The governors of Wisconsin and Minnesota each presented their versions of new year’s resolutions in various media interviews last week. The comparison paints a stark contrast of where the states are headed in 2015.
Which approach is better? As we enter the new year, Minnesota is clearly winning by a long shot.
First, a little review. Minnesota Gov. Mark Dayton and Wisconsin Gov. Scott Walker were both elected in 2010. They both inherited an economic mess that was the product of a nationwide recession. They took decidedly different paths to deal with large deficits.
Walker — facing a 9.2 percent unemployment rate and a $3.6 billion deficit — and the Republican Legislature made massive spending cuts to public education and required most public employees to pay more for their health care and pensions. Some tax credits for lower income residents were reduced. Business tax incentives were added, and taxes were cut nearly $2 billion through a combination of income and property tax reductions.
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Dayton grappled with a $5 billion deficit and after a grueling fight with Republicans that resulted in a government shutdown in 2011, the state balanced its budget in part by borrowing against its commitment to education aid. After the 2012 elections when Democrats took control of the Legislature, taxes were raised on the wealthiest Minnesotans and tobacco taxes were increased.
Walker’s tax plan reduced the highest rate for the wealthiest Wisconsinites from 7.75 to 7.65 percent and brought slight relief to all income levels. Dayton’s plan created a new rate of 9.850 percent for the top 2 percent of Minnesota’s wealthiest. His plan also increased tax credits for renters — the opposite of Wisconsin, where those tax credits were reduced. Dayton also signed a $508 million tax cut in 2014 of which $232 million was aimed at the middle class and $232 million was earmarked for the elimination of some business taxes.
Minnesota has increased its minimum wage to $9.50 an hour and has it indexed to increase with inflation. Walker has said he does not support raising the minimum wage.
Minnesota took Medicaid money and created its own health care marketplace, reducing the number of uninsured residents. Wisconsin rejected federal money, instead tweaking coverage to put some 80,000 people into the federal exchange. That cost the state an estimated $206 million over the past two years and an estimated $460 million through 2020.
The business-friendly policy embraced by Walker has resulted in private-sector job growth that continues to lag behind the national average. The latest 12-month period numbers that ended in June show Wisconsin 32nd in the nation in job growth. Minnesota was 26th. Minnesota’s jobless rate in November was 3.7 percent. Wisconsin’s was 5.2.
How else do the states compare? Forbes ranks Minnesota as the ninth best state for business, No. 7 in economic climate and No. 2 in quality of life. Wisconsin is ranked 32nd, 27 and 17 on the same measures. The cost of doing business in Minnesota is 0.2 percent below the national average. Wisconsin is 1.7 percent above the average. The median household income in Minnesota is about $60,000. It’s just below $52,000 in Wisconsin.
Clearly the ideology of both governors and legislatures steered the course. Walker is one of the nation’s most conservative governors who has eagerly embraced policies and ideas driven by the American Legislative Exchange Council. Wisconsin has become a national laboratory for ALEC policies. Dayton and the DFL have taken a more traditional liberal approach of taxing the rich, but then aimed tax cuts at the middle class as soon as the economy improved.
While Wisconsin faces an estimated $2 billion deficit — including a $750 million deficit in transportation spending — Minnesota has a $1.2 billion surplus. Minnesota has the luxury of being able to invest in its state; Wisconsin faces some challenging spending decisions.
The needs in the states are similar. Both have long-neglected transportation needs. Dayton has a very specific plan of raising gas taxes to pay for transportation. Walker has declined to say whether he would support any tax increases to pay for Wisconsin’s transportation needs.
The governors have vastly different views on funding education. Under Walker, Wisconsin has been a leader in cutting education spending. The Center on Budget and Policy Priorities analyzed state school funding from 2008 through 2014 and found that Wisconsin ranked No. 2 in the nation — behind only Alabama — with a $1,038 spending per student decrease. Minnesota was one of a handful of states that actually increases spending during that time — just barely — by $30.
Minnesota will use $246 million of its surplus to pay the last of $2.8 million that was taken from school funding during the recession. That puts the schools back to normal state funding. Walker will not say whether public schools or the UW System — which took a $1.2 billion funding cut during Walker’s first administration — will receive additional money.
Minnesota certainly benefits from the economic catalyst of the Twin Cities, while Wisconsin has to drag along the economically challenged Milwaukee. Conservatives also will say that Walker has made progress on turning around a state with a tax-hell reputation and would have made even more progress without the uncertainty of a recall election. And they will say there will be longer-term consequences for Minnesota’s tax increases.
But what about jobs? An analysis done by Menzie Chinn, a University of Wisconsin economist, measured private nonfarm job growth in four states — California, Wisconsin, Kansas and Minnesota — that elected new governors in 2010. Wisconsin and Kansas are ALEC-friendly. Minnesota and California are not. Minnesota was ranked 46th and California ranked 47th on an ALEC-economic index that measures taxes, public employees per capita, minimum wage and right-to-work law — among others. Yet those states grew more jobs than Kansas (ranked 15th) and Wisconsin (ranked 17th).
Chinn compared ALEC rankings to all 50 states and found the same correlation. States that received a higher ALEC ranking on how it was expected to perform economically based on 15 policy areas had worse economic growth when it comes to creating jobs.
Which state is in better shape as we head in 2015? Economic measures of income and employment clearly favor Minnesota. At least Wisconsin has the Packers.