Chairman Bakk, members of the committee and staff, we thank you for the opportunity to present information on this proposal before you today and we’d welcome the chance to provide further information at any time. My name is Dane Smith and I am president of Growth & Justice, a research organization that focuses on economics and state-local tax-and-budget policy. We favor smart and ample public investments in human capital and infrastructure. We think taxes are good and that taxes do good and absolutely vital things for all of us. And we are very active in the realm of improving and redesigning government, reducing costs and putting a new emphasis on accountability. Our governments, at the federal level and particularly in Minnesota, have served us well and our taxes have been remarkably effective at improving our quality of life and maintaining a reasonable equality of life, but we can always improve our governments and there is no better word than accountability to describe what we should expect from them.

However, this proposal for a so-called Spending Accountability Amendment is a profoundly wrongheaded concept, perhaps the worst of the budget alternatives that have been put before the Legislature. It would impose a permanent and extreme mechanism that would basically lock into place a failed fiscal orthodoxy, which can properly be called "no new public investment," and under which we have been struggling for the last decade. This proposal actually reduces the accountability of the governor and our elected representatives. It would wreak further havoc on our quality of life in Minnesota, exacerbate the growing economic inequality that already is threatening our economy and public safety, and do great damage to our distinctive Minnesota tradition of fairness. And it would be bad for business and taxpayers in the long run.

Four other very specific points: One, the amendment sets a draconian and absurdly unrealistic bottom line for setting future state-and-local government budgets, putting a permanent rear-view perspective on the price of government. Price and wage controls never work, as free-market enthusiasts always tell us. Two, this amendment violates Minnesota traditions of representative government, and deprives our leaders of perhaps the most important overarching decision they make: how much overall to devote to the commonwealth. Three, this has little or no support from mainstream policy analysts or academic experts on governance or government finance. It doesn’t even have the endorsement of generally conservative groups such as the Minnesota Business Partnership or the Minnesota Chamber of Commerce, or the Minnesota Taxpayers Association. And four, it advances the false premise that our governments, at least in recent years, are taking a larger share of our income and wealth, when in fact, the opposite is the case.

California and Colorado are the best known states where voters were fooled into imposing risky, arbitrary, formulaic, anti-government restrictions against growth in public investment. And there’s a general consensus that they have suffered disastrous consequences. Proposition 13 in 1978, a rigid anti-property tax formula, started California on a downward spiral that starved its local governments, badly damaged its once golden educational systems, and created some of the largest inequalities in America. No state is in bigger crisis right now than California. Please consider the PowerPoint presentation frequently offered by State Economist Tom Stinson and State Demographer Tom Gillaspy, who point out how California has been headed on downward slope economically from 1980 onward, while Minnesota as a high-investment state for most of those years actually increased its per capita income, at least until recently. Colorado voters last year basically admitted their mistake and suspended their constitutional amendment to escape a fiscal straitjacket. Although these kinds of amendments would seem to incite populist anger and support, voters are now seeing through them, and an amendment was defeated in Maine just last month.

In a Star Tribune op-ed and on the governor’s website, Gov. Pawlenty estimates that if this amendment had been in place from 1960 on, we would have spent $22 billion less on state and local government. We keep hearing these references to the magical year 1960 from the Taxpayers League, which seems to suggest that this year of the governor’s birth was some sort of fiscal Eden to which we should return. Two points about 1960.

One, the figures that are used to describe government growth over this last half-century are seriously distorted and do not take into account that we have 1.7 million more people than we had in 1960 and that the cost of living and our economy and personal income are enormously larger. Fiscal analyst Jeff Van Wychen at Minnesota 2020 has calculated that the real per capita growth in state general funding has been closer to 3.5 percent per year, nowhere close to the 10 percent claimed by amendment proponents.

But let’s allow that there was real growth in our public sector between 1960 and 2000, that government is in fact bigger, does more things, and takes more of our income than it did before the Beatles and the Civil Rights movement and before the Twins and Vikings existed. What did we buy?

Well, here are things our governments did not do in 1960: we did not pay women wages comparable to men and we made little effort across a broad spectrum to advance economic equality for girls and women. We had no interstate freeway system, very few four-lane highways, unsafe highways, and many or most of our country roads were unpaved. We essentially did nothing in 1960 to protect our environment, had no Pollution Control Agency, and our rivers and lakes and groundwater were turning into open sewers. We did not manage our Twin Cities metropolitan area, provide little or no mass transit at all, and stadium financing might be unwarranted investment of tax dollars, but we literally were a minor-league state, with no major league sports teams. Here’s a huge expense; we provided little help to grandmothers and grandfathers in nursing homes, did not supplement federal state or local Medicare and Medicaid programs because there were no federal programs. We did almost nothing to provide health-care for low-income babies and their families. We educated far fewer students, had a much smaller percentage of our population in college, we had a very minimal community college and vo-tech system, all of which we absolutely need for today’s demanding workplace. We did not do anything to help or advance the condition of people who were discriminated against because they happened to be Jewish, African American, Hispanic, Asian or American Indian. We shut away and excluded kids with learning disabilities, did almost nothing for special education, and our mental institutions were by today’s standards, ghoulish, underfunded and unacceptable. Another huge expense, now versus then, is general K-12 education. We did much less then as a state to equalize education opportunity by regions, so that kids in cities with low property wealth had the same shot as kids in wealthy neighborhoods.

So we spent $22 billion more over 50 years, which by the way amounts to less than 10 percent of our current annual total personal income in this state. And because, not in spite of, this public investment, we are better off in almost every way than we were in 1960. Again, this government spending was accompanied by a rise in average income in Minnesota, and we outperformed most every other state on both economic and quality-of-life rankings and indicators.

A final point about growth, then and now. The size and role of the public sector did grow particularly fast between 1960 and 1980 and by the 1990s our Price of Government in Minnesota amounted to about 17.5 percent of income. We believe this level was about right for our values and worked well for us.

But in the last decade, without a Spending Accountability Amendment, and largely because one interest group in the state imposed a no new state taxes pledge on a chief executive who never received more than 50 percent of the vote, we have dangerously downsized our public sector. Our price of government in 2008 is now 15.5 percent and on almost every front our economy and quality-of-life indicators and rankings are losing ground.

In other words, our state and local governments are struggling to do their jobs with about $5 billion less per year than they would have now if the Price of Government had remained steady The badly misnamed Spending Accountability Amendment would lock us permanently into this anti-government straitjacket. These kinds of gimmicks typically go under the name Taxpayers Bill of Rights but a more appropriate label is Taxpayers Bill of Goods.

We at Growth & Justice think both the private sector and the public sector should grow apace, that they are of mutual benefit to each other, that the public, the we, is every bit as important as the private, the me. This enlightened and balanced approach has been a formula for our success and it would be foolhardy to abandon it.

Thank you and I’d be happy to try to answer questions.