Tag Archives: Minnesota

Rhode Island to unionize daycare workers

Last week, the Rhode Island legislature passed a law to permit daycare workers who receive any subsidies from the state to either form a union, or join an existing union such as the SEIU. While they would not be eligible for state pensions or health benefits, and not permitted to strike, the law allows workers to collectively bargain over subsidies, training and professional development and “other economic matters.”

Daycare workers represent a target population for unions. A new law in Minnesota permits daycare workers to unionize so home providers can advocate for higher subsidy payments from the state. In New York in 2010, Governor Paterson pushed for daycare workers to pay union dues to the teachers’ unions in his 2011 budget proposal.

With Rhode Island in the mix, 17 states now permit or strongly encourage daycare workers to unionize. In the rush to unionize private business owners, the ostensible benefits – a voice in the legislature to lobby for higher state subsidies – are touted – and the costs are ignored For example, in Massachusetts, if a private daycare owner accepts clients who pay with state daycare vouchers, the daycare provider must be represented by a union and pay dues. These dues are skimmed off of the state subsidy for low-income parents which is paid directly to the daycare provider. To avoid unionization, the provider would have to turn away low-income families who receive state subsidies for childcare.

The SEIU claims unionization will improve the quality of childcare and offers economic justice for workers. But, the most dramatic result seems to be this:  where daycare workers unionize, the SEIU immediately gains a windfall of new dues transferred from a program meant to help low-income families pay for daycare, (to the tune of $28 million in Michigan, where similar legislation was recently passed).

As James Shrek writes in National Review, one of the more remarkable things about this effort is that it represents a new strategy by unions. The target group for unionization are private individuals or business owners who are also the recipients of government benefits. For instance, at one point in Michigan, a parent receiving Medicaid to care for a disabled child could receive SEIU representation. Some parents found the only result was a reduction in their monthly Medicaid payments and no representation, effectively, “forcing disadvantaged families to pay union dues out of their government benefits.”

As Shrek notes, the Minnesota law, which authorizes AFSCME to unionize in-home daycare providers, also potentially covers short-term summer camps, and grandparents watching their grandkids, or “relative care.”

Shrek asks, does this tactic represent a sign of desperation on the part of unions who are actively seeking new members to the point of organizing, “unions of one”? With a growing number of states joining the trend, it is worth watching how these laws affect those people and families that the unions are claiming to help.

 

 

 

 

The battle of the taxes

In my last post, I discussed several exciting tax reforms that are gaining support in a handful of states. In an effort to improve the competitiveness and economic growth of these states, the plans would lower or eliminate individual and corporate income taxes and replace these revenues with funds raised by streamlined sales taxes. Since I covered this topic, legislators in two more states, Missouri and New Mexico, have demonstrated interest in adopting this type of overhaul of their state tax systems.

At the same time, policymakers in other states across the country are likewise taking advantage of their majority status by pushing their preferred tax plans through state legislatures and state referendums. These plans provide a sharp contrast with those proposed by those states that I discussed in my last post; rather than prioritizing lowering income tax burdens, leaders in these states hope to improve their fiscal outlooks by increasing income taxes.

Here’s what some of these states have in the works:

  • Massachusetts: Gov. Deval L. Patrick surprised his constituents last month during his State of the State address by calling for a 1 percentage point increase in state income tax rates while simultaneously slashing state sales taxes from 6.25% to 4.5%. Patrick defended these tax changes on the grounds of increasing investments in transportation, infrastructure, and education while improving state competitiveness. Additionally, the governor called for a doubling of personal exemptions to soften the blow of the income tax increases on low-income residents.
  • Minnesota: Gov. Mark Dayton presented a grab bag of tax reform proposals when he revealed his two-year budget plan for the state of Minnesota two weeks ago. In an effort to move his state away from a reliance on property taxes to generate revenue, Dayton has proposed to raise income taxes on the top 2% of earners within the state. At the same time, he hopes to reduce property tax burdens, lower the state sales tax from 6.875% to 5.5%, and cut the corporate tax rate by 14%.
  • Maryland: Last May, Maryland Gov. Martin O’Malley called a special legislative session to balance their state budget to avoid scheduled cuts of $500 million in state spending on education and state personnel. Rather than accepting a “cuts-only” approach to balancing state finances, O’Malley strongly pushed for income tax hikes on Marylanders that earned more than $100,000 a year and created a new top rate of 5.75% on income over $250,000 a year. These tax hikes were signed into law after the session convened last year and took effect that June.
  • California: At the urging of Gov. Jerry Brown, California voters decided to raise income taxes on their wealthiest residents and increase their state sales tax from 7.25% to 7.5% by voting in favor of Proposition 30 last November. In a bid to put an end to years of deficit spending and finally balance the state budget, Brown went to bat for the creation of four new income tax brackets for high-income earners in California. There is some doubt that these measures will actually generate the revenues that the governor is anticipating due to an exodus of taxpayers fleeing the new 13.3% income tax and uncertain prospects for economic growth within the state. 

It is interesting that these governors have defended their proposals using some of the same rhetoric that governors and legislators in other states used to defend their plans to lower income tax rates. All of these policymakers believe that their proposals will increase competitiveness, improve economic growth, and create jobs for their states. Can both sides be right at the same time?

Economic intuition suggests that policymakers should create a tax system that imposes the lowest burdens on the engines of economic growth. It makes sense, then, for states to avoid taxing individual and corporate income so that these groups have more money to save and invest. Additionally  increasing marginal tax rates on income and investments limits the returns to these activities and causes people to work and invest less. Saving and investment, not consumption, are the drivers of economic growth. Empirical studies have demonstrated that raising marginal income tax rates have damaging effects on economic growth. Policymakers in Massachusetts, Minnesota, Maryland, and California may have erred in their decisions to shift taxation towards income and away from consumption. The economies of these states may see lower rates of growth as a result.

In my last post, I mused that the successes of states that have lowered or eliminated their state income taxes may prompt other states to adopt similar reforms. If the states that have taken the opposite approach by raising income taxes see slowed economic growth as a result, they will hopefully serve as a cautionary tale to other states that might be considering these proposals.

Daycare unionization debate in Minnesota

A debate has been taking place in Minnesota over whether in-home day care providers should be able to unionize. Unionization of self-employed individuals raises a few questions. With whom do they negotiate? In other words, “How can you be the employer [the business owner] and a union employee?” According to the pro-unionization providers their complaint is not with the parent-client but with the state (and county) and its regulations. A provider may be cited for any number of small infractions such as not having a cover on a trash cash. When cited, in the case of Minnesota, such a blemish doesn’t just stay on the provider’s record, it must be posted on the owner’s front door for two years.

But is unionization the answer?

Daycare providers already have a state association to represent their interests. Few owners have actually been cited under these regulations. And unionization will result in dues that will raise prices for parents, as well as more state involvement in the owner’s business. An effort to stop unionization is also underway.

Since 2005, 15 states have organized childcare providers. The main fiscal outcome of daycare unionization is higher state-provided subsidies.

Washington state child care providers are represented by the SEIU which negotiates with Olympia over subsidy rates for providers as well as health insurance plans.

In 2009, providers in Washington received a state subsidy between $18 and $40 a day, per child, depending on the county. According to the SEIU’s 2009-2011 agreement with the state, both parents and providers are affected. Daycare providers who refuse to join the union for religious reasons must still pay dues. Rates are set for different age groups of children, (e.g. Infants are 15% higher than the Toddler/Preschool rate). After ten hours of childcare any additional hour is equal to one half day of child care.

The agreement also affects all taxpayers in the state. The state pays monthly contributions to provider’s health care plan ($588.8 per month per provider in 2010) for a total of $366,894 per month for all daycare providers. A further $175,000 is set aside by the state for training classes for providers. The result of unionization is not what advocates suggest. Instead flexibility is decreased for owners and clients to come to terms over hours, rates and arrangements while the ever-increasing costs are passed to everyone.

A “Can-kicking” budget deal in Minnesota.

A deal has been struck between Governor Mark Dayton (D) and Republican legislative leaders in Minnesota to end the government shutdown . Instead of “raising taxes on the rich” (the preferred strategy of the Governor) Republicans prefer deferrals. The GOP proposal includes $700 million borrowed against the state’s portion of the  Tobacco Settlement and $700 million in deferred school payments.  Both must be repaid in the next two years.  Fitch downgraded Minnesota from its AAA rating due to the state’s ongoing structural deficits, and the Tobacco Settlement bonds proposal. While Republicans say the compromise enables them to stop tax increases and a $500 million bond proposal, structural reforms are still lacking.

Spending has grown in Minnesota over the past several decades in particular in education and Medicaid as with most states. Pensions are undervalued and will require higher contributions.  Depending on your view Minnesota either has a revenue problem (in that it can’t support the growing costs associated with these programs), or it has a spending problem (in that these costs continue to grow and demand more revenues.) It is not unlike the fundamental philosophical divide at the center of the debt-ceiling debate: do we support growing costs with more debt or do we cut costs by rethinking and restructuring what government is providing?

Effectively, Minnesota’s budget has been balanced by not engaging this debate but by attempting to reconcile two different views on the size of government.  Spending growth can be supported by evasive techniques at least for awhile  and people may be lulled into thinking you can have it all – lots of services and low taxes.  But one-shots and short-term revenue sources eventually dry up leaving politicians with the uneviable choice of cutting programs or finding more revenues. Minnesota’s government has only purchased a little more time.

Rating State Business Tax Climates

Today the Tax Foundation released its annual State Business Tax Climate Index.

Good tax policy is not just about low rates. The Index’s author, Kail Padgitt, writes:

State lawmakers are always mindful of their states’ business tax climates but they are often tempted to lure business with lucrative tax incentives and subsidies instead of broad-based tax reform. This can be a dangerous proposition.

The public choice pressures that Dr. Padgitt is talking about encourage state policy makers to cut special tax deals for politically-important businesses and to keep rates high for those who are aren’t so well-connected. The Business Tax Climate report is a nice antidote to such thinking:

The goal of the index is to focus lawmakers’ attention on the importance of good tax fundamentals: enacting low tax rates and granting as few deductions, exemptions and credits as possible. This “broad base, low rate” approach is the antithesis of most efforts by state economic development departments who specialize in designing “packages” of short-term tax abatements, exemptions, and other give-aways for prospective employers who have announced that they would consider relocating. Those packages routinely include such large state and local exemptions that resident businesses must pay higher taxes to make up for the lost revenue.

The best climates: South Dakota, Alaska, Wyoming, Nevada, Florida, Montana, New Hampshire, Delaware, Utah and Indiana.

And the worst: New York, California, New Jersey, Connecticut, Ohio, Iowa, Maryland, Minnesota, Rhode Island and North Carolina.