Minnesota budget surplus: Spend every penny (and then some)

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This week, Minnesota budget authorities will release their semiannual update on the state's finances. Barring major surprises, it will show that Minnesota has a considerable surplus. The announcement will renew an 18-month-old debate about what to do with the funds.

Most conservatives will continue calls to "give it back" through tax cuts, while most Democrats will champion a mix of tax cuts, targeted tax credits and increased funding for public goods and services like schools, child care and physical infrastructure.

Here's a different perspective: We need all of the surplus and more for public investments aimed at meeting the collective needs of Minnesotans.

Core public institutions, from schools to nursing homes, are underfunded and struggling to hire and retain staff. Families are facing untenable costs for things like child care and higher education that should be provided publicly. And our physical infrastructure is in desperate need of repair.

Tax cuts, on the other hand, would provide outsized, permanent benefits to high-income households and return precious little to the rest. The state can do more to improve the quality and affordability of life for all Minnesotans by acting directly.

This is the core takeaway of a report published this week by North Star Policy Action, an independent nonprofit research institute based in Minneapolis. The case is simple: Minnesota is underinvesting in a wide range of public services, and it is a threat to the state's long-term social and economic health.

This may seem a surprising argument given the popular narrative surrounding Minnesota's high taxes and public spending. But it's a reputation rooted in anti-tax sensationalism, not honest analysis. The reality is that Minnesota is an average-spending state in an extremely low-spending country, and our public investments have declined over time.

In 2021, Minnesota ranked 23rd nationally in spending as a share of personal income. That equated to 6% above the national average, down from 20% above the national average in the 1970s. In total, state and local funding has dropped about 10% as a share of personal income since the 1990s.

And that's within the U.S., which is the only country in which greater wealth has resulted in a lower, rather than higher, share of economic output spent on public investment.

This is not a story often reflected in local political commentary, but it is familiar to hundreds of thousands of Minnesotans laboring in embattled public institutions. Teacher turnover is skyrocketing, while understaffing has led to the closure of nursing homes and child care facilities across the state, as well as unsafe conditions for workers and inmates at 11 state-run correctional facilities. We must do better.

Minnesota's working families have also paid the price as state spending has declined. Since 1970, Minnesota's housing price index has risen over 430%, while real median income rose just 32%. Over the same period, tuition at Minnesota's four-year public universities rose twice as fast as per capita personal income and roughly four-times faster than inflation. And that's not even to mention the skyrocketing costs of child care, health care and senior care.

These are collective problems that require collective solutions. The surplus was generated by taxes on the runaway income of top earners and record corporate profits. It should be spent on making Minnesota a more livable place for workers and families that did not share in these gains.

Conservative commentators will meet this idea with heavy-handed applications of rote trickle-down economics. They will make baseless claims about the virtues of tax cuts and insist economic growth is the only path to a higher quality of life. But decades of experience has shown that tax cuts don't go to those in need, and that no amount of economic growth can make up for a lack of basic social necessities.

We can fund solutions that will stabilize the cost of living and improve the quality of life for all Minnesotans. The surplus offers a rare opportunity to do that and policymakers shouldn't let it go to waste.

Eric Harris Bernstein is coalition director for We Make Minnesota and a state budget fellow at North Star Policy Action.