5 budget priorities for the DFL in 2023

November 22, 2022 7:01 am

The Minnesota State Capitol building in winter, St. Paul, Minnesota. Photo by Tony Webster.

The DFL shocked election predictors by gaining control of the state Senate to win unified control of the government for the first time in nearly a decade. With a $12 billion surplus and two years to govern, DFL legislators are in an excellent position to pass major investments that will improve Minnesotans’ financial, social and environmental quality of life for decades to come.

There is a lot to deliver on but the DFL would be smart to think about underlying structural challenges that are difficult to address under split government. Here are five budgetary policy priorities to treat underfunding where it is creating downstream problems and gumming up the gears of social and economic policy.

1. Raise more revenue.

With $12 billion on the bottom line, raising taxes may seem like an odd priority. But with the staunchly anti-tax GOP out of the way, the DFL needs to think ahead.

Of the $12 billion surplus, $7 billion is one-time money left over from previous budgets. It can be put to great use, but it cannot fund programs — like public education — that recur every year. The remaining $5 billion is the amount Minnesota Management and Budget expects to accrue over the coming two-year budget cycle and which legislators can spend on ongoing programs.

But that $2.5 billion per year isn’t guaranteed and doesn’t factor the increased cost of government goods and services resulting from 40-year high inflation. According to Budget office estimates, the state will have to spend at least one-fifth of its $5 billion structural surplus just to leave current programs intact. $4 billion of new ongoing spending is nothing to sneeze at, but it will go quickly.

The chart above compares the projected 2024-25 surplus to a few key DFL spending priorities. Helping school districts pay for unfunded special education costs (“closing the special education cross-subsidy” in budget speak); fully funding the Child Care Assistance Program; and the governor’s 2022 proposals for pre-K and public safety investments would consume nearly 95% of the 2024-25 structural surplus.

And that’s just a modest approach to a few priorities. Without new revenue, it will be difficult to deliver on a long policy backlog while also pursuing important new programs like a public health care buy-in or universal free school meals.

Thankfully, the DFL has good funding options available. A 5th income tax tier on high earners and closing the loophole for corporate profits sheltered abroad are just two examples of how the state could raise considerable revenue without hurting the middle class.

Much of today’s surplus is the result of the 4th income tax tier championed by former Gov. Mark Dayton and passed by a DFL legislature in 2013. Raising new revenue now is how the state can stay ahead of the next 10 years

2. Public sector workforce

Although there are countless areas — such as childcare and health care — in which legislators should expand programs to improve services and reduce household costs, the common challenge across all of these areas is a workforce crisis. Minnesota is short 6,000 school nurses and guidance counselors, 20,000 long-term care workers, and hundreds of public defenders, just to name a few. Higher wages throughout the public sector are essential to restoring staffing levels in these critical professions.

The chart above shows the decline of public sector employment relative to the state population since 1990. There are now 10% fewer state and local employees per 1,000 residents than there were three decades ago, despite the fact that Minnesota is now home to a more diverse student body with greater school staffing needs, and an older population more dependent on publicly funded care workers.

Rebuilding the public sector workforce is essential for the well-being of Minnesotans of all races, ages, and genders in every corner of the state.

3. Service delivery and administrative capacity

Relatedly, decades of bipartisan budgets have left government agencies with minimal staff and outdated technology. Government programs are only as good as the mechanisms that convey them to the public, so the trifecta is an important opportunity to support counties, cities and agencies that lack the administrative resources to ensure excellent policy communication and execution.

RentHelpMN, for example, became a high-profile case of alleged government inefficiency when distribution of emergency ARPA funds was slow to materialize. But this wasn’t proof of incompetence so much as the predictable result of lacking public sector capacity. Long wait times for DMV appointments are another, more mundane example of how underfunding and understaffing feeds the sentiment that government runs slowly.

Similarly, technology upgrades that private companies regularly purchase to increase efficiency would improve services and save taxpayer dollars over the long-run. The governor’s 2022 supplemental budget included at least $100 million for various public sector IT upgrades and investments. This is the right idea.

The Legislature itself is also under-resourced. Legislators are collectively responsible for overseeing a society the size of Finland and individually responsible for representing 40,000 constituents (80,000 in the senate) with an administrative staff of one (split two-ways in the house). For a job that is nominally part-time but functionally around the clock, legislators earn just $48,250 plus $66 in per diem for session days. This leads to less room for constituent services, lacking capacity for lower-income legislators, and over-representation by individuals with independent wealth.

Full-time pay for legislators and a functioning union for capitol staff is another important, pro-democracy policy the DFL should pursue.

4. Housing

The common thread here is investments that will benefit Minnesotans directly, but also improve the ground on which Minnesota’s public institutions operate. Housing is perhaps the best example of an area where public spending in one place can relieve costs and burdens in many others.

Without appropriate affordable housing for all, Minnesota’s schools become de facto case managers for children and families experiencing homelessness. This strains staff capacity, hampers educational outcomes, and increases teacher burnout.

Likewise, libraries and parks are not adequately resourced to meet the needs of a homeless population that looks to public spaces for safe refuge. And, of course, the criminal justice system functions as a revolving door for perpetrators of criminalized poverty. This system of social services by default is not only cruel, but costly. One study of unaccompanied minors in Minneapolis found that providing stable housing and other services could reduce social welfare expenditures by $300,000 per person, saving $50 million of taxpayer money with even a modest success rate.

With ample one-time money for capital projects, the state should invest in a spectrum of housing, from supportive low-barrier shelters to the construction of new affordable units. Bolder solutions must also enter the discussion. Publicly owned mixed-income housing, for example, can maximize tax dollars by redirecting rent payments into subsidies, operating costs, and new construction.

Housing is the largest single household expenditure and the one most foundational to personal health and well-being. It also bears on the size of the workforce and the prospects of future generations. Aggressive housing investment is one important way Minnesota can start to get ahead of numerous downstream challenges.

5. Early childhood care and education

The final item is perhaps one of the most broadly accepted as a 2023 priority. Child care in Minnesota is scarce and unaffordable. This punishes parents, who are often early in their careers, and keeps parents at home, further shrinking the workforce and suppressing family incomes.

At the same time, the upsides to quality early childhood care and education are enormous. In addition to the positive impact on a broad range of social and economic outcomes over the lifespan of a child, estimates have found that public expenditures on early childhood programs can generate a $4-to-$9 return on investment due to increased earnings and decreased social costs over a lifetime.

Minnesota could become a magnet state by providing quality affordable care and early childhood education for all families, as well as good paying jobs for child care professionals. The potential social, economic, and human welfare benefits of the country’s first fully funded childcare system are hard to understate.

Clearly, there is no shortage of possibilities for impactful state spending this budget cycle. The DFL should prioritize investments that will shift the ground on which public policy is implemented. This could lead to a virtuous cycle: The more social challenges we resolve, the more Minnesotans will flourish and pull their communities along.

In other words, to slightly modify a phrase repeated frequently throughout election season: We’ll all do better when we all do better.

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Eric Harris Bernstein
Eric Harris Bernstein

Eric Bernstein is a policy analyst focused on state tax and budgetary policy. Since the summer of 2020, he has been policy director for We Make Minnesota — a coalition of labor and community groups organizing to raise state revenue for investment in health care, education, racial equity, sustainable environmental stewardship and other public priorities.