Folly of running government as a business

Folly of running government as a business

by David Morris

Originally published in Minneapolis Star Tribune, March 3, 2004

Conservatives believe government should be run like a private business. They’re wrong. Now Minnesota is paying a stiff price for their mistake.

By law, a private corporation must strive to maximize the economic return to a handful of owners. One might argue that a public corporation should pursue a similar objective. But in that case the owners are the entire community the government serves. To maximize the benefit to the whole community requires a different kind of decision-making calculus than that used in the private sector.

In 2003, facing a huge budget deficit, the Minnesota Legislature had two choices: Cut public services or raise taxes. Conservatives argued against raising the income tax because it would make Minnesota less competitive. They won. The Legislature cut services. Local aid to cities and counties was slashed by 20 percent, some $200 million in 2004 and $300 million in 2005.

After 1998, the Legislature had twice reduced income taxes in the wake of huge budget surpluses. Reverting to 1999 income tax levels, according to the Minnesota Budget Project, would have raised an additional $671 million in fiscal year 2004 and $741 million in fiscal year 2005. The cost? About $29 a year for a family of four earning $25,000, $270 for a family earning $60,000 and $586 for a family earning $100,000.

Today the impact of that legislative decision is plainly visible. Public service budgets are being cut, often drastically. To conservatives, the financial pain suffered by schools, libraries and transit offers the public sector the opportunity to do what the private sector would do: Cut costs and improve efficiencies. Gov. Tim Pawlenty insists that Minnesota cities and counties “need to tighten their belts and live within their means.” When asked about the proposed Minneapolis school closings, Education Commissioner Cheri Pierson Yecke announces, “This is exciting. Should they operationalize this plan they will see huge changes in Minneapolis for the better.” To Metropolitan Council Chairman Peter Bell, reducing the earnings of bus drivers to a level closer to those in the private sector would make the system more “fair” and “realistic.”

Cutting costs will allow school boards, library boards and the Metro Transit agency to balance their budgets. But the increased costs to the community will far exceed the internal savings to the agency.

Consider that the savings to the transit agency of reducing bus drivers’ benefits will be on the order of $2 million to $3 million a year. In a bus strike, some 50,000 of the 75,000 daily riders could pay $5 more per day for travel. At that rate, collective costs exceed internal savings within a week. Some of the 20,000 bus riders who don’t own a car can be expected to lose their jobs. Others might pay $10 a day or more to take a taxi.

How did the legislative decision in 2003 affect the bus driver in 2004? An income tax hike would have cost the average driver about $150 a year. Bell’s final offer would cost them $463 in 2004 and $1,163 in 2005.

The proposed changes to the Minneapolis school system, although now delayed, offer another example of the need for public corporations to use a broader cost-benefit analysis. The school board estimates that closing or merging 28 schools will save about $2.8 million a year. No one appears to have calculated the cost to the community.

Thousands of children would have to walk an extra 15 to 45 minutes to school or have their families rearrange their schedules to drive them. Neighborhoods would have to find another community meeting place.

As for libraries — well, as my grandmother would say, “Such a deal!” For about $40 per capita, everyone in the community can get a free library card that gives them access to hundreds of thousands of books, many of them bestsellers, as well as videos and compact discs. They can call a trained librarian and get answers to questions about just about anything. And there is a warm, secure, well-monitored public building in every neighborhood.

Minneapolis libraries, which receive 45 percent of their budget from local government aid, are suffering the most. Library staff has been cut by 20 percent and hours slashed. What is the cost to the community?

A recent Star Tribune story noted just one: The cost to parents who lose or have to change jobs because their children can no longer enjoy the treasures of a nearby library while awaiting their dad after elementary school ends at 2 p.m.

In 2003, the Legislature chose not to raise the costs of government to the wealthiest Minnesotans. These are families that use public services the least. Instead it chose to raise the costs of (less) public service to those who rely on it the most.

On moral and ethical grounds that decision was indefensible. But even on economic grounds it was an imprudent business decision — one that will end up costing Minnesota dearly in the coming months and years.