL 4261 Berglin, Linda G-29 Cap. 60 DFL 4370 Metzen,]ames 303 Cap. 39IR 4131 Bernhagen,]ohn 113 SOB 21 DFL 4264 Moe, Donald M. 309 Cap. 65DFL 2084 Bertram,]oe, Sr. 323 Cap. 16 DFL 2577 Moe, Roger D. 208 Cap. 2DFL 4837 Brandl,]ohn E. 306 Cap. 62 DFL 5649 Morse, Steven G-24 Cap. 34

IR 4848 Brataas, Nancy 139 SOB 33 DFL 4334 Novak, Steven G. 301 Cap. 52DFL 4182 Chmielewski, Florian 325 Cap. 14 IR 1282 Olson,Gen 133S0B 43DFL 5931 Cohen, Richard]. G-27 Cap. 64 DFL 4241 Pehler,James C. G-9Cap. 17DFL 5003 Dahl, Gregory L. III Cap. 50 DFL 4274 Peterson, Donna C. G-24 Cap. 61DFL 2302 Davis, Charles R. G-24 Cap. 18 DFL 8018 Peterson, Randolph W G-9Cap. 19

DFL 6820 DeCramer, Gary M. 303 Cap. 27 DFL 9248 Piper, Pat 325 Cap. 31DFL 2859 Dicklich, Ronald R. 235 Cap. 5 DFL 7809 Pogemiller, Lawrence]. 306 Cap. 58DFL 8298 Diessner,AW"Bill" 323 Cap. 56 DFL 4167 Purfeerst, Clarence M. 303 Cap. 25DFL 2877 Frank,Don G-lOCap. 51 IR 9251 Ramstad,Jim 123S0B 45IR 4123 Frederick, Mel 119 SOB 30 DFL 2889 Reichgott, Ember D. G-9Cap. 46

DFL 5640 Frederickson, David]. G-24 Cap. 20 IR 4125 Renneke, Earl W 117 SOB 35IR 8138 Frederickson, Dennis R. 143 SOB 23 DFL 4875 Samuelson, Don 124 Cap. 13DFL 9307 Freeman, Michael O. 122 Cap. 40 DFL 7157 Schmitz, Robert]. 235 Cap. 36IR 4314 Gustafson,]im 115 SOB 8 DFL 4188 Solon, Sam G. 303 Cap. 7DFL 4183 Hughes,Jerome M. 328 Cap. 54 DFL 4191 Spear, Allan H. G-27 Cap. 59

IR 3826 Johnson, Dean E. 105 SOB 15 IR 6238 Storm, Donald A 125S0B 42DFL 8881 Johnson, Douglas]. 205 Cap. 6 DFL 8660 Stumpf, LeRoy A. 306 Cap. 1DFL 4248 ]ude, Tad 326 Cap. 48 IR 9457 Taylor, Glen 103 SOB 24IR 1253 Knaak, Fritz 149 SOB 53 DFL 5650 Vickerman,Jim M. G-29 Cap. 28IR 4120 Knutson, HowardA. 121 SOB 38 DFL 3809 Waldorf, Gene 124 Cap. 66

DFL 4302 Kroening, Carl W 124 Cap. 57 DFL 8091 Wegscheid, Darril 309 Cap. 37IR 4351 Laidig, Gary W 141 SOB 55 DFL 4147 Willet, Gerald L. 111 Cap. 4DFL 3205 Langseth, Keith G-24 Cap. 9DFL 8017 Lantry, Marilyn M. G-28 Cap. 67IR 5655 Larson, Cal 145 SOB 10 *Capitol or State Office Building, St. Paul, MN 55155

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