This is your brain on tax credits

Minnesota policymakers can push back on one of poverty’s most pernicious impacts on children. New medical research shows that poverty can delay the development of cognitive abilities in children. Meanwhile, new economic research shows that the Earned Income Tax Credit (EITC) increases families’ income even more effectively than previously thought. The Working Family Tax Credit is Minnesota’s own take on the EITC. You don’t need to be a neurosurgeon to connect the dots — a stronger Working Family Credit won’t just help families economically, it will likely improve the brain development of Minnesota children.

In a new paper, researchers describe how a series of MRI scans revealed a gap in brain development between poor kids and their higher-income peers. This is the second study I’ve seen this year to suggest a relationship between poverty and brain development. The scientists behind these studies make two important observations that policymakers should note. First, the gaps in brain development are not irreversible; the brain can make up for these losses later in childhood. Second, we have tools at our disposal to make sure more families can escape poverty.

One such tool is the EITC, and another new study reveals that the EITC is an even more powerful poverty-fighting tool than previously thought. The EITC reduces poverty directly by increasing families’ income, and it is also structured to encourage work.

In the new paper, economists describe their model that captures the effect of all the ways that the EITC decreases the number of families living below the federal poverty line. We already knew that about 6.2 million people’s incomes rise above the poverty level due to the EITC’s direct impact on their income. This new research shows that even this high number likely underestimates the total number of people the EITC lifts above the poverty line by “as much as 50 percent.”

The Working Family Credit is Minnesota’s own version of the EITC. Governor Mark Dayton proposed an expansion of the credit last session that would have built on the Working Family Credit’s success. Dayton’s proposal would expand the credit to 30,000 more families and increase the credit for 280,000 households who currently receive it. That means more lower-income working families would see a boost in their incomes and more Minnesota children would get off to a strong start.

We now have even more evidence that poverty is harming Minnesota’s kids. Expanding the Working Family Credit in 2016 should be a no-brainer.

-Ben Horowitz

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Affordable housing is out of reach for many Minnesotans

A report from the National Low-Income Housing Coalition, Out of Reach 2015, shows that workers need to earn about twice the minimum wage to afford a fair market two-bedroom apartment in Minnesota.

The National Low-Income Housing Coalition calculates the “Housing Wage,” or the income a household needs to rent a fair market unit while not spending more than 30 percent of their income on housing. Minnesota’s Housing Wage for a two-bedroom unit is $17.20 an hour.

In some parts of Minnesota, the Housing Wage is even higher. In several counties, including Hennepin, Ramsey, Anoka and Chisago, a full-time worker needs to earn $19.15 an hour to afford a fair market two-bedroom apartment.

The Minnesota Housing Partnership provides a county-level look at how many hours a minimum-wage worker would need to work to afford housing. Even with the recent increase to $9.00 an hour for large employers, a minimum-wage worker needs to work 55 to 85 hours a week, depending on where they live, to afford a two-bedroom apartment.

When there is a wide gap between incomes and housing costs, families can’t afford other basic needs like transportation or child care, families may have to live in substandard or dangerous housing, or workers can’t move to where the jobs are.

Policy choices can play an important role in more Minnesotans having access to housing that meets their needs. This means that policymakers should enact policies that help Minnesota workers have good paying jobs and that increase access to affordable housing in the state.

In the 2014 Legislative Session, Minnesota policymakers gave minimum-wage workers in the state a long overdue raise. By August 2016, the minimum wage in Minnesota will be $9.50 an hour for large employers, and will be indexed to inflation after that so that working Minnesotans can better keep up with the cost of housing and other basic needs.

In 2015, policymakers took steps to increase access to affordable housing, including more funding for the Housing and Job Growth Initiative, which builds affordable housing in areas that are seeing high job growth but not enough housing is available for workers.

But there’s more that can be done. Policymakers should continue to make progress so that all Minnesotans can afford the basics, including stable housing.

-Clark Biegler

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Health Care Financing Task Force is an opportunity for Minnesota to move toward health care for all

The newly-minted Health Care Task Force has an opportunity to outline a path where no Minnesotan has to forgo medical care because they can’t afford a visit to the doctor. We encourage the group to craft recommendations strengthening the public health insurance channels that allow more than one million Minnesotans to access health care. This work should be done with an eye towards the fact that the people likely to be most affected by efforts to strengthen or weaken public health insurance options will be those Minnesotans that struggle the most to afford private insurance. This includes a disproportionate share of women, adults with disabilities and people of color.

The Task Force was created in the 2015 Legislative Session, and met for the first time last Friday. It is charged with issuing recommendations about increasing access to affordable health care coverage next January, in time for consideration by the 2016 Legislature.

For working-age Minnesotans (ages 19 to 64), public health insurance usually comes through MinnesotaCare or Medical Assistance. Two-thirds of the families accessing these public routes to health care coverage contain at least one worker. In these situations, an employer may not offer health insurance, or the coverage they offer may be unaffordable.

The working-age adults covered through public health care channels disproportionately include women, adults with disabilities and Minnesotans of color. Specifically:

  • Women make up roughly half of Minnesota’s working-age population. However, 12 percent more working-age women are covered through public avenues like MinnesotaCare or Medical Assistance than working-age men.
  • While Minnesotans of color represent 14 percent of Minnesota’s working-age population, more than one-quarter of Minnesotans gaining insurance through public health coverage are people of color.
  • People with disabilities represent less than 10 percent of Minnesota’s working-age adults. However, they make up about a third of the people who find health insurance through a public channel.

Because public health care coverage is tied to income, it is not surprising that those who tend to earn less are also more likely to gain coverage through a public pathway. Women and people of color are likely to earn less than male and white workers, and adults with disabilities are also disproportionately likely to be working for minimum wage.

MinnesotaCare and Medical Assistance are crucial for ensuring that people paid low wages have a path to affordable health insurance. Any proposals that weaken public health care coverage will mean those who struggle most in today’s economy will be hardest hit, including women, people of color and adults with disabilities.

-Ben Horowitz

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Medicaid’s 50th birthday celebrates a diverse group of Minnesotans

Medicaid turns 50 today, and if it were a person, the people showing up to its birthday party would come from all walks of life. Known as Medical Assistance here in Minnesota, Medicaid offers affordable health care options for infants, the elderly, people with disabilities and workers whose employers don’t offer health insurance.

Of course, Medicaid won’t actually have a party. That means it is incumbent on all of us to celebrate that more than one million Minnesotans have the health care they need thanks to Medical Assistance, including:

  • 1 in 3 children in Minnesota. Research shows that children who get health care through Medicaid are more likely to succeed in school and earn more as adults.
  • 15 percent of Minnesota’s seniors. Through Medical Assistance, almost 100,000 seniors receive health care services that often help them live at home, or receive the care they need in nursing homes. Such long-term services are not covered by Medicare, which is also turning 50 today.
  • 1 in 4 of the state’s adults with disabilities. Medical Assistance makes it easier to live independently by covering supports like personal care assistants.
  • Nearly half of the newborns in our state. Medical Assistance covers mothers (and their children). That’s good news for babies, who are more likely to grow up healthy when they are covered by insurance even before they are born.
  • Lots of working adults. In 2013, about 237,000 working Minnesotans age 18 to 64 received health insurance through Medical Assistance or another means-tested form of public coverage.

Birthdays offer mile markers in time that allow us to reflect both on where we’ve been and where we are going. The numbers above show that Medical Assistance has plenty to celebrate on Medicaid’s 50th birthday. These statistics also remind us of the crucial role it plays in providing affordable health care to many of our neighbors. Without Medical Assistance, the young, the elderly, adults with disabilities and many working families would lack stable access to affordable health care.

-Ben Horowitz

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Nine reasons to celebrate Saturday’s new $9.00 minimum wage

Minnesota’s minimum wage increases to $9.00 Saturday for large employers (and $7.25 for youths and small employers) thanks to legislation passed in April 2014. Next year, the wage will increase again, to $9.50 for large employers and $7.75 for small employers and youth. This eventual climb up to $9.50 is predicted to cause roughly 325,000 Minnesotans to see their income improve. It’s good news for everyone else, too, because it will also strengthen our economy. We came up with a reason to celebrate the minimum wage increase for every dollar.

  1. A minimum wage increase is important for the Minnesotans who are more likely to be paid at or near the minimum wage, like women…
  2. …people of color…
  3. …people with disabilities…
  4. … and Greater Minnesotans. Raising the minimum wage will help address the fact that employers likely pay less for the jobs disproportionately filled by women, people of color, adults with disabilities and in Greater Minnesota.
  5. A higher minimum wage is linked to higher earnings. This sounds redundant, but is worth pointing out. Low-income workers in states with minimum wage increases saw their earnings grow by 1.6 percent in 2014, compared to just 0.3 percent in states that did not increase their minimum wage.
  6. The minimum wage needs to increase to ensure that more families can make ends meet. Minnesota’s Department of Employment and Economic Development studies the cost of a basic needs budget in every county in Minnesota. Depending on their age and where they live, a single adult working full time with no children would need to earn between $9.56 (Pennington County) and $13.07 (Isanti County) just to put a roof over their head and food in their fridge. This increase brings us one step closer to ensuring that a full day’s work at the very least covers a full day’s needs.
  7. The increase will help wages catch up with inflation. Because of increases in the cost of living, the federal minimum wage currently buys less than it did in 1968.
  8. The increase will help lots of children, too. According to a report by the JOBS NOW Coalition, roughly one out of every ten children in Minnesota had a parent who would be helped by the minimum wage increase.
  9. Minnesotans earning higher wages will spend more in our local economies. The JOBS NOW study also estimated that a similar minimum wage proposal to the one that passed would generate a $472 million increase in Minnesotans’ spending power.

Beginning in 2018, the minimum wage will be automatically increased to keep up with inflation. Combined with the increases from last year, this year, and next year, our higher minimum wage will improve the lives of hundreds of thousands of Minnesotans who struggle to meet their basic needs despite working.

-Ben Horowitz

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Legislative session meant many opportunities missed, some taken

With an almost $2 billion projected surplus to work with in setting the next two-year budget, policymakers had opportunities to make targeted new investments after more than a decade of flat or declining funding in many public services. However, there was also a threat that policymakers would pass large tax cuts that would crowd out such investments, and harm the state’s ability to sustainably fund our needs.

We’ve taken a closer look at this session’s tax and budget decisions in our latest issue brief, Opportunities Missed and Taken in the 2015 Legislative Session. In particular, we measured how well the final budget meets the goals of increasing opportunity and economic well-being for all Minnesotans and ensuring a fair and sustainable tax system.

With a divided government, policymakers offered very different views of how to best serve Minnesotans, and it took a special session before they reached agreement on all parts of the budget. The final budget agreement allocated 23 percent of the surplus for supplemental spending in the 2015 fiscal year, and 31 percent for additional spending in the FY 2016-17 budget cycle. That left $865 million unallocated, which will contribute to the resources available in the 2016 Legislative Session.
End of 2015 Session surplus allocation-01In the final budget agreements, policymakers made some important progress toward shared economic prosperity, like increasing access to affordable child care and keeping down the cost of higher education.

However, there were also serious lost opportunities, such as the failure to expand earned sick time to more Minnesota workers; to allow all Minnesotans to have the economic opportunities that come with a driver’s license regardless of their immigration status; or to expand tax credits for working families, such as the Child and Dependent Care Tax Credit and the Working Family Credit. And some Minnesota families will face higher costs for health care because of severe cuts to MinnesotaCare.

Policymakers also did not pass a tax bill or fund significant new investments in transportation, despite much attention and debate on these issues. Importantly, the dangerously large tax cuts that were proposed are likely to be debated among policymakers again next year.

The substantial amount of the surplus left unallocated, combined with recent positive news about state revenues, makes it highly likely that Minnesota will have another surplus when the 2016 Legislative Session starts next March. Key priorities should be continuing the state’s progress toward a sustainable and equitable tax system, opening windows of economic opportunity to more Minnesotans, and ensuring that Minnesotans who hit a rough patch have the support they need.

For more on the 2015 Legislative Session, check out our brief.

-Clark Biegler

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Minnesota’s revenues beat expectations

Minnesota ended the recent budget year much stronger than expected, according to preliminary analysis from Minnesota Management & Budget (MMB).

MMB’s July Revenue and Economic Update finds that state revenues have come in above expectations. The state’s 2015 fiscal year ended on June 30, and revenues for the year came in $555 million, or 2.8 percent, higher than projected in the February Forecast. This is mostly due to higher income tax collections from capital gains and other non-wage income. The Update notes that these are preliminary figures that could change when they are finalized in August.

While the revenue picture in Minnesota shows good news, the story for the national economy is a little different. Economic growth got off to a slow start this year, due to several temporary factors including harsh winter weather. Now, the national economy is picking up as indicated by a tightening labor market and higher consumer confidence, but overall growth for 2015 is now expected to be lower than projected in the February Forecast. Looking to 2016 and 2017, the economy is expected to pick up, growing annually by 3.1 and 2.7 percent, respectively.

The economic forecasters are fairly confident in their projections, and assign a 70 percent probability to their baseline economic forecast. They give a 15 percent chance for a more pessimistic scenario in which economic growth stalls; and a 15 percent chance that the economy will be even stronger than the baseline predictions, due to better than anticipated productivity and foreign growth later this year.

The forecast also notes the effect of global prices and the rising value of the U.S. dollar on Minnesota’s Iron Range. A strong dollar makes foreign steel less expensive, which has encouraged imports. As a result, there has been a slowdown in Minnesota’s taconite mining industry, affecting more than 1,000 workers directly in recent months, or about a quarter of the state’s mining jobs. It also affects jobs in many supporting industries.

The 2015 Legislative Session recently ended with $865 million of the state’s projected $1.9 billion FY 2016-17 surplus unspent. We’ll get an update on that available balance, taking into account both state revenues and expenditures, when the state’s November economic forecast comes out. If the current trend of higher than expected revenues continues, that available balance would likely grow. However, the predictions of slower economic growth could exert some downward pressure. One-third of any positive balance for FY 2016-17 measured in the November Forecast will go into the state’s budget reserve, further building up this important resource so that the state will be able to meet the needs of Minnesotans during the next economic downturn.

Today’s good budget news indicates that the next legislative session will likely provide another opportunity to ensure more Minnesotans benefit from the improving economy.

-Clark Biegler

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Summer reading: new reports show that policy choices build ladders to economic opportunity

With the legislative session over, we’ve had the opportunity to pick up some of our ideal beach reads: the latest and greatest research demonstrating that policy choices can knock down barriers on the road to economic opportunity. They make a strong case for investing in proven ways to help all boats rise as the economy continues to recover.

When families can afford to live in lower-poverty neighborhoods, their kids succeed. Researchers at Harvard re-visited a policy experiment from the mid-1990s that provided housing assistance to families living in areas of concentrated poverty so that they could move to lower-poverty neighborhoods. They found that the children who relocated grew up to earn significantly more and were more likely to attend college. Their research shows that kids up to age 13 saw a benefit from living in lower-poverty neighborhoods, with each additional year spent in a new, lower-poverty neighborhood leading to higher predicted earnings.

A summary of child care research reveals that mothers receiving child care assistance are more likely to work, and their employment leads to increased levels of social and emotional well-being for their children. Parents with child care assistance also worked more hours, and were more likely to have more stable jobs. This research demonstrates the economic and other benefits from child care assistance, such as Minnesota’s Basic Sliding Fee Child Care Assistance. Basic Sliding Fee brings down the cost of child care for parents with children up to age 12. It allows children to thrive in stable environments while parents go to school or work. This session, policymakers reversed a long-term trend of disinvestment by increasing funding for Basic Sliding Fee. It was a great step in the right direction, but thousands of Minnesota families still remain on a waiting list.

The federal Earned Income Tax Credit (EITC) is a powerful tool for reducing poverty and increasing employment. The nonpartisan Congressional Research Service found that the federal EITC reduces the national poverty rate by 14 to 29 percent for families with children, depending on their household chacteristics. In his 2015 budget proposal, Governor Mark Dayton proposed improvements to the state’s version of the EITC, the Working Family Tax Credit. Both the federal and state government could strengthen this policy even further by ensuring these credits make work pay for all kinds of families.

Policies like the Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps) and the EITC cut poverty in Minnesota in half in 2012. These policies would have an even greater impact if they reached a higher percentage of eligible families. An overview of participation rates for nutrition assistance shows that Minnesota and the nation are getting better at ensuring eligible families receive the assistance they qualify for – but we still have a way to go. For example, Minnesota’s SNAP participation rate increased from 65 percent in 2000 to 86 percent in 2012.

This research used a diverse array of statistical techniques and comes from the spheres of government, academia and nonprofits. They all point to the same general conclusion: policy choices make a difference. Child care assistance, access to affordable housing, the EITC and SNAP make it easier for struggling Minnesotans to make ends meet.

-Ben Horowitz

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Budget bills passed during special session avert shutdown

By the early hours of June 13, Minnesota’s House and Senate passed the budget bills responsible for education, jobs and energy, and environment and agriculture in a special session. This prevented a shutdown of those portions of state government when the state’s next two-year budget cycle begins on July 1. Legislators also passed a bonding bill authorizing infrastructure projects around the state and a Legacy bill allocating dedicated funds for the arts and environment.

The education bill spells out $526 million in new general fund resources for FY 2016-17, including $346 million to increase funding for school districts on the general education formula by 2 percent in both FY 2016 and FY 2017. Though the education bill does not include the statewide universal pre-kindergarten initiative that was a priority for Governor Mark Dayton, it does devote $96 million to increase funding for initiatives focused on young children, including:

  • $48 million for early learning scholarships;
  • $3.5 million for the state’s early learning and child care rating system;
  • $31 million for School Readiness;
  • $2.8 million for Early Childhood Family Education; and
  • $10 million for Head Start.

The bill also includes $5 million for the Northside Achievement Zone, St. Paul Promise Neighborhood and new education partnership pilots that help children succeed by coordinating support for families at school and in their communities.

Along with the increased funding for Basic Sliding Fee Child Assistance in the health and human services budget, these important investments mean that more Minnesota children will thrive in stable, nurturing care, and fewer parents will need to pass up on jobs or opportunities to go back to school because they can’t afford child care.

The jobs and energy omnibus budget bill increases general fund spending by $33 million. The final version includes an additional $2.5 million to support employment for persons with disabilities or mental illness, and $2.5 million for housing for people with serious mental illnesses.

Combined, the omnibus bills for environment and agriculture result in a $26 million decrease in general fund spending. That includes a $64 million cut from the environmental portion and a $39 million increase in agricultural spending.

Along with the bills already passed and signed by Dayton, these budget bills will leave $865 million unallocated from the state’s projected FY 2016-17 surplus.

-Ben Horowitz

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Report contains good practices for addressing health care eligibility issues

With thoughtful reforms, the State of Minnesota can better target our resources without decreasing eligible families’ access to vital services. Dorothy Rosenbaum at the Center for Budget and Policy Priorities cites several states’ successes doing so in Lessons Churned: Measuring the Impact of Churn in Health and Human Services Programs on Participants and State and Local Agencies. Minnesota should apply these valuable lessons to a new data-matching initiative passed in the Health and Human Services budget.

In the wonk’s dictionary, “churn” describes participants dropping in and out of public supports like Medical Assistance within short periods of time. Oftentimes, this happens even when nothing occurred in a person’s life that would change their eligibility. Examples of such “procedural churn” include when the state fails to provide clear instructions on how to re-apply, or when a person does not respond with requested information before a renewal deadline.

Regardless of whether this occurs due to an error by the state or a family, eligible people lose their health care or other services that are important for them to meet their most basic needs. Meanwhile, the state pays for the unnecessary work of closing, then re-opening, these cases.

Depending how it’s implemented, a proposal in the Health and Human Services budget could increase the potential for churn. While it differs in important ways from the eligibility audit in the House’s Health and Human Services omnibus bill, it could still echo the bad precedent from Illinois upon which the House based its version. Illinois lawmakers hired a third-party vendor to assist the state’s effort to verify people’s eligibility for public health insurance. Recent reports show that 84 percent of cancelled health insurance cases in 2014 occurred simply because participants did not respond to requests for personal information from this unfamiliar vendor, and that 89 percent of these non-respondents were “likely eligible.”

This was textbook churn, and it could happen in Minnesota if the state isn’t careful. Fortunately, the Health and Human Services omnibus bill instructs the Department of Human Services (DHS) to perform its own data-matching rather than engaging a third-party vendor. That’s especially good because in Illinois the vendor didn’t bring significant new information to the table. The legislation also provides Minnesotans 30 days to respond to the state’s request for information, as compared to a limit of 10 business days in Illinois. However, those extra days won’t make a difference if an eligible person simply misses or misunderstands the request. DHS must take care to ensure that the effort doesn’t cause eligible Minnesotans to lose their health care, as happened in Illinois.

Rosenbaum’s paper supplies many potential strategies for churn reduction that can benefit the budget without harming the people. Successful states typically begin with data collection and analysis. One state, Louisiana, found that in 22 percent of their health insurance renewal cases people lost their coverage for procedural reasons. After identifying the problem, Louisiana was able to reduce this rate to 1 percent in a matter of years by improving the renewal process. For example, the state increased telephone contact with participants, and used existing data to renew eligibility when possible. Because of these reforms, fewer eligible families lost their health care and the state wasted fewer resources on unnecessary cancellations and re-enrollments.

Cycling in and out of health care coverage is ultimately harmful to families and adds unnecessary costs to state agencies. If not implemented carefully, the Health and Human Services re-verification initiative could simply exacerbate this problem. Instead, Minnesota should use it as an opportunity to more efficiently serve families by addressing procedural churn.

-Ben Horowitz

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