Executive Director’s Report

1. Executive Director’s Report 88th annual meeting of members 10.8.14

2. Our MissionSound Tax Policy, Efficient Spending, Accountable Government ByMonitoring trends in state and local government finances Conducting in-depth studies of tax and fiscal policy issues Analyzing the structure and organization of government Educating policymakers and citizens

3. 2013-2014 Research and Education Publications: A lay-friendly guide to public pension issues, problems, and solutions Will be updated annually as part of our citizen education series • “Ihave looked at everything on pensions and public pension reform, and I find this report to be the clearest, most helpful report that I have ever seen. It is the best.  It has an excellent tone, and has managed to synthesize the issues and present possible solutions in a way that most people can understand.  What a gift.” • Gretchen Tegeler, Former Director, Iowa Department of Management and Governor Branstad’s Chief of Staff.

4. Annual State Personal Income and Employment, Table SA04. | April 2013 Minnesota’s Troubled “Price of Government” Abstract cannot use to pay taxes or fees or remit in Since the early 1990’s, the Minnesota Pri No. 0005 measure and track state and local government since its inception, the composition of Minn esota Personal Income – the denominator of the POG – has changed dramatically. 20 y ears ago, five major non-money components ce of Government has been calculated to communicating the total cost of state and local government to citizens.” ’s claim on Minnesota income. However, come measure used 1 info@fiscalexcellence.org any way to finance government – were roughly 15% of the total. Today those non- money to non-money income. Moreover, the fastest growing sources of Personal Income growth are government transfer payments – including the value of Medicare and Medi money components are over 20% of the total, caid benefits – which have grown over 2.5 of Minnesota Personal Income – that taxpayers These findings have major ramifications for the metric and its use in public policy debat es. Including Personal Income in the POG understates state and local government’s cl aim on money income – which is 20%-35% times faster than wages and salaries over the past decade. higher when substituting the household in interpretation of the Price of Government $13 billion in Minnesota Personal Income from Tax Incidence April 2013 Personal Income and demographic trends significantly compromise its common use as a measure to evaluate affordability or benchmark a sustainable “level” of spending. income will continue for the indefinite future. If policymakers want to maintain a POG- Moreover, trends in the composition of rrent metric by repl Income with some measure of money income. Even with this adaptation, we encourage caution in using the POG to asse ss the affordability of government or set a “price target” type measure, the state should modify the cu : these are mostly government benefit payments to acing Minnesota Personal | Study. 2 info@fiscalexcellence.org Introduction For nearly twenty years, the state’s Department of Manage ment and Budget (MMB) has prepared a Price of Government (POG) report to accompany the November and February economic forecasts and following the conclusion of each No. 0005 legislative session. for government because some of the major demographic factors and trends affecting The POG metric measures th 2 to statewide Personal Income. MMB staff have descr ibed the POG as “the state’s main 1 in the state’s e ratio of state and local government own source revenues individuals – examples include Social Security which represents a shift of approximately 3 metric to track state and local government’s claim on Minnesotans’ income. Because it is seemingly so easy to u nderstand and interpret, the POG has inevitably served as an evidence point in debates over budgets and acceptabl Specifically, two major trends have transformed Minnesota e levels of government community, because it was seen as a simple, straightforward However, simple metrics can often mask underlying complexity, e metric problematic in the process. This is especially true when major changes are taking place in the compone nts of the metric, as has happened with taxation and spending. Policymakers created the POG with broad-based political s rendering interpretations of th 4 upport, including the endorsement of Minnesota’s business Personal Income since the POG was developed two decades providing time-series comparisons about the level of invest ment Minnesotans make in state and local government are severely compromised. Trend #1 – Rapid Growth in Non-Money Income ago. As a result, the use of the POG as a Share of Total Minnesota Personal Income Minnesota’s Price of Government. onomic Analysis (BEA) is an extremely broad measure. BEA participating in “production activities” and with transfer payments (largely from the government). Minnesota’s Personal Income for calendar year (CY) 2011 (the most recent year for which detailed information is available) was $238.2 “Personal Income” as determined by the U.S. Bureau of Ec billion, which can be broken into the following pieces economists designed it to capture the income associated with transparency method and tool for Table 1: Major Components of BEA Source: Bureau of Economic Analysis Amount ($000) $ billions % of Total Wages & Salaries 129.7 54.4% Programs; and Adjustment for Interstate Commuters Dividends, Interest, & Rent Component 16.3% Proprietor Income 20.4 8.6% Employers’ Pension and Insurance Contributions 20.2 8.5% 38.9 Transfer receipts Transfer Receipts 38.7 16.2% Total 238.2 100.0% Personal Income for Minnesota, CY 2011 (9.7) Annual State Personal Income and Employment, Table SA04. While “wages and salaries” is self-evident, some of the other components merit further description:  (4.1%) Dividends, interest, and rent Employee & Self-Employed Contributions to “Social Insurance” by sale of assets (this excludes capital gains).  : represent income generated : assets, but not income from the payments, the value of Medicare and Medicaid (mainly Medicare and Medicaid) 3.3 3.8% http://www.mmb.state.mn.us/supporting-documents-nov-12 for the most recent Price of Gove rnment report, from the November All BEA personal income data in this publication are as of the September 25, 2012 update. See 2012 Economic Forecast. Own source revenues: all state and local revenues less “intergover See nmental revenues” – grants from one unit of government to an such as state Local Government Aid given to cities. 3 Testimony before the Legislative Commission on Fiscal Policy, February 22, 2013 meeting. 2 states based on commuting patterns. Since more non-reside nts earn income in Minnesota than Minnesotans earn in other, other states, the adjustment is negative. 1 4 April 2013  Proprietor income for data. : income generated by businesses for their owners. Employer pension and insurance contributions benefits, and income maintenance benefits. : basically, employers’ costs for fringe benefits, except for Social  The final portion represents employees’ and self-employed persons contributions to “social insurance programs” – mainly Social Security and Medicare – and an adjustment  for net flow of income between Minnesota and other www.bea.gov Security and Medicare. | 5 Imputed rent to pay taxes. And the average Minnesotan would be right. Personal Income includes non-money benefits and “imputed” income – the market value of selected transactions that don’t occur in the market economy and that cannot be used to pay taxes. Table 2 shows five major non-money income areas. Table 2: Five Major Non-Money Components of BEA Personal Income for Minnesota, CY 2011 Minnesotan would not think of as income that could be used Component $ billions % of Total Employers’ Pension and Insurance Contributions 20.2 8.5% Value of government sponsored medical benefits es. Including Personal Income in the POG 1 Amount 7.9 3.3% onal Income amount includes many items that an average (mainly Medicare and Medicaid) 6 4.8 2.0% Imputed interest Transfers to nonprofit institutions 0.7 0.3% 50.3 As these descriptions make clear, Minnesota’s $238 billion Pers 21.1% Source: Bureau of Economic Analysis Annual State Personal Income and Employment; Tables SA 04, SA 35, and SA 40 Total 7.0% 16.8 Note: Numbers may not add due to rounding. No. 0005 3 info@fiscalexcellence.org As the table indicates, in 2011 non-money income – essentially pieces of non-money income were a much smaller share – 15.5% – of total Minnesota Personal Income. Most significantly, the share of government sponsored medical benefits has nearly doubled over 20 years from 3.8% to 7.0% of state Personal 3.3 Income. ice of Government. As Table 3 shows; in 1990, these five BEA Personal Income for Minnesota, CY 1990 Amount $ billions % of Total Employers’ Pension and Insurance Contributions 6.3 7.3% Table 3: Major Non-Money Components of cents of every dollar of Minnesota Personal Income. This Component ce and the value of services that depository institutions provide is a major departure from the earliest days of Minnesota’s Pr 3.8% Imputed rent 0.3 0.3% Transfers to nonprofit institutions 0.2 0.2% Value of government sponsored medical benefits Total Imputed interest 15.5% Source: Bureau of Economic Analysis Annual State Personal Income and Employment; Tables SA 04, SA 35 and SA 40. 5 13.4 This is the value of investment income earned on life insuran Note: Numbers may not add due to rounding. an explicit charge for doing so. of Minnesota Personal Income – that taxpayers cannot use to pay taxes or fees or remit in the producers, and pay-in-kind in the form of meals and lodging. 1 info@fiscalexcellence.org No. 0005 esota Personal Income – the denominator of | Minnesota’s Troubled “Price of Government” ome by Abstract ce of Government has been calculated to measure and track state and local government ’s claim on Minnesota income. However, April 2013 government and evaluating its affordability – represented over 20 irrelevant to assessing the tax price of state and local Since the early 1990’s, the Minnesota Pri This includes the value of things such as the rental value of owner-occupied housing, the value of farm products consumed at h 6 since its inception, the composition of Minn any way to finance government – were roughly 15% of the total. Today those non- money components are over 20% of the total, which represents a shift of approximately $13 billion in Minnesota Personal Income from ears ago, five major non-money components money to non-money income. Moreover, growth are government transfer payments – including the value of Medicare and Medi caid benefits – which have grown over 2.5 times faster than wages and salaries over the past decade. These findings have major ramifications for the interpretation of the Price of Government the fastest growing sources of Personal Income without the POG – has changed dramatically. 20 y cost of state and local government and The POG metric measures th with respect to both evaluating taxpayer understates state and local government’s cl in the state’s Tax Incidence Study. Moreover, trends in the composition of Even with this adaptation, we encourage Personal Income and demographic trends come measure used measure to evaluate affordability or If policymakers want to maintain a POG- type measure, the state should modify the cu rrent metric by repl acing Minnesota Personal significantly compromise its common use as a payments (largely from the government). benchmark a sustainable “level” of spending. to statewide higher when substituting the household in caution in using the POG to asse 2 info@fiscalexcellence.org No. 0005 | April 2013 ss the affordability of government or set a “price target” Introduction Income with some measure of money income. ment and Budget (MMB) has prepared a Price of Government legislative session. 1 The POG metric measures th e ratio of state and local government own source revenues For nearly twenty years, the state’s Department of Manage 2 (POG) report to accompany the November and February economic forecasts and following the conclusion of each income will continue for the indefinite future. ibed the POG as “the state’s main Specifically, two major trends have transformed Minnesota 3 Policymakers created the POG with broad-based political s upport, including the endorsement of Minnesota’s business community, because it was seen as a simple, straightforward process. This is especially true when metric to track state and local government’s claim on communicating the total cost of state and local government to citizens.” nderstand and interpret, the POG has inevitably served as an e levels of government taxation and spending. However, simple metrics can often mask underlying complexity, rendering interpretations of th Minnesotans’ income. Because it is seemingly so easy to u  evidence point in debates over budgets and acceptabl Minnesota’s Price of Government. transparency method and tool for major changes are taking place in the compone Personal Income since the POG was developed two decades ago. As a result, the use of the POG with respect to both evaluating taxpayer cost of state and local government and nts of the metric, as has happened with providing time-series comparisons about the level of invest e metric problematic in the severely compromised. as a Share of Total Minnesota Personal Income “Personal Income” as determined by the U.S. Bureau of Ec onomic Analysis (BEA) is an extremely broad measure. BEA economists designed it to capture the income associated with ment Minnesotans make in state and local government are Personal Income. MMB staff have descr Trend #1 – Rapid Growth in Non-Money Income The final portion represents employees’ and self-employed persons contributions to “social insurance programs” – for government because some of the major demographic factors and trends affecting Minnesota’s Personal Income for calendar year (CY) 2011 (the most recent year : Table 1: Major Components of BEA Personal Income for Minnesota, CY 2011 Component 20.4 Amount ($000) 4 % of Total Dividends, Interest, & Rent 38.9 16.3% Transfer Receipts 38.7 16.2% $ billions for which detailed information is available) was $238.2 Wages & Salaries 129.7 54.4% assets (this billion, which can be broken into the following pieces 8.6% (9.7) (4.1%) Total 238.2 100.0% Source: Bureau of Economic Analysis Employers’ Pension and Insurance Contributions 20.2 8.5% Annual State Personal Income and Employment, Table SA04. Proprietor Income of the other components merit further description: Dividends, interest, and rent : represent income generated by assets, but not income from the While “wages and salaries” is self-evident, some sale of  participating in “production activities” and with transfer  All BEA personal income data in this publication are as of the September 25, 2012 update. See individuals – examples include Social Security payments, the value of Medicare and Medicaid benefits, and income maintenance benefits. 1 such as state Local Government Aid given to cities. See : these are mostly government benefit payments to for the most recent Price of Gove 2012 Economic Forecast. 2 Own source revenues: all state and local revenues less “intergover nmental revenues” – grants from one unit of government to an http://www.mmb.state.mn.us/supporting-documents-nov-12 Security and Medicare. rnment report, from the November 4 Transfer receipts 3 www.bea.gov for data. 3 info@fiscalexcellence.org No. 0005 Testimony before the Legislative Commission on Fiscal Policy, February 22, 2013 meeting. | other,  : income generated by businesses for their owners.  Employer pension and insurance contributions : basically, employers’ costs for fringe benefits, except for Social April 2013 excludes capital gains). Proprietor income mainly Social Security and Medicare – and an adjustment since its inception, the composition of Minn esota Personal Income – the denominator of other states, the adjustment is negative. As these descriptions make clear, Minnesota’s $238 billion Pers onal Income amount includes many items that an average $ billions Minnesotan would not think of as income that could be used Personal Income includes non-money benefits and “imputed” income nts earn income in Minnesota than Minnesotans earn in – the market value of selected transactions that don’t taxes. Table 2 shows five major non-money income areas. Table 2: Five Major Non-Money Components of BEA Personal Income for Minnesota, CY 2011 Component to pay taxes. And the average Minnesotan would be right. Note: Numbers may not add due to rounding. Source: Bureau of Economic Analysis occur in the market economy and that cannot be used to pay Annual State Personal Income and Employment; states based on commuting patterns. Since more non-reside Amount 7.0% Imputed interest 5 Employers’ Pension and Insurance Contributions 20.2 8.5% 7.9 3.3% 6 for net flow of income between Minnesota and other 4.8 Transfers to nonprofit institutions 0.7 0.3% Total 50.3 Imputed rent 21.1% % of Total 2.0% 16.8 Imputed interest 3.8% government and evaluating its affordability – represented over 20 cents of every dollar of Minnesota Personal Income. This is a major departure from the earliest days of Minnesota’s Pr ice of Government. As Table 3 shows; in 1990, these five pieces of non-money income were a much smaller share – 15.5% – of total Minnesota Personal Income. Most significantly, irrelevant to assessing the tax price of state and local the share of government sponsored medical benefits has nearly Income. Table 3: Major Non-Money Components of BEA Personal Income for Minnesota, CY 1990 Component aim on money income – which is 20%-35% legislative session. doubled over 20 years from 3.8% to 7.0% of state Personal 3.3 As the table indicates, in 2011 non-money income – essentially Amount Value of government sponsored medical benefits (mainly Medicare and Medicaid) 3.3 3.8% Employers’ Pension and Insurance Contributions 6.3 7.3% Imputed rent 0.3% Tables SA 04, SA 35, and SA 40 Transfers to nonprofit institutions 0.2 0.2% 13.4 15.5% Note: Numbers may not add due to rounding. 0.3 % of Total $ billions Total (mainly Medicare and Medicaid) Value of government sponsored medical benefits Source: Bureau of Economic Analysis without an explicit charge for doing so. 6 This includes the value of things such as the rental value of owner-occupied housing, the value of farm products consumed at h ce of Government has been calculated to ome by ce and the value of services that depository institutions provide 1 info@fiscalexcellence.org | April 2013 Minnesota’s Troubled “Price of Government” Abstract the producers, and pay-in-kind in the form of meals and lodging. 5 No. 0005 times faster than wages and salaries over the past decade. This is the value of investment income earned on life insuran measure and track state and local government the POG – has changed dramatically. 20 y ears ago, five major non-money components of Minnesota Personal Income – that taxpayers cannot use to pay taxes or fees or remit in ’s claim on Minnesota income. However, any way to finance government – were roughly 15% of the total. Today those non- Since the early 1990’s, the Minnesota Pri which represents a shift of approximately money to non-money income. Moreover, the fastest growing sources of Personal Income growth are government transfer payments – including the value of Medicare and Medi money components are over 20% of the total, caid benefits – which have grown over 2.5 $13 billion in Minnesota Personal Income from interpretation of the Price of Government Income with some measure of money income. Even with this adaptation, we encourage aim on money income – which is 20%-35% higher when substituting the household in come measure used type measure, the state should modify the cu in the state’s Study. understates state and local government’s cl Moreover, trends in the composition of significantly compromise its common use as a measure to evaluate affordability or benchmark a sustainable “level” of spending. Tax Incidence Tables SA 04, SA 35 and SA 40. Annual State Personal Income and Employment; Personal Income and demographic trends es. Including Personal Income in the POG metric and its use in public policy debat If policymakers want to maintain a POG- caution in using the POG to asse ss the affordability of government or set a “price target” for government because some of the major demographic factors and trends affecting income will continue for the indefinite future. acing Minnesota Personal 2 info@fiscalexcellence.org | April 2013 Introduction For nearly twenty years, the state’s Department of Manage ment and Budget (MMB) has prepared a Price of Government (POG) report to accompany the November and February economic forecasts and following the conclusion of each No. 0005 These findings have major ramifications for the rrent metric by repl metric and its use in public policy debat e ratio of state and local government own source revenues taxes. Table 2 shows five major non-money income areas. Table 2: Five Major Non-Money Components of BEA Personal Income for Minnesota, CY 2011 ibed the POG as “the state’s main transparency method and tool for communicating the total cost of state and local government to citizens.” taxation and spending. 3 upport, including the endorsement of Minnesota’s business Personal Income. MMB staff have descr community, because it was seen as a simple, straightforward Minnesotans’ income. Because it is seemingly so easy to u nderstand and interpret, the POG has inevitably served as an evidence point in debates over budgets and acceptabl Policymakers created the POG with broad-based political s “Personal Income” as determined by the U.S. Bureau of Ec onomic Analysis (BEA) is an extremely broad measure. BEA metric to track state and local government’s claim on economists designed it to capture the income associated with to statewide e levels of government nts of the metric, as has happened with Minnesota’s Price of Government. Specifically, two major trends have transformed Minnesota rendering interpretations of th Personal Income since the POG was developed two decades with respect to both evaluating taxpayer 2 cost of state and local government and ment Minnesotans make in state and local government are severely compromised. Trend #1 – Rapid Growth in Non-Money Income ago. As a result, the use of the POG as a Share of Total Minnesota Personal Income However, simple metrics can often mask underlying complexity, providing time-series comparisons about the level of invest major changes are taking place in the compone 20.4 Employers’ Pension and Insurance Contributions 20.2 8.5% for which detailed information is available) was $238.2 billion, which can be broken into the following pieces 4 : Table 1: Major Components of BEA Personal Income for Minnesota, CY 2011 Minnesota’s Personal Income for calendar year (CY) 2011 (the most recent year Component $ billions % of Total Wages & Salaries 129.7 54.4% Dividends, Interest, & Rent Transfers to nonprofit institutions 0.7 0.3% Total 238.2 100.0% Amount ($000) 8.6% payments (largely from the government). 38.9 Employee & Self-Employed Contributions to “Social Insurance” Programs; and Adjustment for Interstate Commuters (9.7) Proprietor Income (4.1%) Source: Bureau of Economic Analysis participating in “production activities” and with transfer Annual State Personal Income and Employment, Table SA04. of the other components merit further description:  Dividends, interest, and rent Total 238.2 100.0% Transfer Receipts 38.7 16.2% 16.3% While “wages and salaries” is self-evident, some Total process. This is especially true when : represent income generated Transfer receipts : these are mostly government benefit payments to individuals – examples include Social Security Own source revenues: all state and local revenues less “intergover payments, the value of Medicare and Medicaid 1  See for the most recent Price of Gove rnment report, from the November 2012 Economic Forecast. benefits, and income maintenance benefits. sale of Employer pension and insurance contributions http://www.mmb.state.mn.us/supporting-documents-nov-12 Security and Medicare. excludes capital gains). 2 4 All BEA personal income data in this publication are as of the September 25, 2012 update. See www.bea.gov other, for data. No. 0005 assets (this |  Proprietor income : income generated by businesses for their owners. 3 info@fiscalexcellence.org  nmental revenues” – grants from one unit of government to an April 2013 e metric problematic in the $ billions Employers’ Pension and Insurance Contributions 20.2 8.5% for net flow of income between Minnesota and other states based on commuting patterns. Since more non-reside nts earn income in Minnesota than Minnesotans earn in Table 2: Five Major Non-Money Components of BEA Personal Income for Minnesota, CY 2011 other states, the adjustment is negative. onal Income amount includes many items that an average mainly Social Security and Medicare – and an adjustment Minnesotan would not think of as income that could be used Personal Income includes non-money benefits and “imputed” income – the market value of selected transactions that don’t occur in the market economy and that cannot be used to pay As these descriptions make clear, Minnesota’s $238 billion Pers assets, but not income from the by to pay taxes. And the average Minnesotan would be right. % of Total The final portion represents employees’ and self-employed persons contributions to “social insurance programs” – taxes. Table 2 shows five major non-money income areas. Value of government sponsored medical benefits (mainly Medicare and Medicaid) 16.8 Amount 7.0% 5  7.9 3.3% 6 4.8 2.0% Imputed interest : basically, employers’ costs for fringe benefits, except for Social Component Imputed rent 21.1% type measure, the state should modify the cu rrent metric by repl Tables SA 04, SA 35, and SA 40 As the table indicates, in 2011 non-money income – essentially irrelevant to assessing the tax price of state and local Table 3: Major Non-Money Components of government and evaluating its affordability – represented over 20 is a major departure from the earliest days of Minnesota’s Pr Annual State Personal Income and Employment; ice of Government. As Table 3 shows; in 1990, these five – of total Minnesota Personal Income. Most significantly, the share of government sponsored medical benefits has nearly doubled over 20 years from 3.8% to 7.0% of state Personal cents of every dollar of Minnesota Personal Income. This 13.4 15.5% pieces of non-money income were a much smaller share – 15.5% Note: Numbers may not add due to rounding. Source: Bureau of Economic Analysis Income. Employers’ Pension and Insurance Contributions 6.3 7.3% Imputed interest 3.3 Component 3.8% (mainly Medicare and Medicaid) Note: Numbers may not add due to rounding. 3.3 3.8% 0.3 0.3% Transfers to nonprofit institutions 0.2 0.2% Value of government sponsored medical benefits Total BEA Personal Income for Minnesota, CY 1990 Imputed rent % of Total ce of Government has been calculated to ’s claim on Minnesota income. However, 5 This is the value of investment income earned on life insuran ce and the value of services that depository institutions provide without an explicit charge for doing so. 6 Tables SA 04, SA 35 and SA 40. This includes the value of things such as the rental value of owner-occupied housing, the value of farm products consumed at h the producers, and pay-in-kind in the form of meals and lodging. 1 info@fiscalexcellence.org No. 0005 | 50.3 ome by ome by measure and track state and local government Annual State Personal Income and Employment; April 2013 since its inception, the composition of Minn esota Personal Income – the denominator of the POG – has changed dramatically. 20 y Since the early 1990’s, the Minnesota Pri ears ago, five major non-money components cannot use to pay taxes or fees or remit in Source: Bureau of Economic Analysis any way to finance government – were roughly 15% of the total. Today those non- which represents a shift of approximately $13 billion in Minnesota Personal Income from money to non-money income. Moreover, of Minnesota Personal Income – that taxpayers Abstract Minnesota’s Troubled “Price of Government” money components are over 20% of the total, $ billions Amount the fastest growing sources of Personal Income interpretation of the Price of Government metric and its use in public policy debat es. Including Personal Income in the POG understates state and local government’s cl measure to evaluate affordability or aim on money income – which is 20%-35% These findings have major ramifications for the come measure used Tax Incidence Study. Moreover, trends in the composition of Personal Income and demographic trends higher when substituting the household in caid benefits – which have grown over 2.5 in the state’s ment and Budget (MMB) has prepared a Price of Government times faster than wages and salaries over the past decade. benchmark a sustainable “level” of spending. acing Minnesota Personal Income with some measure of money income. Even with this adaptation, we encourage caution in using the POG to asse If policymakers want to maintain a POG- ss the affordability of government or set a “price target” significantly compromise its common use as a income will continue for the indefinite future. No. 0005 | April 2013 Introduction for government because some of the major demographic factors and trends affecting For nearly twenty years, the state’s Department of Manage 2 info@fiscalexcellence.org legislative session. taxation and spending. However, simple metrics can often mask underlying complexity, 2 to statewide Personal Income. MMB staff have descr nderstand and interpret, the POG has inevitably served as an ibed the POG as “the state’s main communicating the total cost of state and local government to citizens.” e ratio of state and local government own source revenues 3 upport, including the endorsement of Minnesota’s business community, because it was seen as a simple, straightforward metric to track state and local government’s claim on transparency method and tool for – including the value of Medicare and Medi growth are government transfer payments Policymakers created the POG with broad-based political s The POG metric measures th 1 Minnesotans’ income. Because it is seemingly so easy to u rendering interpretations of th e metric problematic in the process. This is especially true when major changes are taking place in the compone e levels of government nts of the metric, as has happened with Specifically, two major trends have transformed Minnesota Personal Income since the POG was developed two decades ago. As a result, the use of the POG with respect to both evaluating taxpayer cost of state and local government and providing time-series comparisons about the level of invest Minnesota’s Price of Government. (POG) report to accompany the November and February economic forecasts and following the conclusion of each evidence point in debates over budgets and acceptabl Testimony before the Legislative Commission on Fiscal Policy, February 22, 2013 meeting. 3 such as state Local Government Aid given to cities. ment Minnesotans make in state and local government are participating in “production activities” and with transfer payments (largely from the government). Minnesota’s Personal Income for calendar year (CY) 2011 (the most recent year % of Total for which detailed information is available) was $238.2 4 economists designed it to capture the income associated with : Personal Income for Minnesota, CY 2011 Component Amount ($000) billion, which can be broken into the following pieces  of the other components merit further description: Table 1: Major Components of BEA Dividends, interest, and rent onomic Analysis (BEA) is an extremely broad measure. BEA $ billions Proprietor Income 20.4 8.6% Dividends, Interest, & Rent Employers’ Pension and Insurance Contributions 20.2 8.5% Programs; and Adjustment for Interstate Commuters “Personal Income” as determined by the U.S. Bureau of Ec (9.7) Total 238.2 100.0% Source: Bureau of Economic Analysis Annual State Personal Income and Employment, Table SA04. Employee & Self-Employed Contributions to “Social Insurance” While “wages and salaries” is self-evident, some Wages & Salaries 129.7 54.4% (4.1%) Transfer Receipts 38.7 16.2% 2 nmental revenues” – grants from one unit of government to an sale of assets (this excludes capital gains). for the most recent Price of Gove  : these are mostly government benefit payments to assets, but not income from the individuals – examples include Social Security benefits, and income maintenance benefits. 1 See Transfer receipts 0.3 0.3% payments, the value of Medicare and Medicaid Own source revenues: all state and local revenues less “intergover by http://www.mmb.state.mn.us/supporting-documents-nov-12 other, such as state Local Government Aid given to cities. 3 2012 Economic Forecast. Testimony before the Legislative Commission on Fiscal Policy, February 22, 2013 meeting. All BEA personal income data in this publication are as of the September 25, 2012 update. See : represent income generated www.bea.gov 3 info@fiscalexcellence.org No. 0005 | 4  rnment report, from the November for data. 16.3% 38.9 April 2013 : basically, employers’ costs for fringe benefits, except for Social Security and Medicare.  The final portion represents employees’ and self-employed persons contributions to “social insurance programs” – Personal Income includes non-money benefits and “imputed” income mainly Social Security and Medicare – and an adjustment Employer pension and insurance contributions states based on commuting patterns. Since more non-reside other states, the adjustment is negative. As these descriptions make clear, Minnesota’s $238 billion Pers onal Income amount includes many items that an average Minnesotan would not think of as income that could be used for net flow of income between Minnesota and other : income generated by businesses for their owners. nts earn income in Minnesota than Minnesotans earn in 6  – the market value of selected transactions that don’t Component Amount $ billions % of Total occur in the market economy and that cannot be used to pay Employers’ Pension and Insurance Contributions 20.2 8.5% to pay taxes. And the average Minnesotan would be right. (mainly Medicare and Medicaid) 7.0% Imputed interest 5 7.9 3.3% Value of government sponsored medical benefits Imputed rent 16.8 2.0% Income. Table 3: Major Non-Money Components of 21.1% Note: Numbers may not add due to rounding. Source: Bureau of Economic Analysis – of total Minnesota Personal Income. Most significantly, Annual State Personal Income and Employment; As the table indicates, in 2011 non-money income – essentially 50.3 irrelevant to assessing the tax price of state and local cents of every dollar of Minnesota Personal Income. This is a major departure from the earliest days of Minnesota’s Pr ice of Government. As Table 3 shows; in 1990, these five Tables SA 04, SA 35, and SA 40 Imputed rent Proprietor income government and evaluating its affordability – represented over 20 Total Transfers to nonprofit institutions 0.7 0.3% pieces of non-money income were a much smaller share – 15.5% BEA Personal Income for Minnesota, CY 1990 Component Amount $ billions doubled over 20 years from 3.8% to 7.0% of state Personal % of Total Imputed interest 3.3 3.8% Value of government sponsored medical benefits (mainly Medicare and Medicaid) 3.3 3.8% Employers’ Pension and Insurance Contributions 6.3 7.3% 4.8 the share of government sponsored medical benefits has nearly Transfers to nonprofit institutions 0.2 0.2% Programs; and Adjustment for Interstate Commuters Minnesotans’ income. Because it is seemingly so easy to u evidence point in debates over budgets and acceptabl Source: Bureau of Economic Analysis Annual State Personal Income and Employment; the producers, and pay-in-kind in the form of meals and lodging. Tables SA 04, SA 35 and SA 40. This is the value of investment income earned on life insuran ce and the value of services that depository institutions provide Note: Numbers may not add due to rounding. without 6 This includes the value of things such as the rental value of owner-occupied housing, the value of farm products consumed at h 5 money components are over 20% of the total, which represents a shift of approximately $13 billion in Minnesota Personal Income from an explicit charge for doing so. significantly compromise its common use as a 15.5% Total Since the early 1990’s, the Minnesota Pri ce of Government has been calculated to No. 0005 measure and track state and local government since its inception, the composition of Minn esota Personal Income – the denominator of 13.4 the POG – has changed dramatically. 20 y of Minnesota Personal Income – that taxpayers cannot use to pay taxes or fees or remit in ’s claim on Minnesota income. However, any way to finance government – were roughly 15% of the total. Today those non- 1 info@fiscalexcellence.org ome by ears ago, five major non-money components Abstract measure to evaluate affordability or If policymakers want to maintain a POG- caid benefits – which have grown over 2.5 times faster than wages and salaries over the past decade. These findings have major ramifications for the interpretation of the Price of Government metric and its use in public policy debat es. Including Personal Income in the POG – including the value of Medicare and Medi understates state and local government’s cl higher when substituting the household in come measure used in the state’s as a Share of Total Minnesota Personal Income Trend #1 – Rapid Growth in Non-Money Income severely compromised. aim on money income – which is 20%-35% benchmark a sustainable “level” of spending. growth are government transfer payments money to non-money income. Moreover, type measure, the state should modify the cu rrent metric by repl Personal Income and demographic trends acing Minnesota Personal Even with this adaptation, we encourage caution in using the POG to asse the fastest growing sources of Personal Income ss the affordability of government or set a “price target” income will continue for the indefinite future. 2 info@fiscalexcellence.org Income with some measure of money income. Moreover, trends in the composition of Study. Tax Incidence for government because some of the major demographic factors and trends affecting Minnesota’s Troubled “Price of Government” April 2013 | legislative session. 1 The POG metric measures th upport, including the endorsement of Minnesota’s business e ratio of state and local government own source revenues to statewide (POG) report to accompany the November and February economic forecasts and following the conclusion of each Personal Income. MMB staff have descr transparency method and tool for communicating the total cost of state and local government to citizens.” 3 2 Introduction with respect to both evaluating taxpayer ibed the POG as “the state’s main providing time-series comparisons about the level of invest ment and Budget (MMB) has prepared a Price of Government Policymakers created the POG with broad-based political s e levels of government taxation and spending. However, simple metrics can often mask underlying complexity, metric to track state and local government’s claim on rendering interpretations of th process. This is especially true when For nearly twenty years, the state’s Department of Manage major changes are taking place in the compone Minnesota’s Price of Government. Specifically, two major trends have transformed Minnesota Personal Income since the POG was developed two decades e metric problematic in the ago. As a result, the use of the POG community, because it was seen as a simple, straightforward nts of the metric, as has happened with $ billions % of Total Wages & Salaries 129.7 54.4% “Personal Income” as determined by the U.S. Bureau of Ec onomic Analysis (BEA) is an extremely broad measure. BEA Personal Income for Minnesota, CY 2011 economists designed it to capture the income associated with payments (largely from the government). Minnesota’s Personal Income for calendar year (CY) 2011 (the most recent year as a Share of Total Minnesota Personal Income for which detailed information is available) was $238.2 4 : participating in “production activities” and with transfer April 2013 | No. 0005 billion, which can be broken into the following pieces Trend #1 – Rapid Growth in Non-Money Income severely compromised. ment Minnesotans make in state and local government are Dividends, Interest, & Rent 38.9 16.3% Amount ($000) Transfer Receipts 38.7 16.2% 20.4 8.6% Employers’ Pension and Insurance Contributions 20.2 8.5% Employee & Self-Employed Contributions to “Social Insurance” Programs; and Adjustment for Interstate Commuters (9.7) Proprietor Income cost of state and local government and Component Table 1: Major Components of BEA nderstand and interpret, the POG has inevitably served as an Employee & Self-Employed Contributions to “Social Insurance” (4.1%) $ billions  Dividends, interest, and rent : represent income generated by benefits, and income maintenance benefits. assets, but not income from the of the other components merit further description: assets (this  Transfer receipts : these are mostly government benefit payments to individuals – examples include Social Security sale of Imputed interest excludes capital gains). 3 info@fiscalexcellence.org While “wages and salaries” is self-evident, some 1 rnment report, from the November 2012 Economic Forecast. 2 Own source revenues: all state and local revenues less “intergover See nmental revenues” – grants from one unit of government to an payments, the value of Medicare and Medicaid such as state Local Government Aid given to cities. Testimony before the Legislative Commission on Fiscal Policy, February 22, 2013 meeting. 4 All BEA personal income data in this publication are as of the September 25, 2012 update. See www.bea.gov other, for data. 3 for the most recent Price of Gove | Personal Income includes non-money benefits and “imputed” income Proprietor income : income generated by businesses for their owners.  Employer pension and insurance contributions As these descriptions make clear, Minnesota’s $238 billion Pers : basically, employers’ costs for fringe benefits, except for Social   mainly Social Security and Medicare – and an adjustment for net flow of income between Minnesota and other states based on commuting patterns. Since more non-reside nts earn income in Minnesota than Minnesotans earn in Security and Medicare. ears ago, five major non-money components The final portion represents employees’ and self-employed persons contributions to “social insurance programs” – to pay taxes. And the average Minnesotan would be right. April 2013 onal Income amount includes many items that an average – the market value of selected transactions that don’t occur in the market economy and that cannot be used to pay taxes. Table 2 shows five major non-money income areas. Table 2: Five Major Non-Money Components of BEA Personal Income for Minnesota, CY 2011 Minnesotan would not think of as income that could be used Component other states, the adjustment is negative. $ billions Employers’ Pension and Insurance Contributions 20.2 8.5% Value of government sponsored medical benefits (mainly Medicare and Medicaid) 16.8 Amount No. 0005 % of Total of Minnesota Personal Income – that taxpayers http://www.mmb.state.mn.us/supporting-documents-nov-12 5 4.8 2.0% Transfers to nonprofit institutions 0.7 0.3% Total cents of every dollar of Minnesota Personal Income. This 50.3 6 Note: Numbers may not add due to rounding. Annual State Personal Income and Employment; Tables SA 04, SA 35, and SA 40 As the table indicates, in 2011 non-money income – essentially irrelevant to assessing the tax price of state and local 21.1% 7.9 3.3% Source: Bureau of Economic Analysis Value of government sponsored medical benefits Imputed rent is a major departure from the earliest days of Minnesota’s Pr the share of government sponsored medical benefits has nearly doubled over 20 years from 3.8% to 7.0% of state Personal Income. Table 3: Major Non-Money Components of ice of Government. As Table 3 shows; in 1990, these five BEA Personal Income for Minnesota, CY 1990 government and evaluating its affordability – represented over 20 Amount % of Total Employers’ Pension and Insurance Contributions 6.3 7.3% Imputed interest 3.3 Component 3.8% $ billions 7.0% 3.3 3.8% the producers, and pay-in-kind in the form of meals and lodging. 0.3% Transfers to nonprofit institutions 0.2 0.2% Total 13.4 an explicit charge for doing so. 15.5% 0.3 Source: Bureau of Economic Analysis Tables SA 04, SA 35 and SA 40. 5 This is the value of investment income earned on life insuran ce and the value of services that depository institutions provide Note: Numbers may not add due to rounding. the POG – has changed dramatically. 20 y Annual State Personal Income and Employment; ome by Imputed rent 6 1 info@fiscalexcellence.org No. 0005 | April 2013 This includes the value of things such as the rental value of owner-occupied housing, the value of farm products consumed at h Minnesota’s Troubled “Price of Government” without Since the early 1990’s, the Minnesota Pri measure and track state and local government ’s claim on Minnesota income. However, since its inception, the composition of Minn esota Personal Income – the denominator of Abstract (mainly Medicare and Medicaid) ce of Government has been calculated to cannot use to pay taxes or fees or remit in Table 1: Major Components of BEA Personal Income for Minnesota, CY 2011 $13 billion in Minnesota Personal Income from money to non-money income. Moreover, the fastest growing sources of Personal Income aim on money income – which is 20%-35% growth are government transfer payments caid benefits – which have grown over 2.5 which represents a shift of approximately times faster than wages and salaries over the past decade. interpretation of the Price of Government metric and its use in public policy debat es. Including Personal Income in the POG – including the value of Medicare and Medi ss the affordability of government or set a “price target” for government because some of the major demographic factors and trends affecting These findings have major ramifications for the income will continue for the indefinite future. money components are over 20% of the total, understates state and local government’s cl Moreover, trends in the composition of Personal Income and demographic trends significantly compromise its common use as a come measure used measure to evaluate affordability or If policymakers want to maintain a POG- any way to finance government – were roughly 15% of the total. Today those non- type measure, the state should modify the cu acing Minnesota Personal Income with some measure of money income. Even with this adaptation, we encourage benchmark a sustainable “level” of spending. caution in using the POG to asse higher when substituting the household in rrent metric by repl Study. Policymakers created the POG with broad-based political s community, because it was seen as a simple, straightforward April 2013 Introduction For nearly twenty years, the state’s Department of Manage ment and Budget (MMB) has prepared a Price of Government (POG) report to accompany the November and February economic forecasts and following the conclusion of each legislative session. | 1 e ratio of state and local government own source revenues 2 to statewide Personal Income. MMB staff have descr 4 Amount The POG metric measures th upport, including the endorsement of Minnesota’s business No. 0005 ibed the POG as “the state’s main metric to track state and local government’s claim on Minnesotans’ income. Because it is seemingly so easy to u nderstand and interpret, the POG has inevitably served as an 3 evidence point in debates over budgets and acceptabl taxation and spending. 2 info@fiscalexcellence.org However, simple metrics can often mask underlying complexity, e metric problematic in the process. This is especially true when major changes are taking place in the compone e levels of government communicating the total cost of state and local government to citizens.” transparency method and tool for rendering interpretations of th Tax Incidence in the state’s nts of the metric, as has happened with cost of state and local government and providing time-series comparisons about the level of invest ment Minnesotans make in state and local government are severely compromised. billion, which can be broken into the following pieces Trend #1 – Rapid Growth in Non-Money Income with respect to both evaluating taxpayer “Personal Income” as determined by the U.S. Bureau of Ec economists designed it to capture the income associated with participating in “production activities” and with transfer payments (largely from the government). Minnesota’s Personal Income for calendar year (CY) 2011 (the most recent year as a Share of Total Minnesota Personal Income Personal Income since the POG was developed two decades onomic Analysis (BEA) is an extremely broad measure. BEA Employee & Self-Employed Contributions to “Social Insurance” ago. As a result, the use of the POG 4 Component Amount ($000) $ billions % of Total : Wages & Salaries 129.7 54.4% for which detailed information is available) was $238.2 38.9 Transfer Receipts 38.7 16.2% Proprietor Income 20.4 8.6% Dividends, Interest, & Rent Employers’ Pension and Insurance Contributions 20.2 8.5% 16.3% (9.7) payments, the value of Medicare and Medicaid benefits, and income maintenance benefits. Annual State Personal Income and Employment, Table SA04. While “wages and salaries” is self-evident, some of the other components merit further description: Transfer receipts  : represent income generated Source: Bureau of Economic Analysis by sale of assets (this excludes capital gains). Dividends, interest, and rent Specifically, two major trends have transformed Minnesota Minnesota’s Price of Government. assets, but not income from the Total 238.2 100.0% (4.1%)  1 See http://www.mmb.state.mn.us/supporting-documents-nov-12 for the most recent Price of Gove individuals – examples include Social Security rnment report, from the November 2 Own source revenues: all state and local revenues less “intergover nmental revenues” – grants from one unit of government to an other, such as state Local Government Aid given to cities. 3 2012 Economic Forecast. Programs; and Adjustment for Interstate Commuters : these are mostly government benefit payments to – of total Minnesota Personal Income. Most significantly, pieces of non-money income were a much smaller share – 15.5% Testimony before the Legislative Commission on Fiscal Policy, February 22, 2013 meeting. All BEA personal income data in this publication are as of the September 25, 2012 update. See No. 0005 | April 2013  for net flow of income between Minnesota and other Proprietor income 3 info@fiscalexcellence.org  : basically, employers’ costs for fringe benefits, except for Social Security and Medicare.  The final portion represents employees’ and self-employed persons contributions to “social insurance programs” – : income generated by businesses for their owners. Employers’ Pension and Insurance Contributions 6.3 7.3% Employer pension and insurance contributions Value of government sponsored medical benefits for data. states based on commuting patterns. Since more non-reside onal Income amount includes many items that an average Minnesotan would not think of as income that could be used to pay taxes. And the average Minnesotan would be right. Personal Income includes non-money benefits and “imputed” income nts earn income in Minnesota than Minnesotans earn in – the market value of selected transactions that don’t mainly Social Security and Medicare – and an adjustment taxes. Table 2 shows five major non-money income areas. Component Amount $ billions % of Total occur in the market economy and that cannot be used to pay Employers’ Pension and Insurance Contributions 20.2 8.5% Table 2: Five Major Non-Money Components of BEA Personal Income for Minnesota, CY 2011 As these descriptions make clear, Minnesota’s $238 billion Pers 16.8 cents of every dollar of Minnesota Personal Income. This 5 7.9 3.3% Imputed rent 6 Tables SA 04, SA 35, and SA 40 4.8 Imputed interest Transfers to nonprofit institutions 0.7 0.3% 50.3 21.1% Note: Numbers may not add due to rounding. Source: Bureau of Economic Analysis 2.0% acing Minnesota Personal Total government and evaluating its affordability – represented over 20 7.0% As the table indicates, in 2011 non-money income – essentially is a major departure from the earliest days of Minnesota’s Pr ice of Government. As Table 3 shows; in 1990, these five pieces of non-money income were a much smaller share – 15.5% – of total Minnesota Personal Income. Most significantly, irrelevant to assessing the tax price of state and local the share of government sponsored medical benefits has nearly Annual State Personal Income and Employment; Income. BEA Personal Income for Minnesota, CY 1990 Component Amount $ billions doubled over 20 years from 3.8% to 7.0% of state Personal (mainly Medicare and Medicaid) Table 3: Major Non-Money Components of other states, the adjustment is negative. % of Total Imputed interest Value of government sponsored medical benefits (mainly Medicare and Medicaid) 3.3 3.8% Imputed rent 0.3 5 3.8% 0.3% 13.4 15.5% Note: Numbers may not add due to rounding. Source: Bureau of Economic Analysis Annual State Personal Income and Employment; Transfers to nonprofit institutions 0.2 0.2% Total 3.3 Tables SA 04, SA 35 and SA 40. measure and track state and local government an explicit charge for doing so. 6 This includes the value of things such as the rental value of owner-occupied housing, the value of farm products consumed at h ome by the producers, and pay-in-kind in the form of meals and lodging. ce and the value of services that depository institutions provide This is the value of investment income earned on life insuran 1 info@fiscalexcellence.org April 2013 Minnesota’s Troubled “Price of Government” Abstract Since the early 1990’s, the Minnesota Pri ce of Government has been calculated to No. 0005 | ’s claim on Minnesota income. However, esota Personal Income – the denominator of understates state and local government’s cl of Minnesota Personal Income – that taxpayers cannot use to pay taxes or fees or remit in any way to finance government – were roughly 15% of the total. Today those non- money components are over 20% of the total, interpretation of the Price of Government which represents a shift of approximately ears ago, five major non-money components money to non-money income. Moreover, growth are government transfer payments – including the value of Medicare and Medi caid benefits – which have grown over 2.5 times faster than wages and salaries over the past decade. $13 billion in Minnesota Personal Income from rrent metric by repl the fastest growing sources of Personal Income the POG – has changed dramatically. 20 y These findings have major ramifications for the metric and its use in public policy debat aim on money income – which is 20%-35% higher when substituting the household in come measure used in the state’s Tax Incidence es. Including Personal Income in the POG Study. Personal Income and demographic trends significantly compromise its common use as a measure to evaluate affordability or benchmark a sustainable “level” of spending. If policymakers want to maintain a POG- type measure, the state should modify the cu Moreover, trends in the composition of since its inception, the composition of Minn Income with some measure of money income. Source: Bureau of Economic Analysis Even with this adaptation, we encourage Transfer receipts income will continue for the indefinite future. 2 info@fiscalexcellence.org No. 0005 e ratio of state and local government own source revenues | Introduction for government because some of the major demographic factors and trends affecting For nearly twenty years, the state’s Department of Manage (POG) report to accompany the November and February economic forecasts and following the conclusion of each legislative session. 1 April 2013 rendering interpretations of th e metric problematic in the ment and Budget (MMB) has prepared a Price of Government process. This is especially true when ss the affordability of government or set a “price target” The POG metric measures th communicating the total cost of state and local government to citizens.” 3 Policymakers created the POG with broad-based political s to statewide upport, including the endorsement of Minnesota’s business metric to track state and local government’s claim on caution in using the POG to asse Minnesotans’ income. Because it is seemingly so easy to u evidence point in debates over budgets and acceptabl e levels of government taxation and spending. community, because it was seen as a simple, straightforward However, simple metrics can often mask underlying complexity, 2 nderstand and interpret, the POG has inevitably served as an transparency method and tool for for which detailed information is available) was $238.2 4 Specifically, two major trends have transformed Minnesota Personal Income since the POG was developed two decades ago. As a result, the use of the POG with respect to both evaluating taxpayer cost of state and local government and providing time-series comparisons about the level of invest Minnesota’s Price of Government. ment Minnesotans make in state and local government are Trend #1 – Rapid Growth in Non-Money Income as a Share of Total Minnesota Personal Income “Personal Income” as determined by the U.S. Bureau of Ec onomic Analysis (BEA) is an extremely broad measure. BEA www.bea.gov Component severely compromised. billion, which can be broken into the following pieces nts of the metric, as has happened with economists designed it to capture the income associated with : Table 1: Major Components of BEA Personal Income for Minnesota, CY 2011 Minnesota’s Personal Income for calendar year (CY) 2011 (the most recent year Component $ billions major changes are taking place in the compone % of Total Dividends, Interest, & Rent 38.9 16.3% Amount ($000) payments (largely from the government). participating in “production activities” and with transfer Wages & Salaries 129.7 54.4% ibed the POG as “the state’s main Personal Income. MMB staff have descr Transfer Receipts 38.7 16.2% Programs; and Adjustment for Interstate Commuters (9.7) (4.1%) Total 238.2 100.0% sale of Source: Bureau of Economic Analysis Employee & Self-Employed Contributions to “Social Insurance” While “wages and salaries” is self-evident, some  Dividends, interest, and rent : represent income generated by Annual State Personal Income and Employment, Table SA04. 8.6% of the other components merit further description: other, Employers’ Pension and Insurance Contributions 20.2 8.5% assets (this : these are mostly government benefit payments to individuals – examples include Social Security payments, the value of Medicare and Medicaid benefits, and income maintenance benefits. excludes capital gains). 1 assets, but not income from the http://www.mmb.state.mn.us/supporting-documents-nov-12 rnment report, from the November 2012 Economic Forecast. 2 Own source revenues: all state and local revenues less “intergover See nmental revenues” – grants from one unit of government to an for the most recent Price of Gove 3 mainly Social Security and Medicare – and an adjustment for net flow of income between Minnesota and other www.bea.gov for data. 3 info@fiscalexcellence.org Security and Medicare. No. 0005 April 2013 All BEA personal income data in this publication are as of the September 25, 2012 update. See  : income generated by businesses for their owners.  Employer pension and insurance contributions | 20.4 Proprietor Income Proprietor income 4 Testimony before the Legislative Commission on Fiscal Policy, February 22, 2013 meeting. : basically, employers’ costs for fringe benefits, except for Social states based on commuting patterns. Since more non-reside nts earn income in Minnesota than Minnesotans earn in other states, the adjustment is negative. As these descriptions make clear, Minnesota’s $238 billion Pers The final portion represents employees’ and self-employed persons contributions to “social insurance programs” – onal Income amount includes many items that an average to pay taxes. And the average Minnesotan would be right. Personal Income includes non-money benefits and “imputed” income – the market value of selected transactions that don’t occur in the market economy and that cannot be used to pay taxes. Table 2 shows five major non-money income areas. Table 2: Five Major Non-Money Components of BEA Personal Income for Minnesota, CY 2011 Minnesotan would not think of as income that could be used such as state Local Government Aid given to cities.   without % of Total legislative session. 16.8 7.0% Imputed interest 21.1% 5 Imputed rent (mainly Medicare and Medicaid) 6 2.0% Transfers to nonprofit institutions 0.7 0.3% Total 7.9 3.3% Component Amount 4.8 $ billions Value of government sponsored medical benefits 50.3 irrelevant to assessing the tax price of state and local government and evaluating its affordability – represented over 20 cents of every dollar of Minnesota Personal Income. This Source: Bureau of Economic Analysis is a major departure from the earliest days of Minnesota’s Pr pieces of non-money income were a much smaller share – 15.5% Employers’ Pension and Insurance Contributions 20.2 8.5% – of total Minnesota Personal Income. Most significantly, doubled over 20 years from 3.8% to 7.0% of state Personal Income. Table 3: Major Non-Money Components of ice of Government. As Table 3 shows; in 1990, these five BEA Personal Income for Minnesota, CY 1990 Note: Numbers may not add due to rounding. the share of government sponsored medical benefits has nearly As the table indicates, in 2011 non-money income – essentially 5 ce and the value of services that depository institutions provide 3.3 3.8% Value of government sponsored medical benefits (mainly Medicare and Medicaid) 3.3 3.8% Imputed rent Imputed interest 0.3 Transfers to nonprofit institutions 0.2 0.2% Total 13.4 15.5% evidence point in debates over budgets and acceptabl the producers, and pay-in-kind in the form of meals and lodging. 0.3% This is the value of investment income earned on life insuran Employers’ Pension and Insurance Contributions 6.3 7.3% Note: Numbers may not add due to rounding. without an explicit charge for doing so. 6 Tables SA 04, SA 35 and SA 40. This includes the value of things such as the rental value of owner-occupied housing, the value of farm products consumed at h the producers, and pay-in-kind in the form of meals and lodging. % of Total 1 info@fiscalexcellence.org | April 2013 Minnesota’s Troubled “Price of Government” ome by Annual State Personal Income and Employment; Source: Bureau of Economic Analysis No. 0005 e levels of government Tables SA 04, SA 35, and SA 40 Abstract the POG – has changed dramatically. 20 y ears ago, five major non-money components of Minnesota Personal Income – that taxpayers caid benefits – which have grown over 2.5 cannot use to pay taxes or fees or remit in money components are over 20% of the total, esota Personal Income – the denominator of which represents a shift of approximately money to non-money income. Moreover, the fastest growing sources of Personal Income growth are government transfer payments any way to finance government – were roughly 15% of the total. Today those non- measure and track state and local government If policymakers want to maintain a POG- $13 billion in Minnesota Personal Income from rrent metric by repl since its inception, the composition of Minn – including the value of Medicare and Medi understates state and local government’s cl aim on money income – which is 20%-35% higher when substituting the household in These findings have major ramifications for the come measure used Tax Incidence ’s claim on Minnesota income. However, Study. Personal Income and demographic trends significantly compromise its common use as a measure to evaluate affordability or in the state’s benchmark a sustainable “level” of spending. times faster than wages and salaries over the past decade. Moreover, trends in the composition of Annual State Personal Income and Employment; e ratio of state and local government own source revenues to statewide caution in using the POG to asse ss the affordability of government or set a “price target” for government because some of the major demographic factors and trends affecting legislative session. income will continue for the indefinite future. No. 0005 Even with this adaptation, we encourage | Introduction For nearly twenty years, the state’s Department of Manage ment and Budget (MMB) has prepared a Price of Government 2 info@fiscalexcellence.org ce of Government has been calculated to Since the early 1990’s, the Minnesota Pri April 2013 2 Income with some measure of money income. (POG) report to accompany the November and February economic forecasts and following the conclusion of each Personal Income. MMB staff have descr ibed the POG as “the state’s main transparency method and tool for The POG metric measures th communicating the total cost of state and local government to citizens.” Policymakers created the POG with broad-based political s acing Minnesota Personal upport, including the endorsement of Minnesota’s business metric to track state and local government’s claim on Minnesotans’ income. Because it is seemingly so easy to u nderstand and interpret, the POG has inevitably served as an 3 type measure, the state should modify the cu 1 community, because it was seen as a simple, straightforward However, simple metrics can often mask underlying complexity, Security and Medicare.  major changes are taking place in the compone nts of the metric, as has happened with Minnesota’s Price of Government. as a Share of Total Minnesota Personal Income Specifically, two major trends have transformed Minnesota ago. As a result, the use of the POG process. This is especially true when with respect to both evaluating taxpayer providing time-series comparisons about the level of invest ment Minnesotans make in state and local government are severely compromised. Personal Income since the POG was developed two decades Dividends, Interest, & Rent 38.9 cost of state and local government and 16.3% e metric problematic in the Trend #1 – Rapid Growth in Non-Money Income Minnesota’s Personal Income for calendar year (CY) 2011 (the most recent year for which detailed information is available) was $238.2 billion, which can be broken into the following pieces onomic Analysis (BEA) is an extremely broad measure. BEA 4 Table 1: Major Components of BEA rendering interpretations of th Personal Income for Minnesota, CY 2011 Amount ($000) $ billions % of Total : Wages & Salaries 129.7 54.4% “Personal Income” as determined by the U.S. Bureau of Ec Component payments (largely from the government). sale of excludes capital gains). 8.6% Employers’ Pension and Insurance Contributions 20.2 8.5% Employee & Self-Employed Contributions to “Social Insurance” Programs; and Adjustment for Interstate Commuters (9.7) (4.1%) 20.4 Total 238.2 100.0% Annual State Personal Income and Employment, Table SA04. While “wages and salaries” is self-evident, some of the other components merit further description:  taxation and spending. This includes the value of things such as the rental value of owner-occupied housing, the value of farm products consumed at h Source: Bureau of Economic Analysis assets (this Proprietor Income Dividends, interest, and rent  Transfer receipts : these are mostly government benefit payments to assets, but not income from the individuals – examples include Social Security benefits, and income maintenance benefits. Transfer Receipts 38.7 16.2% 1 http://www.mmb.state.mn.us/supporting-documents-nov-12 for the most recent Price of Gove rnment report, from the November payments, the value of Medicare and Medicaid by : represent income generated See participating in “production activities” and with transfer economists designed it to capture the income associated with 2012 Economic Forecast. 3 Testimony before the Legislative Commission on Fiscal Policy, February 22, 2013 meeting. 4 All BEA personal income data in this publication are as of the September 25, 2012 update. See  www.bea.gov such as state Local Government Aid given to cities. 3 info@fiscalexcellence.org | April 2013  Proprietor income for data. nmental revenues” – grants from one unit of government to an No. 0005 taxes. Table 2 shows five major non-money income areas. other, Employer pension and insurance contributions The final portion represents employees’ and self-employed persons contributions to “social insurance programs” – mainly Social Security and Medicare – and an adjustment for net flow of income between Minnesota and other states based on commuting patterns. Since more non-reside : basically, employers’ costs for fringe benefits, except for Social nts earn income in Minnesota than Minnesotans earn in : income generated by businesses for their owners. As these descriptions make clear, Minnesota’s $238 billion Pers Minnesotan would not think of as income that could be used to pay taxes. And the average Minnesotan would be right. Personal Income includes non-money benefits and “imputed” income – the market value of selected transactions that don’t other states, the adjustment is negative. occur in the market economy and that cannot be used to pay onal Income amount includes many items that an average Component 21.1% Note: Numbers may not add due to rounding. Employers’ Pension and Insurance Contributions 20.2 8.5% Value of government sponsored medical benefits (mainly Medicare and Medicaid) Transfers to nonprofit institutions 0.7 0.3% 16.8 Imputed interest % of Total 5 Imputed rent 6 4.8 7.0% Own source revenues: all state and local revenues less “intergover 2 7.9 3.3% $ billions Amount 2.0% Source: Bureau of Economic Analysis Annual State Personal Income and Employment; Tables SA 04, SA 35, and SA 40 As the table indicates, in 2011 non-money income – essentially 50.3 irrelevant to assessing the tax price of state and local cents of every dollar of Minnesota Personal Income. This is a major departure from the earliest days of Minnesota’s Pr ice of Government. As Table 3 shows; in 1990, these five pieces of non-money income were a much smaller share – 15.5% – of total Minnesota Personal Income. Most significantly, the share of government sponsored medical benefits has nearly government and evaluating its affordability – represented over 20 Table 2: Five Major Non-Money Components of BEA Personal Income for Minnesota, CY 2011 Total es. Including Personal Income in the POG metric and its use in public policy debat interpretation of the Price of Government doubled over 20 years from 3.8% to 7.0% of state Personal % of Total Employers’ Pension and Insurance Contributions 6.3 7.3% Imputed interest Total 3.3 Value of government sponsored medical benefits $ billions (mainly Medicare and Medicaid) Imputed rent 0.3 0.3% 3.8% Personal Income and demographic trends | 3.3 3.8% Minnesota’s Troubled “Price of Government” Amount Transfers to nonprofit institutions 0.2 0.2% Tables SA 04, SA 35 and SA 40. 5 This is the value of investment income earned on life insuran 15.5% ce and the value of services that depository institutions provide an explicit charge for doing so. Component 6 ome by the producers, and pay-in-kind in the form of meals and lodging. 1 info@fiscalexcellence.org without No. 0005 13.4 This includes the value of things such as the rental value of owner-occupied housing, the value of farm products consumed at h Annual State Personal Income and Employment; – including the value of Medicare and Medi times faster than wages and salaries over the past decade. measure and track state and local government ’s claim on Minnesota income. However, since its inception, the composition of Minn money to non-money income. Moreover, esota Personal Income – the denominator of ears ago, five major non-money components ce of Government has been calculated to of Minnesota Personal Income – that taxpayers any way to finance government – were roughly 15% of the total. Today those non- money components are over 20% of the total, which represents a shift of approximately the POG – has changed dramatically. 20 y Amount ($000) $ billions cannot use to pay taxes or fees or remit in caid benefits – which have grown over 2.5 Since the early 1990’s, the Minnesota Pri $13 billion in Minnesota Personal Income from These findings have major ramifications for the interpretation of the Price of Government metric and its use in public policy debat growth are government transfer payments es. Including Personal Income in the POG aim on money income – which is 20%-35% Abstract higher when substituting the household in in the state’s Tax Incidence Study. understates state and local government’s cl April 2013 the fastest growing sources of Personal Income come measure used Source: Bureau of Economic Analysis Note: Numbers may not add due to rounding. Moreover, trends in the composition of type measure, the state should modify the cu rrent metric by repl acing Minnesota Personal Income with some measure of money income. Introduction Even with this adaptation, we encourage If policymakers want to maintain a POG- ss the affordability of government or set a “price target” income will continue for the indefinite future. 2 info@fiscalexcellence.org No. 0005 | caution in using the POG to asse measure to evaluate affordability or for government because some of the major demographic factors and trends affecting metric to track state and local government’s claim on benchmark a sustainable “level” of spending. For nearly twenty years, the state’s Department of Manage 1 The POG metric measures th e ratio of state and local government own source revenues 2 ment and Budget (MMB) has prepared a Price of Government to statewide April 2013 ibed the POG as “the state’s main communicating the total cost of state and local government to citizens.” 3 Policymakers created the POG with broad-based political s upport, including the endorsement of Minnesota’s business Personal Income. MMB staff have descr community, because it was seen as a simple, straightforward transparency method and tool for nderstand and interpret, the POG has inevitably served as an Trend #1 – Rapid Growth in Non-Money Income as a Share of Total Minnesota Personal Income However, simple metrics can often mask underlying complexity, rendering interpretations of th e metric problematic in the providing time-series comparisons about the level of invest process. This is especially true when nts of the metric, as has happened with taxation and spending. Minnesota’s Price of Government. Personal Income since the POG was developed two decades ago. As a result, the use of the POG with respect to both evaluating taxpayer major changes are taking place in the compone Component significantly compromise its common use as a Specifically, two major trends have transformed Minnesota e levels of government evidence point in debates over budgets and acceptabl cost of state and local government and “Personal Income” as determined by the U.S. Bureau of Ec onomic Analysis (BEA) is an extremely broad measure. BEA economists designed it to capture the income associated with participating in “production activities” and with transfer severely compromised. payments (largely from the government). for which detailed information is available) was $238.2 billion, which can be broken into the following pieces 4 : Table 1: Major Components of BEA Personal Income for Minnesota, CY 2011 Minnesota’s Personal Income for calendar year (CY) 2011 (the most recent year Minnesotans’ income. Because it is seemingly so easy to u ment Minnesotans make in state and local government are % of Total (POG) report to accompany the November and February economic forecasts and following the conclusion of each 2.0% Total Transfer Receipts 38.7 16.2% Proprietor Income Annual State Personal Income and Employment, Table SA04. 20.4 Employers’ Pension and Insurance Contributions 20.2 8.5% Employee & Self-Employed Contributions to “Social Insurance” 16.3% Programs; and Adjustment for Interstate Commuters (4.1%) Total 238.2 100.0% 8.6% See http://www.mmb.state.mn.us/supporting-documents-nov-12 for the most recent Price of Gove (9.7) : income generated by businesses for their owners. 38.9 Wages & Salaries 129.7 54.4% assets, but not income from the sale of of the other components merit further description: assets (this  Transfer receipts Dividends, Interest, & Rent : these are mostly government benefit payments to payments, the value of Medicare and Medicaid benefits, and income maintenance benefits. excludes capital gains). 1 While “wages and salaries” is self-evident, some Source: Bureau of Economic Analysis individuals – examples include Social Security by  : basically, employers’ costs for fringe benefits, except for Social nmental revenues” – grants from one unit of government to an other, such as state Local Government Aid given to cities. 3 Testimony before the Legislative Commission on Fiscal Policy, February 22, 2013 meeting. 4 Own source revenues: all state and local revenues less “intergover All BEA personal income data in this publication are as of the September 25, 2012 update. See for data. 3 info@fiscalexcellence.org No. 0005 BEA Personal Income for Minnesota, CY 1990 Table 3: Major Non-Money Components of Income. www.bea.gov Employer pension and insurance contributions 2 rnment report, from the November Security and Medicare.  Proprietor income The final portion represents employees’ and self-employed persons contributions to “social insurance programs” – for net flow of income between Minnesota and other states based on commuting patterns. Since more non-reside 2012 Economic Forecast. nts earn income in Minnesota than Minnesotans earn in As these descriptions make clear, Minnesota’s $238 billion Pers onal Income amount includes many items that an average mainly Social Security and Medicare – and an adjustment  April 2013 | other states, the adjustment is negative. : represent income generated Dividends, interest, and rent  Component Amount $ billions Imputed rent % of Total Value of government sponsored medical benefits Table 2: Five Major Non-Money Components of BEA Personal Income for Minnesota, CY 2011 (mainly Medicare and Medicaid) 7.0% Imputed interest 5 Employers’ Pension and Insurance Contributions 20.2 8.5% – the market value of selected transactions that don’t pieces of non-money income were a much smaller share – 15.5% 16.8 the share of government sponsored medical benefits has nearly taxes. Table 2 shows five major non-money income areas. 7.9 3.3% 50.3 21.1% Note: Numbers may not add due to rounding. 4.8 Source: Bureau of Economic Analysis Tables SA 04, SA 35, and SA 40 occur in the market economy and that cannot be used to pay As the table indicates, in 2011 non-money income – essentially government and evaluating its affordability – represented over 20 cents of every dollar of Minnesota Personal Income. This is a major departure from the earliest days of Minnesota’s Pr Annual State Personal Income and Employment; ice of Government. As Table 3 shows; in 1990, these five 6 irrelevant to assessing the tax price of state and local Transfers to nonprofit institutions 0.2 0.2% Total 13.4 Component Amount Imputed rent $ billions Employers’ Pension and Insurance Contributions 6.3 7.3% Imputed interest BEA Personal Income for Minnesota, CY 1990 3.3 Value of government sponsored medical benefits (mainly Medicare and Medicaid) % of Total Personal Income includes non-money benefits and “imputed” income to pay taxes. And the average Minnesotan would be right. Minnesotan would not think of as income that could be used 3.8% Table 3: Major Non-Money Components of Income. doubled over 20 years from 3.8% to 7.0% of state Personal 15.5% Note: Numbers may not add due to rounding. Source: Bureau of Economic Analysis 0.3% Annual State Personal Income and Employment; 5 This is the value of investment income earned on life insuran ce and the value of services that depository institutions provide without an explicit charge for doing so. 6 Tables SA 04, SA 35 and SA 40. – of total Minnesota Personal Income. Most significantly, 0.3 3.3 3.8% Transfers to nonprofit institutions 0.7 0.3% 2013-2014 Research and Education Publications • An examination of the marginal impacts and opportunity costs created by Minnesota’s new fourth tier income tax with respect to the residence decisions of high income Minnesotans • Featured in State Tax Notes I

5. 1 info@fiscalexcellence.org Minnesota’s Troubled “Price of Government” Abstract Since the early 1990’s, the Minnesota Pri ce of Government has been calculated to measure and track state and local government which represents a shift of approximately April 2013 ’s claim on Minnesota income. However, the POG – has changed dramatically. 20 y ears ago, five major non-money components of Minnesota Personal Income – that taxpayers cannot use to pay taxes or fees or remit in any way to finance government – were roughly 15% of the total. Today those non- since its inception, the composition of Minn esota Personal Income – the denominator of upport, including the endorsement of Minnesota’s business money components are over 20% of the total, Tax Incidence growth are government transfer payments – including the value of Medicare and Medi caid benefits – which have grown over 2.5 times faster than wages and salaries over the past decade. These findings have major ramifications for the money to non-money income. Moreover, $13 billion in Minnesota Personal Income from interpretation of the Price of Government understates state and local government’s cl aim on money income – which is 20%-35% higher when substituting the household in come measure used in the state’s metric and its use in public policy debat es. Including Personal Income in the POG the fastest growing sources of Personal Income Study. For nearly twenty years, the state’s Department of Manage measure to evaluate affordability or benchmark a sustainable “level” of spending. If policymakers want to maintain a POG- type measure, the state should modify the cu rrent metric by repl | significantly compromise its common use as a acing Minnesota Personal caution in using the POG to asse ss the affordability of government or set a “price target” for government because some of the major demographic factors and trends affecting income will continue for the indefinite future. 2 info@fiscalexcellence.org Income with some measure of money income. Even with this adaptation, we encourage Personal Income and demographic trends No. 0005 Moreover, trends in the composition of ment and Budget (MMB) has prepared a Price of Government (POG) report to accompany the November and February economic forecasts and following the conclusion of each legislative session. 1 The POG metric measures th Introduction April 2013 e ratio of state and local government own source revenues Personal Income. MMB staff have descr ibed the POG as “the state’s main transparency method and tool for communicating the total cost of state and local government to citizens.” 3 2 to statewide benefits, and income maintenance benefits. Policymakers created the POG with broad-based political s payments, the value of Medicare and Medicaid nderstand and interpret, the POG has inevitably served as an evidence point in debates over budgets and acceptabl e levels of government taxation and spending. However, simple metrics can often mask underlying complexity, with respect to both evaluating taxpayer Minnesotans’ income. Because it is seemingly so easy to u rendering interpretations of th major changes are taking place in the compone nts of the metric, as has happened with Minnesota’s Price of Government. Specifically, two major trends have transformed Minnesota Personal Income since the POG was developed two decades e metric problematic in the process. This is especially true when metric to track state and local government’s claim on ago. As a result, the use of the POG Table 1: Major Components of BEA severely compromised. Trend #1 – Rapid Growth in Non-Money Income as a Share of Total Minnesota Personal Income “Personal Income” as determined by the U.S. Bureau of Ec onomic Analysis (BEA) is an extremely broad measure. BEA providing time-series comparisons about the level of invest cost of state and local government and economists designed it to capture the income associated with Minnesota’s Personal Income for calendar year (CY) 2011 (the most recent year for which detailed information is available) was $238.2 billion, which can be broken into the following pieces 4 : participating in “production activities” and with transfer payments (largely from the government). community, because it was seen as a simple, straightforward Personal Income for Minnesota, CY 2011 While “wages and salaries” is self-evident, some % of Total Wages & Salaries 129.7 54.4% Dividends, Interest, & Rent 38.9 16.3% Total 238.2 100.0% $ billions Transfer Receipts 38.7 16.2% 8.6% Employers’ Pension and Insurance Contributions 20.2 8.5% Employee & Self-Employed Contributions to “Social Insurance” Programs; and Adjustment for Interstate Commuters (9.7) Proprietor Income 20.4 Amount ($000) (4.1%) Component of the other components merit further description:  Dividends, interest, and rent : represent income generated by Annual State Personal Income and Employment, Table SA04. Source: Bureau of Economic Analysis assets, but not income from the excludes capital gains).  Transfer receipts : these are mostly government benefit payments to individuals – examples include Social Security sale of assets (this 1 See 0.3 rnment report, from the November 2012 Economic Forecast. 2 Own source revenues: all state and local revenues less “intergover 3 info@fiscalexcellence.org nmental revenues” – grants from one unit of government to an for the most recent Price of Gove such as state Local Government Aid given to cities. Testimony before the Legislative Commission on Fiscal Policy, February 22, 2013 meeting. 4 All BEA personal income data in this publication are as of the September 25, 2012 update. See www.bea.gov other, As these descriptions make clear, Minnesota’s $238 billion Pers 3 onal Income amount includes many items that an average http://www.mmb.state.mn.us/supporting-documents-nov-12 No. 0005 Proprietor income : income generated by businesses for their owners.  Employer pension and insurance contributions | : basically, employers’ costs for fringe benefits, except for Social for data.  mainly Social Security and Medicare – and an adjustment for net flow of income between Minnesota and other states based on commuting patterns. Since more non-reside nts earn income in Minnesota than Minnesotans earn in Security and Medicare. other states, the adjustment is negative. The final portion represents employees’ and self-employed persons contributions to “social insurance programs” –  Minnesotan would not think of as income that could be used 4.8 – the market value of selected transactions that don’t occur in the market economy and that cannot be used to pay taxes. Table 2 shows five major non-money income areas. Table 2: Five Major Non-Money Components of BEA Personal Income for Minnesota, CY 2011 Component Amount Personal Income includes non-money benefits and “imputed” income $ billions Employers’ Pension and Insurance Contributions 20.2 8.5% Value of government sponsored medical benefits (mainly Medicare and Medicaid) 16.8 7.0% higher when substituting the household in % of Total 6 to pay taxes. And the average Minnesotan would be right. 5 2.0% Transfers to nonprofit institutions 0.7 0.3% Total 50.3 Imputed rent 21.1% Imputed interest Source: Bureau of Economic Analysis Tables SA 04, SA 35, and SA 40 As the table indicates, in 2011 non-money income – essentially irrelevant to assessing the tax price of state and local government and evaluating its affordability – represented over 20 Note: Numbers may not add due to rounding. 7.9 3.3% Annual State Personal Income and Employment; April 2013 cents of every dollar of Minnesota Personal Income. This is a major departure from the earliest days of Minnesota’s Pr the share of government sponsored medical benefits has nearly doubled over 20 years from 3.8% to 7.0% of state Personal Income. Table 3: Major Non-Money Components of BEA Personal Income for Minnesota, CY 1990 (mainly Medicare and Medicaid) – of total Minnesota Personal Income. Most significantly, Component % of Total Employers’ Pension and Insurance Contributions 6.3 7.3% Imputed interest 3.3 3.8% Amount $ billions pieces of non-money income were a much smaller share – 15.5% Value of government sponsored medical benefits an explicit charge for doing so. 0.3% Transfers to nonprofit institutions 0.2 0.2% Total 13.4 15.5% Imputed rent 3.3 3.8% Note: Numbers may not add due to rounding. Tables SA 04, SA 35 and SA 40. 5 This is the value of investment income earned on life insuran ce and the value of services that depository institutions provide without Source: Bureau of Economic Analysis Annual State Personal Income and Employment; 6 ome by money components are over 20% of the total, No. 0005 | April 2013 Minnesota’s Troubled “Price of Government” of Minnesota Personal Income – that taxpayers Abstract 1 info@fiscalexcellence.org ce of Government has been calculated to ’s claim on Minnesota income. However, since its inception, the composition of Minn esota Personal Income – the denominator of the POG – has changed dramatically. 20 y Since the early 1990’s, the Minnesota Pri ice of Government. As Table 3 shows; in 1990, these five measure and track state and local government the producers, and pay-in-kind in the form of meals and lodging. ears ago, five major non-money components cannot use to pay taxes or fees or remit in which represents a shift of approximately $13 billion in Minnesota Personal Income from money to non-money income. Moreover, the fastest growing sources of Personal Income growth are government transfer payments any way to finance government – were roughly 15% of the total. Today those non- – including the value of Medicare and Medi times faster than wages and salaries over the past decade. These findings have major ramifications for the interpretation of the Price of Government metric and its use in public policy debat es. Including Personal Income in the POG understates state and local government’s cl caid benefits – which have grown over 2.5 This includes the value of things such as the rental value of owner-occupied housing, the value of farm products consumed at h ment Minnesotans make in state and local government are | aim on money income – which is 20%-35% Source: Bureau of Economic Analysis Study. Moreover, trends in the composition of Personal Income and demographic trends significantly compromise its common use as a measure to evaluate affordability or for government because some of the major demographic factors and trends affecting Tax Incidence benchmark a sustainable “level” of spending. rrent metric by repl acing Minnesota Personal Income with some measure of money income. Even with this adaptation, we encourage caution in using the POG to asse If policymakers want to maintain a POG- type measure, the state should modify the cu billion, which can be broken into the following pieces ss the affordability of government or set a “price target” ibed the POG as “the state’s main | April 2013 Introduction For nearly twenty years, the state’s Department of Manage ment and Budget (MMB) has prepared a Price of Government 2 info@fiscalexcellence.org income will continue for the indefinite future. (POG) report to accompany the November and February economic forecasts and following the conclusion of each The POG metric measures th e ratio of state and local government own source revenues 2 to statewide Personal Income. MMB staff have descr legislative session. 1 No. 0005 transparency method and tool for ago. As a result, the use of the POG upport, including the endorsement of Minnesota’s business community, because it was seen as a simple, straightforward metric to track state and local government’s claim on Minnesotans’ income. Because it is seemingly so easy to u nderstand and interpret, the POG has inevitably served as an Minnesota’s Price of Government. Policymakers created the POG with broad-based political s evidence point in debates over budgets and acceptabl However, simple metrics can often mask underlying complexity, rendering interpretations of th e metric problematic in the process. This is especially true when major changes are taking place in the compone e levels of government taxation and spending. 3 nts of the metric, as has happened with communicating the total cost of state and local government to citizens.” with respect to both evaluating taxpayer cost of state and local government and providing time-series comparisons about the level of invest ment Minnesotans make in state and local government are severely compromised. Personal Income since the POG was developed two decades Specifically, two major trends have transformed Minnesota Trend #1 – Rapid Growth in Non-Money Income onomic Analysis (BEA) is an extremely broad measure. BEA economists designed it to capture the income associated with participating in “production activities” and with transfer payments (largely from the government). Minnesota’s Personal Income for calendar year (CY) 2011 (the most recent year as a Share of Total Minnesota Personal Income “Personal Income” as determined by the U.S. Bureau of Ec for net flow of income between Minnesota and other for which detailed information is available) was $238.2 mainly Social Security and Medicare – and an adjustment Personal Income for Minnesota, CY 2011 Component Amount ($000) $ billions % of Total Employee & Self-Employed Contributions to “Social Insurance” Table 1: Major Components of BEA Wages & Salaries 129.7 54.4% 16.3% Transfer Receipts 38.7 16.2% Proprietor Income 20.4 8.6% Dividends, Interest, & Rent 38.9 : Employers’ Pension and Insurance Contributions 20.2 8.5%  Total 238.2 100.0% Source: Bureau of Economic Analysis Annual State Personal Income and Employment, Table SA04. While “wages and salaries” is self-evident, some of the other components merit further description: (9.7) Programs; and Adjustment for Interstate Commuters  by assets, but not income from the sale of assets (this excludes capital gains). Dividends, interest, and rent : represent income generated 4 Transfer receipts for data. benefits, and income maintenance benefits. 1 See http://www.mmb.state.mn.us/supporting-documents-nov-12 for the most recent Price of Gove 4 payments, the value of Medicare and Medicaid rnment report, from the November Own source revenues: all state and local revenues less “intergover nmental revenues” – grants from one unit of government to an other, such as state Local Government Aid given to cities. 3 2012 Economic Forecast. 2 individuals – examples include Social Security Testimony before the Legislative Commission on Fiscal Policy, February 22, 2013 meeting. : these are mostly government benefit payments to 3 info@fiscalexcellence.org No. 0005 | April 2013  www.bea.gov All BEA personal income data in this publication are as of the September 25, 2012 update. See Proprietor income Employer pension and insurance contributions : basically, employers’ costs for fringe benefits, except for Social Security and Medicare.  The final portion represents employees’ and self-employed persons contributions to “social insurance programs” – : income generated by businesses for their owners.  states based on commuting patterns. Since more non-reside nts earn income in Minnesota than Minnesotans earn in ears ago, five major non-money components onal Income amount includes many items that an average Minnesotan would not think of as income that could be used to pay taxes. And the average Minnesotan would be right. Personal Income includes non-money benefits and “imputed” income Value of government sponsored medical benefits – the market value of selected transactions that don’t As these descriptions make clear, Minnesota’s $238 billion Pers taxes. Table 2 shows five major non-money income areas. Component Amount $ billions % of Total occur in the market economy and that cannot be used to pay Tables SA 04, SA 35, and SA 40 Table 2: Five Major Non-Money Components of BEA Personal Income for Minnesota, CY 2011 As the table indicates, in 2011 non-money income – essentially other states, the adjustment is negative. (mainly Medicare and Medicaid) 5 7.9 3.3% Imputed rent 6 16.8 4.8 Employers’ Pension and Insurance Contributions 20.2 8.5% Transfers to nonprofit institutions 0.7 0.3% 50.3 21.1% Note: Numbers may not add due to rounding. Source: Bureau of Economic Analysis 2.0% Annual State Personal Income and Employment; Total Imputed interest irrelevant to assessing the tax price of state and local (mainly Medicare and Medicaid) is a major departure from the earliest days of Minnesota’s Pr ice of Government. As Table 3 shows; in 1990, these five pieces of non-money income were a much smaller share – 15.5% – of total Minnesota Personal Income. Most significantly, the share of government sponsored medical benefits has nearly doubled over 20 years from 3.8% to 7.0% of state Personal cents of every dollar of Minnesota Personal Income. This Income. BEA Personal Income for Minnesota, CY 1990 Component Amount $ billions % of Total in the state’s Table 3: Major Non-Money Components of Value of government sponsored medical benefits government and evaluating its affordability – represented over 20 Imputed interest 3.3 3.8% Imputed rent 0.3 0.3% 3.8% Transfers to nonprofit institutions 0.2 0.2% Employers’ Pension and Insurance Contributions 6.3 7.3% 13.4 Note: Numbers may not add due to rounding. Source: Bureau of Economic Analysis Annual State Personal Income and Employment; Tables SA 04, SA 35 and SA 40. Total 3.3 15.5% 7.0% 5 This is the value of investment income earned on life insuran 6 This includes the value of things such as the rental value of owner-occupied housing, the value of farm products consumed at h ome by the producers, and pay-in-kind in the form of meals and lodging. 1 info@fiscalexcellence.org since its inception, the composition of Minn an explicit charge for doing so. No. 0005 Minnesota’s Troubled “Price of Government” Abstract Since the early 1990’s, the Minnesota Pri ce of Government has been calculated to measure and track state and local government | April 2013 without ’s claim on Minnesota income. However, interpretation of the Price of Government of Minnesota Personal Income – that taxpayers cannot use to pay taxes or fees or remit in any way to finance government – were roughly 15% of the total. Today those non- money components are over 20% of the total, which represents a shift of approximately the POG – has changed dramatically. 20 y esota Personal Income – the denominator of $13 billion in Minnesota Personal Income from growth are government transfer payments – including the value of Medicare and Medi caid benefits – which have grown over 2.5 times faster than wages and salaries over the past decade. These findings have major ramifications for the money to non-money income. Moreover, the fastest growing sources of Personal Income metric and its use in public policy debat understates state and local government’s cl ss the affordability of government or set a “price target” come measure used in the state’s Tax Incidence Study. Income with some measure of money income. Moreover, trends in the composition of higher when substituting the household in significantly compromise its common use as a benchmark a sustainable “level” of spending. If policymakers want to maintain a POG- type measure, the state should modify the cu rrent metric by repl Personal Income and demographic trends ce and the value of services that depository institutions provide measure to evaluate affordability or aim on money income – which is 20%-35% acing Minnesota Personal Even with this adaptation, we encourage for government because some of the major demographic factors and trends affecting income will continue for the indefinite future. 2 info@fiscalexcellence.org No. 0005 | caution in using the POG to asse April 2013 For nearly twenty years, the state’s Department of Manage ment and Budget (MMB) has prepared a Price of Government (POG) report to accompany the November and February economic forecasts and following the conclusion of each legislative session. 1 The POG metric measures th Introduction es. Including Personal Income in the POG come measure used 2 Personal Income. MMB staff have descr Component communicating the total cost of state and local government to citizens.” 3 Policymakers created the POG with broad-based political s upport, including the endorsement of Minnesota’s business e metric problematic in the community, because it was seen as a simple, straightforward transparency method and tool for Minnesotans’ income. Because it is seemingly so easy to u evidence point in debates over budgets and acceptabl e levels of government taxation and spending. However, simple metrics can often mask underlying complexity, metric to track state and local government’s claim on sale of nderstand and interpret, the POG has inevitably served as an participating in “production activities” and with transfer ibed the POG as “the state’s main process. This is especially true when Specifically, two major trends have transformed Minnesota Personal Income since the POG was developed two decades ago. As a result, the use of the POG with respect to both evaluating taxpayer major changes are taking place in the compone cost of state and local government and rendering interpretations of th ment Minnesotans make in state and local government are Trend #1 – Rapid Growth in Non-Money Income as a Share of Total Minnesota Personal Income “Personal Income” as determined by the U.S. Bureau of Ec onomic Analysis (BEA) is an extremely broad measure. BEA providing time-series comparisons about the level of invest economists designed it to capture the income associated with severely compromised. Minnesota’s Price of Government. Minnesota’s Personal Income for calendar year (CY) 2011 (the most recent year Employee & Self-Employed Contributions to “Social Insurance” 4 : Table 1: Major Components of BEA Personal Income for Minnesota, CY 2011 Proprietor Income Component billion, which can be broken into the following pieces $ billions Wages & Salaries 129.7 54.4% Dividends, Interest, & Rent 38.9 16.3% Amount ($000) 21.1% % of Total Employers’ Pension and Insurance Contributions 20.2 8.5% for which detailed information is available) was $238.2 20.4 Programs; and Adjustment for Interstate Commuters (9.7) (4.1%) Total 238.2 100.0% 8.6% Source: Bureau of Economic Analysis Transfer Receipts 38.7 16.2% While “wages and salaries” is self-evident, some  Dividends, interest, and rent : represent income generated by Annual State Personal Income and Employment, Table SA04. payments (largely from the government). of the other components merit further description: Note: Numbers may not add due to rounding. nts of the metric, as has happened with assets (this : these are mostly government benefit payments to individuals – examples include Social Security payments, the value of Medicare and Medicaid benefits, and income maintenance benefits. other, 1 Transfer receipts http://www.mmb.state.mn.us/supporting-documents-nov-12 rnment report, from the November 2012 Economic Forecast. 2 Own source revenues: all state and local revenues less “intergover See excludes capital gains). for the most recent Price of Gove Security and Medicare.  such as state Local Government Aid given to cities. All BEA personal income data in this publication are as of the September 25, 2012 update. See www.bea.gov for data. 3 info@fiscalexcellence.org 3 No. 0005 nmental revenues” – grants from one unit of government to an April 2013 Proprietor income : income generated by businesses for their owners.  Employer pension and insurance contributions | : basically, employers’ costs for fringe benefits, except for Social  assets, but not income from the The final portion represents employees’ and self-employed persons contributions to “social insurance programs” – Value of government sponsored medical benefits states based on commuting patterns. Since more non-reside nts earn income in Minnesota than Minnesotans earn in other states, the adjustment is negative. As these descriptions make clear, Minnesota’s $238 billion Pers Amount onal Income amount includes many items that an average for net flow of income between Minnesota and other to pay taxes. And the average Minnesotan would be right. – the market value of selected transactions that don’t occur in the market economy and that cannot be used to pay taxes. Table 2 shows five major non-money income areas. Table 2: Five Major Non-Money Components of BEA Personal Income for Minnesota, CY 2011 Minnesotan would not think of as income that could be used 50.3 Personal Income includes non-money benefits and “imputed” income Employers’ Pension and Insurance Contributions 20.2 8.5% mainly Social Security and Medicare – and an adjustment $ billions (mainly Medicare and Medicaid) 16.8 7.0% Imputed interest % of Total 5 Component Imputed rent 4.8 2.0% Transfers to nonprofit institutions 0.7 0.3% Total 7.9 3.3%  6 Source: Bureau of Economic Analysis acing Minnesota Personal Income with some measure of money income. irrelevant to assessing the tax price of state and local government and evaluating its affordability – represented over 20 cents of every dollar of Minnesota Personal Income. This Component is a major departure from the earliest days of Minnesota’s Pr pieces of non-money income were a much smaller share – 15.5% As the table indicates, in 2011 non-money income – essentially – of total Minnesota Personal Income. Most significantly, doubled over 20 years from 3.8% to 7.0% of state Personal Income. Table 3: Major Non-Money Components of ice of Government. As Table 3 shows; in 1990, these five Note: Numbers may not add due to rounding. Source: Bureau of Economic Analysis the share of government sponsored medical benefits has nearly Annual State Personal Income and Employment; Tables SA 04, SA 35, and SA 40 BEA Personal Income for Minnesota, CY 1990 3.3 3.8% Value of government sponsored medical benefits $ billions (mainly Medicare and Medicaid) Imputed rent Annual State Personal Income and Employment; 0.3 Transfers to nonprofit institutions 0.2 0.2% Total 13.4 3.3 3.8% 15.5% Amount 0.3% Imputed interest ’s claim on Minnesota income. However, esota Personal Income – the denominator of ce and the value of services that depository institutions provide without an explicit charge for doing so. 6 This includes the value of things such as the rental value of owner-occupied housing, the value of farm products consumed at h ome by This is the value of investment income earned on life insuran the producers, and pay-in-kind in the form of meals and lodging. No. 0005 | April 2013 Minnesota’s Troubled “Price of Government” as a Share of Total Minnesota Personal Income No. 0005 1 info@fiscalexcellence.org since its inception, the composition of Minn 5 Abstract the POG – has changed dramatically. 20 y ears ago, five major non-money components of Minnesota Personal Income – that taxpayers measure and track state and local government cannot use to pay taxes or fees or remit in money components are over 20% of the total, Tables SA 04, SA 35 and SA 40. which represents a shift of approximately money to non-money income. Moreover, the fastest growing sources of Personal Income growth are government transfer payments any way to finance government – were roughly 15% of the total. Today those non- ce of Government has been calculated to Since the early 1990’s, the Minnesota Pri $13 billion in Minnesota Personal Income from Employers’ Pension and Insurance Contributions 6.3 7.3% % of Total – including the value of Medicare and Medi es. Including Personal Income in the POG understates state and local government’s cl aim on money income – which is 20%-35% higher when substituting the household in If policymakers want to maintain a POG- come measure used metric and its use in public policy debat Tax Incidence Moreover, trends in the composition of Personal Income and demographic trends significantly compromise its common use as a measure to evaluate affordability or in the state’s These findings have major ramifications for the Study. legislative session. interpretation of the Price of Government type measure, the state should modify the cu Even with this adaptation, we encourage caution in using the POG to asse ss the affordability of government or set a “price target” for government because some of the major demographic factors and trends affecting rrent metric by repl income will continue for the indefinite future. benchmark a sustainable “level” of spending. No. 0005 April 2013 Introduction For nearly twenty years, the state’s Department of Manage ment and Budget (MMB) has prepared a Price of Government 2 info@fiscalexcellence.org (POG) report to accompany the November and February economic forecasts and following the conclusion of each | The POG metric measures th rendering interpretations of th e metric problematic in the Personal Income. MMB staff have descr ibed the POG as “the state’s main transparency method and tool for e levels of government communicating the total cost of state and local government to citizens.” Policymakers created the POG with broad-based political s to statewide upport, including the endorsement of Minnesota’s business metric to track state and local government’s claim on Minnesotans’ income. Because it is seemingly so easy to u nderstand and interpret, the POG has inevitably served as an 3 times faster than wages and salaries over the past decade. caid benefits – which have grown over 2.5 community, because it was seen as a simple, straightforward 2 e ratio of state and local government own source revenues evidence point in debates over budgets and acceptabl process. This is especially true when major changes are taking place in the compone nts of the metric, as has happened with Minnesota’s Price of Government. However, simple metrics can often mask underlying complexity, Specifically, two major trends have transformed Minnesota ago. As a result, the use of the POG with respect to both evaluating taxpayer cost of state and local government and providing time-series comparisons about the level of invest ment Minnesotans make in state and local government are severely compromised. Personal Income since the POG was developed two decades 1 taxation and spending. 4 Testimony before the Legislative Commission on Fiscal Policy, February 22, 2013 meeting. Trend #1 – Rapid Growth in Non-Money Income “Personal Income” as determined by the U.S. Bureau of Ec payments (largely from the government). Minnesota’s Personal Income for calendar year (CY) 2011 (the most recent year for which detailed information is available) was $238.2 billion, which can be broken into the following pieces Dividends, Interest, & Rent 4 participating in “production activities” and with transfer Table 1: Major Components of BEA Component Amount ($000) $ billions % of Total : : income generated by businesses for their owners. Personal Income for Minnesota, CY 2011 Dividends, interest, and rent economists designed it to capture the income associated with 38.9 20.4 8.6% Employers’ Pension and Insurance Contributions 20.2 8.5% Employee & Self-Employed Contributions to “Social Insurance” 16.3% Programs; and Adjustment for Interstate Commuters Wages & Salaries 129.7 54.4% (4.1%) Source: Bureau of Economic Analysis Annual State Personal Income and Employment, Table SA04. While “wages and salaries” is self-evident, some of the other components merit further description: (9.7)  Total 238.2 100.0% Proprietor Income by other, assets (this excludes capital gains).  Transfer receipts 2012 Economic Forecast. : these are mostly government benefit payments to sale of payments, the value of Medicare and Medicaid 1 See http://www.mmb.state.mn.us/supporting-documents-nov-12 for the most recent Price of Gove individuals – examples include Social Security Transfers to nonprofit institutions 0.2 0.2% benefits, and income maintenance benefits. nmental revenues” – grants from one unit of government to an assets, but not income from the 2 such as state Local Government Aid given to cities. 3 Testimony before the Legislative Commission on Fiscal Policy, February 22, 2013 meeting. 4 Own source revenues: all state and local revenues less “intergover All BEA personal income data in this publication are as of the September 25, 2012 update. See rnment report, from the November for data. No. 0005 | April 2013  www.bea.gov : represent income generated 3 info@fiscalexcellence.org Transfer Receipts 38.7 16.2% Proprietor income  Security and Medicare.  The final portion represents employees’ and self-employed persons contributions to “social insurance programs” – mainly Social Security and Medicare – and an adjustment for net flow of income between Minnesota and other occur in the market economy and that cannot be used to pay : basically, employers’ costs for fringe benefits, except for Social states based on commuting patterns. Since more non-reside As these descriptions make clear, Minnesota’s $238 billion Pers onal Income amount includes many items that an average Minnesotan would not think of as income that could be used to pay taxes. And the average Minnesotan would be right. Personal Income includes non-money benefits and “imputed” income nts earn income in Minnesota than Minnesotans earn in other states, the adjustment is negative. Employer pension and insurance contributions – the market value of selected transactions that don’t 4.8 Amount $ billions % of Total Employers’ Pension and Insurance Contributions 20.2 8.5% Value of government sponsored medical benefits Table 2: Five Major Non-Money Components of BEA Personal Income for Minnesota, CY 2011 taxes. Table 2 shows five major non-money income areas. (mainly Medicare and Medicaid) Imputed interest 5 7.9 3.3% Imputed rent 6 16.8 7.0% 2.0% Total BEA Personal Income for Minnesota, CY 1990 Note: Numbers may not add due to rounding. Source: Bureau of Economic Analysis Annual State Personal Income and Employment; Tables SA 04, SA 35, and SA 40 doubled over 20 years from 3.8% to 7.0% of state Personal As the table indicates, in 2011 non-money income – essentially 21.1% government and evaluating its affordability – represented over 20 is a major departure from the earliest days of Minnesota’s Pr ice of Government. As Table 3 shows; in 1990, these five pieces of non-money income were a much smaller share – 15.5% – of total Minnesota Personal Income. Most significantly, irrelevant to assessing the tax price of state and local 0.3% cents of every dollar of Minnesota Personal Income. This 50.3 the share of government sponsored medical benefits has nearly Income. Component Amount $ billions % of Total Employers’ Pension and Insurance Contributions 6.3 7.3% Table 3: Major Non-Money Components of Imputed interest 3.8% Value of government sponsored medical benefits (mainly Medicare and Medicaid) 3.3 3.8% Imputed rent 0.3 3.3 Transfers to nonprofit institutions 0.7 0.3% Total (4.1%) 13.4 e levels of government Annual State Personal Income and Employment; Tables SA 04, SA 35 and SA 40. 5 No. 0005 This is the value of investment income earned on life insuran without Source: Bureau of Economic Analysis an explicit charge for doing so. This includes the value of things such as the rental value of owner-occupied housing, the value of farm products consumed at h ome by the producers, and pay-in-kind in the form of meals and lodging. ce and the value of services that depository institutions provide $13 billion in Minnesota Personal Income from money to non-money income. Moreover, 6 the fastest growing sources of Personal Income Note: Numbers may not add due to rounding. 1 info@fiscalexcellence.org ce of Government has been calculated to measure and track state and local government ’s claim on Minnesota income. However, April 2013 since its inception, the composition of Minn the POG – has changed dramatically. 20 y 15.5% ears ago, five major non-money components cannot use to pay taxes or fees or remit in any way to finance government – were roughly 15% of the total. Today those non- money components are over 20% of the total, esota Personal Income – the denominator of which represents a shift of approximately | of Minnesota Personal Income – that taxpayers Since the early 1990’s, the Minnesota Pri benchmark a sustainable “level” of spending. type measure, the state should modify the cu times faster than wages and salaries over the past decade. These findings have major ramifications for the interpretation of the Price of Government metric and its use in public policy debat es. Including Personal Income in the POG understates state and local government’s cl caid benefits – which have grown over 2.5 aim on money income – which is 20%-35% come measure used in the state’s Tax Incidence Study. onomic Analysis (BEA) is an extremely broad measure. BEA to statewide higher when substituting the household in If policymakers want to maintain a POG- – including the value of Medicare and Medi Moreover, trends in the composition of rrent metric by repl acing Minnesota Personal Income with some measure of money income. measure to evaluate affordability or Even with this adaptation, we encourage ss the affordability of government or set a “price target” growth are government transfer payments for government because some of the major demographic factors and trends affecting 2 info@fiscalexcellence.org No. 0005 | caution in using the POG to asse significantly compromise its common use as a Personal Income and demographic trends income will continue for the indefinite future. Abstract Minnesota’s Troubled “Price of Government” April 2013 1 The POG metric measures th e ratio of state and local government own source revenues 2 metric to track state and local government’s claim on to statewide legislative session. ibed the POG as “the state’s main communicating the total cost of state and local government to citizens.” 3 Policymakers created the POG with broad-based political s upport, including the endorsement of Minnesota’s business Personal Income. MMB staff have descr ment and Budget (MMB) has prepared a Price of Government transparency method and tool for providing time-series comparisons about the level of invest (POG) report to accompany the November and February economic forecasts and following the conclusion of each Minnesotans’ income. Because it is seemingly so easy to u taxation and spending. However, simple metrics can often mask underlying complexity, rendering interpretations of th e metric problematic in the nderstand and interpret, the POG has inevitably served as an process. This is especially true when community, because it was seen as a simple, straightforward nts of the metric, as has happened with Specifically, two major trends have transformed Minnesota Personal Income since the POG was developed two decades ago. As a result, the use of the POG with respect to both evaluating taxpayer major changes are taking place in the compone cost of state and local government and Minnesota’s Price of Government. severely compromised. Wages & Salaries 129.7 54.4% Dividends, Interest, & Rent onomic Analysis (BEA) is an extremely broad measure. BEA economists designed it to capture the income associated with participating in “production activities” and with transfer Amount ($000) payments (largely from the government). for which detailed information is available) was $238.2 “Personal Income” as determined by the U.S. Bureau of Ec billion, which can be broken into the following pieces : Table 1: Major Components of BEA Personal Income for Minnesota, CY 2011 Minnesota’s Personal Income for calendar year (CY) 2011 (the most recent year For nearly twenty years, the state’s Department of Manage Introduction 4 as a Share of Total Minnesota Personal Income Trend #1 – Rapid Growth in Non-Money Income Component 38.9 16.3% Transfer Receipts 38.7 16.2% Proprietor Income % of Total 20.4 Employers’ Pension and Insurance Contributions 20.2 8.5% Employee & Self-Employed Contributions to “Social Insurance” Programs; and Adjustment for Interstate Commuters (9.7) (4.1%) Total 238.2 100.0% 8.6% ment Minnesotans make in state and local government are $ billions evidence point in debates over budgets and acceptabl While “wages and salaries” is self-evident, some e ratio of state and local government own source revenues Employers’ Pension and Insurance Contributions 20.2 8.5% Dividends, interest, and rent : represent income generated by assets, but not income from the sale of See  assets (this Transfer receipts : these are mostly government benefit payments to individuals – examples include Social Security payments, the value of Medicare and Medicaid benefits, and income maintenance benefits. excludes capital gains).  7.9 3.3% 1 No. 0005 2012 Economic Forecast. 2 Own source revenues: all state and local revenues less “intergover nmental revenues” – grants from one unit of government to an other, for the most recent Price of Gove http://www.mmb.state.mn.us/supporting-documents-nov-12 such as state Local Government Aid given to cities. 4 All BEA personal income data in this publication are as of the September 25, 2012 update. See www.bea.gov for data. 3 info@fiscalexcellence.org 3 Testimony before the Legislative Commission on Fiscal Policy, February 22, 2013 meeting. rnment report, from the November | – the market value of selected transactions that don’t : income generated by businesses for their owners.  Employer pension and insurance contributions : basically, employers’ costs for fringe benefits, except for Social Security and Medicare. Minnesotan would not think of as income that could be used Proprietor income  for net flow of income between Minnesota and other states based on commuting patterns. Since more non-reside nts earn income in Minnesota than Minnesotans earn in other states, the adjustment is negative. As these descriptions make clear, Minnesota’s $238 billion Pers The final portion represents employees’ and self-employed persons contributions to “social insurance programs” – mainly Social Security and Medicare – and an adjustment  onal Income amount includes many items that an average April 2013 occur in the market economy and that cannot be used to pay taxes. Table 2 shows five major non-money income areas. Table 2: Five Major Non-Money Components of BEA Personal Income for Minnesota, CY 2011 Component Amount Personal Income includes non-money benefits and “imputed” income to pay taxes. And the average Minnesotan would be right. $ billions Value of government sponsored medical benefits (mainly Medicare and Medicaid) 16.8 7.0% Imputed interest % of Total Employers’ Pension and Insurance Contributions 20.2 8.5% cannot use to pay taxes or fees or remit in 5 of Minnesota Personal Income – that taxpayers 2.0% Transfers to nonprofit institutions 0.7 0.3% Total 50.3 21.1% ice of Government. As Table 3 shows; in 1990, these five 4.8 Note: Numbers may not add due to rounding. Tables SA 04, SA 35, and SA 40 As the table indicates, in 2011 non-money income – essentially irrelevant to assessing the tax price of state and local government and evaluating its affordability – represented over 20 cents of every dollar of Minnesota Personal Income. This Source: Bureau of Economic Analysis Annual State Personal Income and Employment; 6 is a major departure from the earliest days of Minnesota’s Pr (mainly Medicare and Medicaid) doubled over 20 years from 3.8% to 7.0% of state Personal Income. Table 3: Major Non-Money Components of BEA Personal Income for Minnesota, CY 1990 Component – of total Minnesota Personal Income. Most significantly, pieces of non-money income were a much smaller share – 15.5% Amount Employers’ Pension and Insurance Contributions 6.3 7.3% Imputed interest 3.3 3.8% Value of government sponsored medical benefits $ billions % of Total Imputed rent 3.3 3.8% 1 info@fiscalexcellence.org Transfers to nonprofit institutions 0.2 0.2% Total 13.4 15.5% Note: Numbers may not add due to rounding. This includes the value of things such as the rental value of owner-occupied housing, the value of farm products consumed at h 0.3% Source: Bureau of Economic Analysis 5 This is the value of investment income earned on life insuran ce and the value of services that depository institutions provide without an explicit charge for doing so. Annual State Personal Income and Employment; Tables SA 04, SA 35 and SA 40. 0.3 6 Imputed rent No. 0005 | April 2013 Minnesota’s Troubled “Price of Government” Abstract the producers, and pay-in-kind in the form of meals and lodging. ome by Since the early 1990’s, the Minnesota Pri ’s claim on Minnesota income. However, since its inception, the composition of Minn esota Personal Income – the denominator of the POG – has changed dramatically. 20 y ears ago, five major non-money components ce of Government has been calculated to measure and track state and local government any way to finance government – were roughly 15% of the total. Today those non- money components are over 20% of the total, Component money to non-money income. Moreover, the fastest growing sources of Personal Income growth are government transfer payments – including the value of Medicare and Medi come measure used caid benefits – which have grown over 2.5 $13 billion in Minnesota Personal Income from These findings have major ramifications for the metric and its use in public policy debat es. Including Personal Income in the POG understates state and local government’s cl aim on money income – which is 20%-35% times faster than wages and salaries over the past decade. income will continue for the indefinite future. interpretation of the Price of Government 2 info@fiscalexcellence.org which represents a shift of approximately in the state’s Personal Income and demographic trends significantly compromise its common use as a measure to evaluate affordability or benchmark a sustainable “level” of spending. Tax Incidence If policymakers want to maintain a POG- higher when substituting the household in rrent metric by repl Income with some measure of money income. Even with this adaptation, we encourage caution in using the POG to asse ss the affordability of government or set a “price target” type measure, the state should modify the cu for government because some of the major demographic factors and trends affecting acing Minnesota Personal Moreover, trends in the composition of No. 0005 metric to track state and local government’s claim on Introduction For nearly twenty years, the state’s Department of Manage ment and Budget (MMB) has prepared a Price of Government (POG) report to accompany the November and February economic forecasts and following the conclusion of each legislative session. 1 April 2013 The POG metric measures th 2 to statewide Personal Income. MMB staff have descr ibed the POG as “the state’s main transparency method and tool for www.bea.gov e ratio of state and local government own source revenues community, because it was seen as a simple, straightforward | 3 Minnesotans’ income. Because it is seemingly so easy to u nderstand and interpret, the POG has inevitably served as an evidence point in debates over budgets and acceptabl e levels of government upport, including the endorsement of Minnesota’s business taxation and spending. communicating the total cost of state and local government to citizens.” rendering interpretations of th process. This is especially true when major changes are taking place in the compone nts of the metric, as has happened with Minnesota’s Price of Government. However, simple metrics can often mask underlying complexity, Policymakers created the POG with broad-based political s e metric problematic in the Study. Specifically, two major trends have transformed Minnesota Personal Income since the POG was developed two decades providing time-series comparisons about the level of invest ment Minnesotans make in state and local government are severely compromised. Trend #1 – Rapid Growth in Non-Money Income as a Share of Total Minnesota Personal Income : cost of state and local government and “Personal Income” as determined by the U.S. Bureau of Ec participating in “production activities” and with transfer payments (largely from the government). Minnesota’s Personal Income for calendar year (CY) 2011 (the most recent year for which detailed information is available) was $238.2 billion, which can be broken into the following pieces onomic Analysis (BEA) is an extremely broad measure. BEA economists designed it to capture the income associated with with respect to both evaluating taxpayer 4 Programs; and Adjustment for Interstate Commuters Amount ($000) $ billions % of Total Wages & Salaries 129.7 54.4% Dividends, Interest, & Rent Personal Income for Minnesota, CY 2011 Table 1: Major Components of BEA 38.9 Proprietor Income 20.4 8.6% Employers’ Pension and Insurance Contributions 20.2 8.5% Employee & Self-Employed Contributions to “Social Insurance” 16.3% Transfer Receipts 38.7 16.2% (9.7) Total 238.2 100.0% 1 While “wages and salaries” is self-evident, some of the other components merit further description:  Dividends, interest, and rent individuals – examples include Social Security : represent income generated Annual State Personal Income and Employment, Table SA04. assets, but not income from the assets (this excludes capital gains).  Transfer receipts by ago. As a result, the use of the POG sale of Source: Bureau of Economic Analysis : these are mostly government benefit payments to payments, the value of Medicare and Medicaid See http://www.mmb.state.mn.us/supporting-documents-nov-12 for the most recent Price of Gove rnment report, from the November 2012 Economic Forecast. benefits, and income maintenance benefits. 2 nmental revenues” – grants from one unit of government to an other, such as state Local Government Aid given to cities. 3 Testimony before the Legislative Commission on Fiscal Policy, February 22, 2013 meeting. 4 Own source revenues: all state and local revenues less “intergover (4.1%) the share of government sponsored medical benefits has nearly % of Total All BEA personal income data in this publication are as of the September 25, 2012 update. See $ billions | April 2013  Proprietor income : income generated by businesses for their owners. nts earn income in Minnesota than Minnesotans earn in No. 0005  Security and Medicare.  The final portion represents employees’ and self-employed persons contributions to “social insurance programs” – mainly Social Security and Medicare – and an adjustment for net flow of income between Minnesota and other Employer pension and insurance contributions : basically, employers’ costs for fringe benefits, except for Social 3.3 states based on commuting patterns. Since more non-reside (mainly Medicare and Medicaid) Minnesotan would not think of as income that could be used to pay taxes. And the average Minnesotan would be right. Personal Income includes non-money benefits and “imputed” income – the market value of selected transactions that don’t occur in the market economy and that cannot be used to pay As these descriptions make clear, Minnesota’s $238 billion Pers other states, the adjustment is negative. taxes. Table 2 shows five major non-money income areas. Amount $ billions % of Total Employers’ Pension and Insurance Contributions 20.2 8.5% Value of government sponsored medical benefits Table 2: Five Major Non-Money Components of BEA Personal Income for Minnesota, CY 2011 Component onal Income amount includes many items that an average 16.8 is a major departure from the earliest days of Minnesota’s Pr 7.9 3.3% Imputed rent 6 4.8 2.0% irrelevant to assessing the tax price of state and local 5 Transfers to nonprofit institutions 0.7 0.3% 21.1% Note: Numbers may not add due to rounding. Source: Bureau of Economic Analysis Annual State Personal Income and Employment; Tables SA 04, SA 35, and SA 40 Total 50.3 Imputed interest As the table indicates, in 2011 non-money income – essentially 7.0% ice of Government. As Table 3 shows; in 1990, these five pieces of non-money income were a much smaller share – 15.5% – of total Minnesota Personal Income. Most significantly, the share of government sponsored medical benefits has nearly doubled over 20 years from 3.8% to 7.0% of state Personal cents of every dollar of Minnesota Personal Income. This government and evaluating its affordability – represented over 20 Income. Component Amount $ billions % of Total Employers’ Pension and Insurance Contributions 6.3 7.3% Table 3: Major Non-Money Components of BEA Personal Income for Minnesota, CY 1990 Even with this adaptation, we encourage Imputed interest Income with some measure of money income. 3.3 3.8% Imputed rent 0.3 0.3% Transfers to nonprofit institutions 0.2 0.2% ce and the value of services that depository institutions provide (mainly Medicare and Medicaid) Total Note: Numbers may not add due to rounding. Source: Bureau of Economic Analysis Annual State Personal Income and Employment; Tables SA 04, SA 35 and SA 40. 5 13.4 15.5% Value of government sponsored medical benefits This is the value of investment income earned on life insuran since its inception, the composition of Minn This includes the value of things such as the rental value of owner-occupied housing, the value of farm products consumed at h ome by the producers, and pay-in-kind in the form of meals and lodging. 1 info@fiscalexcellence.org No. 0005 an explicit charge for doing so. without | Abstract Since the early 1990’s, the Minnesota Pri ce of Government has been calculated to measure and track state and local government ’s claim on Minnesota income. However, April 2013 Minnesota’s Troubled “Price of Government” 3.8% esota Personal Income – the denominator of higher when substituting the household in cannot use to pay taxes or fees or remit in any way to finance government – were roughly 15% of the total. Today those non- money components are over 20% of the total, which represents a shift of approximately $13 billion in Minnesota Personal Income from es. Including Personal Income in the POG of Minnesota Personal Income – that taxpayers money to non-money income. Moreover, – including the value of Medicare and Medi caid benefits – which have grown over 2.5 times faster than wages and salaries over the past decade. These findings have major ramifications for the interpretation of the Price of Government the fastest growing sources of Personal Income growth are government transfer payments ears ago, five major non-money components metric and its use in public policy debat the POG – has changed dramatically. 20 y come measure used in the state’s Tax Incidence Study. Moreover, trends in the composition of aim on money income – which is 20%-35% understates state and local government’s cl Personal Income and demographic trends benchmark a sustainable “level” of spending. If policymakers want to maintain a POG- type measure, the state should modify the cu rrent metric by repl acing Minnesota Personal significantly compromise its common use as a measure to evaluate affordability or caution in using the POG to asse ss the affordability of government or set a “price target” : these are mostly government benefit payments to 2 info@fiscalexcellence.org No. 0005 | April 2013 to statewide Introduction income will continue for the indefinite future. ment and Budget (MMB) has prepared a Price of Government legislative session. 1 The POG metric measures th e ratio of state and local government own source revenues For nearly twenty years, the state’s Department of Manage process. This is especially true when (POG) report to accompany the November and February economic forecasts and following the conclusion of each major changes are taking place in the compone for government because some of the major demographic factors and trends affecting Personal Income. MMB staff have descr 3 Policymakers created the POG with broad-based political s upport, including the endorsement of Minnesota’s business community, because it was seen as a simple, straightforward ibed the POG as “the state’s main metric to track state and local government’s claim on 2 nderstand and interpret, the POG has inevitably served as an e levels of government taxation and spending. However, simple metrics can often mask underlying complexity, rendering interpretations of th Minnesotans’ income. Because it is seemingly so easy to u e metric problematic in the evidence point in debates over budgets and acceptabl communicating the total cost of state and local government to citizens.” nts of the metric, as has happened with : Personal Income since the POG was developed two decades ago. As a result, the use of the POG with respect to both evaluating taxpayer cost of state and local government and providing time-series comparisons about the level of invest ment Minnesotans make in state and local government are Specifically, two major trends have transformed Minnesota severely compromised. as a Share of Total Minnesota Personal Income “Personal Income” as determined by the U.S. Bureau of Ec onomic Analysis (BEA) is an extremely broad measure. BEA economists designed it to capture the income associated with participating in “production activities” and with transfer 3 info@fiscalexcellence.org Trend #1 – Rapid Growth in Non-Money Income 4 Minnesota’s Price of Government. Minnesota’s Personal Income for calendar year (CY) 2011 (the most recent year Table 1: Major Components of BEA Personal Income for Minnesota, CY 2011 Component Amount ($000) billion, which can be broken into the following pieces $ billions payments (largely from the government). Wages & Salaries 129.7 54.4% 38.9 16.3% Transfer Receipts 38.7 16.2% Proprietor Income % of Total for which detailed information is available) was $238.2 Dividends, Interest, & Rent transparency method and tool for 20.4 8.6% (9.7) (4.1%) Total 238.2 100.0% Source: Bureau of Economic Analysis Annual State Personal Income and Employment, Table SA04. excludes capital gains). Programs; and Adjustment for Interstate Commuters While “wages and salaries” is self-evident, some Dividends, interest, and rent : represent income generated by assets, but not income from the sale of of the other components merit further description:  Employee & Self-Employed Contributions to “Social Insurance” assets (this such as state Local Government Aid given to cities. individuals – examples include Social Security payments, the value of Medicare and Medicaid benefits, and income maintenance benefits. 1 See Transfer receipts  http://www.mmb.state.mn.us/supporting-documents-nov-12 2012 Economic Forecast. 2 Own source revenues: all state and local revenues less “intergover nmental revenues” – grants from one unit of government to an other, for the most recent Price of Gove rnment report, from the November 3 4 states based on commuting patterns. Since more non-reside for data. 3 info@fiscalexcellence.org No. 0005 | The final portion represents employees’ and self-employed persons contributions to “social insurance programs” – April 2013 www.bea.gov Proprietor income  Employer pension and insurance contributions : basically, employers’ costs for fringe benefits, except for Social Security and Medicare.  Employers’ Pension and Insurance Contributions 20.2 8.5% : income generated by businesses for their owners. All BEA personal income data in this publication are as of the September 25, 2012 update. See  mainly Social Security and Medicare – and an adjustment nts earn income in Minnesota than Minnesotans earn in other states, the adjustment is negative. As these descriptions make clear, Minnesota’s $238 billion Pers onal Income amount includes many items that an average Minnesotan would not think of as income that could be used for net flow of income between Minnesota and other to pay taxes. And the average Minnesotan would be right. – the market value of selected transactions that don’t occur in the market economy and that cannot be used to pay taxes. Table 2 shows five major non-money income areas. Table 2: Five Major Non-Money Components of BEA Personal Income for Minnesota, CY 2011 Component Amount Personal Income includes non-money benefits and “imputed” income Testimony before the Legislative Commission on Fiscal Policy, February 22, 2013 meeting. for data. Annual State Personal Income and Employment, Table SA04. Value of government sponsored medical benefits The POG metric measures th 7.0% Imputed interest 5 7.9 3.3% Source: Bureau of Economic Analysis Imputed rent 16.8 4.8 Transfers to nonprofit institutions 0.7 0.3% Total 50.3 21.1% 6 $ billions 2.0% % of Total (mainly Medicare and Medicaid) Annual State Personal Income and Employment; government and evaluating its affordability – represented over 20 cents of every dollar of Minnesota Personal Income. This is a major departure from the earliest days of Minnesota’s Pr ice of Government. As Table 3 shows; in 1990, these five Tables SA 04, SA 35, and SA 40 pieces of non-money income were a much smaller share – 15.5% Note: Numbers may not add due to rounding. the share of government sponsored medical benefits has nearly Income. Table 3: Major Non-Money Components of BEA Personal Income for Minnesota, CY 1990 Component – of total Minnesota Personal Income. Most significantly, Amount doubled over 20 years from 3.8% to 7.0% of state Personal irrelevant to assessing the tax price of state and local Employers’ Pension and Insurance Contributions 6.3 7.3% without 3.8% Value of government sponsored medical benefits (mainly Medicare and Medicaid) 3.3 3.8% Imputed rent 0.3 3.3 0.3% Total 13.4 15.5% Note: Numbers may not add due to rounding. Source: Bureau of Economic Analysis taxation and spending. Transfers to nonprofit institutions 0.2 0.2% ce and the value of services that depository institutions provide Imputed interest Tables SA 04, SA 35 and SA 40. an explicit charge for doing so. 6 This includes the value of things such as the rental value of owner-occupied housing, the value of farm products consumed at h ome by This is the value of investment income earned on life insuran the producers, and pay-in-kind in the form of meals and lodging. Annual State Personal Income and Employment; No. 0005 April 2013 Minnesota’s Troubled “Price of Government” Abstract Since the early 1990’s, the Minnesota Pri 1 info@fiscalexcellence.org 5 | of the other components merit further description: As the table indicates, in 2011 non-money income – essentially measure and track state and local government ears ago, five major non-money components of Minnesota Personal Income – that taxpayers cannot use to pay taxes or fees or remit in any way to finance government – were roughly 15% of the total. Today those non- These findings have major ramifications for the money components are over 20% of the total, the POG – has changed dramatically. 20 y $13 billion in Minnesota Personal Income from the fastest growing sources of Personal Income growth are government transfer payments – including the value of Medicare and Medi caid benefits – which have grown over 2.5 which represents a shift of approximately since its inception, the composition of Minn money to non-money income. Moreover, rrent metric by repl esota Personal Income – the denominator of interpretation of the Price of Government aim on money income – which is 20%-35% higher when substituting the household in come measure used in the state’s metric and its use in public policy debat Tax Incidence times faster than wages and salaries over the past decade. Moreover, trends in the composition of significantly compromise its common use as a measure to evaluate affordability or benchmark a sustainable “level” of spending. If policymakers want to maintain a POG- Study. type measure, the state should modify the cu Personal Income and demographic trends ce of Government has been calculated to Income with some measure of money income. Personal Income. MMB staff have descr ss the affordability of government or set a “price target” for government because some of the major demographic factors and trends affecting income will continue for the indefinite future. 2 info@fiscalexcellence.org The POG metric measures th No. 0005 caution in using the POG to asse April 2013 For nearly twenty years, the state’s Department of Manage ment and Budget (MMB) has prepared a Price of Government (POG) report to accompany the November and February economic forecasts and following the conclusion of each legislative session. | ’s claim on Minnesota income. However, Introduction to statewide Even with this adaptation, we encourage e ratio of state and local government own source revenues ibed the POG as “the state’s main transparency method and tool for communicating the total cost of state and local government to citizens.” 3 2 Policymakers created the POG with broad-based political s 1 community, because it was seen as a simple, straightforward Minnesotans’ income. Because it is seemingly so easy to u nderstand and interpret, the POG has inevitably served as an evidence point in debates over budgets and acceptabl e levels of government upport, including the endorsement of Minnesota’s business acing Minnesota Personal metric to track state and local government’s claim on However, simple metrics can often mask underlying complexity, e metric problematic in the The final portion represents employees’ and self-employed persons contributions to “social insurance programs” – nts of the metric, as has happened with Minnesota’s Price of Government. Specifically, two major trends have transformed Minnesota Personal Income since the POG was developed two decades onomic Analysis (BEA) is an extremely broad measure. BEA ago. As a result, the use of the POG major changes are taking place in the compone cost of state and local government and ment Minnesotans make in state and local government are severely compromised. Trend #1 – Rapid Growth in Non-Money Income as a Share of Total Minnesota Personal Income with respect to both evaluating taxpayer 16.3% providing time-series comparisons about the level of invest Transfer Receipts 38.7 16.2% process. This is especially true when economists designed it to capture the income associated with for which detailed information is available) was $238.2 billion, which can be broken into the following pieces 4 : participating in “production activities” and with transfer Table 1: Major Components of BEA “Personal Income” as determined by the U.S. Bureau of Ec Component $ billions % of Total Wages & Salaries 129.7 54.4% Dividends, Interest, & Rent Personal Income for Minnesota, CY 2011 38.9 Amount ($000) Minnesota’s Personal Income for calendar year (CY) 2011 (the most recent year Proprietor Income  Employers’ Pension and Insurance Contributions 20.2 8.5% Employee & Self-Employed Contributions to “Social Insurance” Programs; and Adjustment for Interstate Commuters (9.7) (4.1%) Total 238.2 100.0% 8.6% Source: Bureau of Economic Analysis While “wages and salaries” is self-evident, some of the other components merit further description:  Dividends, interest, and rent : represent income generated rendering interpretations of th Annual State Personal Income and Employment, Table SA04. excludes capital gains). 20.4 assets, but not income from the Transfer receipts : these are mostly government benefit payments to individuals – examples include Social Security payments, the value of Medicare and Medicaid assets (this benefits, and income maintenance benefits. by See for the most recent Price of Gove rnment report, from the November 2012 Economic Forecast. 2 1 sale of http://www.mmb.state.mn.us/supporting-documents-nov-12 payments (largely from the government). Own source revenues: all state and local revenues less “intergover nmental revenues” – grants from one unit of government to an Testimony before the Legislative Commission on Fiscal Policy, February 22, 2013 meeting. 4 All BEA personal income data in this publication are as of the September 25, 2012 update. See www.bea.gov for data. : basically, employers’ costs for fringe benefits, except for Social 3 3 info@fiscalexcellence.org April 2013  Proprietor income : income generated by businesses for their owners.  No. 0005 | such as state Local Government Aid given to cities. Employer pension and insurance contributions Table 2: Five Major Non-Money Components of BEA Personal Income for Minnesota, CY 2011 mainly Social Security and Medicare – and an adjustment for net flow of income between Minnesota and other states based on commuting patterns. Since more non-reside nts earn income in Minnesota than Minnesotans earn in other states, the adjustment is negative.  Security and Medicare. As these descriptions make clear, Minnesota’s $238 billion Pers to pay taxes. And the average Minnesotan would be right. Personal Income includes non-money benefits and “imputed” income – the market value of selected transactions that don’t occur in the market economy and that cannot be used to pay taxes. Table 2 shows five major non-money income areas. onal Income amount includes many items that an average Minnesotan would not think of as income that could be used Component $ billions Source: Bureau of Economic Analysis Value of government sponsored medical benefits (mainly Medicare and Medicaid) 16.8 7.0% 50.3 Imputed interest Employers’ Pension and Insurance Contributions 20.2 8.5% 7.9 3.3% 6 4.8 2.0% Transfers to nonprofit institutions 0.7 0.3% 5 other, Imputed rent % of Total Total 21.1% Annual State Personal Income and Employment; Tables SA 04, SA 35, and SA 40 As the table indicates, in 2011 non-money income – essentially irrelevant to assessing the tax price of state and local government and evaluating its affordability – represented over 20 Note: Numbers may not add due to rounding. cents of every dollar of Minnesota Personal Income. This ice of Government. As Table 3 shows; in 1990, these five pieces of non-money income were a much smaller share – 15.5% – of total Minnesota Personal Income. Most significantly, the share of government sponsored medical benefits has nearly doubled over 20 years from 3.8% to 7.0% of state Personal Income. is a major departure from the earliest days of Minnesota’s Pr Amount understates state and local government’s cl es. Including Personal Income in the POG Table 3: Major Non-Money Components of BEA Personal Income for Minnesota, CY 1990 Employers’ Pension and Insurance Contributions 6.3 7.3% Imputed interest 3.3 3.8% 15.5% Value of government sponsored medical benefits % of Total 3.3 3.8% 0.3 0.3% Transfers to nonprofit institutions 0.2 0.2% Total (mainly Medicare and Medicaid) benchmark a sustainable “level” of spending. Imputed rent Abstract $ billions Note: Numbers may not add due to rounding. 5 This is the value of investment income earned on life insuran ce and the value of services that depository institutions provide without Source: Bureau of Economic Analysis an explicit charge for doing so. 13.4 This includes the value of things such as the rental value of owner-occupied housing, the value of farm products consumed at h the producers, and pay-in-kind in the form of meals and lodging. 1 info@fiscalexcellence.org No. 0005 | 6 April 2013 ome by Tables SA 04, SA 35 and SA 40. ce of Government has been calculated to interpretation of the Price of Government since its inception, the composition of Minn esota Personal Income – the denominator of the POG – has changed dramatically. 20 y ears ago, five major non-money components – including the value of Medicare and Medi of Minnesota Personal Income – that taxpayers ’s claim on Minnesota income. However, any way to finance government – were roughly 15% of the total. Today those non- which represents a shift of approximately $13 billion in Minnesota Personal Income from money to non-money income. Moreover, the fastest growing sources of Personal Income cannot use to pay taxes or fees or remit in Wages & Salaries 129.7 54.4% money components are over 20% of the total, These findings have major ramifications for the measure and track state and local government caid benefits – which have grown over 2.5 metric and its use in public policy debat es. Including Personal Income in the POG understates state and local government’s cl aim on money income – which is 20%-35% times faster than wages and salaries over the past decade. higher when substituting the household in growth are government transfer payments in the state’s Study. Moreover, trends in the composition of Personal Income and demographic trends significantly compromise its common use as a come measure used Since the early 1990’s, the Minnesota Pri Tax Incidence Annual State Personal Income and Employment; measure to evaluate affordability or If policymakers want to maintain a POG- acing Minnesota Personal Income with some measure of money income. Even with this adaptation, we encourage caution in using the POG to asse ss the affordability of government or set a “price target” (POG) report to accompany the November and February economic forecasts and following the conclusion of each rrent metric by repl for government because some of the major demographic factors and trends affecting No. 0005 | April 2013 Introduction For nearly twenty years, the state’s Department of Manage income will continue for the indefinite future. 2 info@fiscalexcellence.org type measure, the state should modify the cu ment and Budget (MMB) has prepared a Price of Government nderstand and interpret, the POG has inevitably served as an e ratio of state and local government own source revenues 2 to statewide Personal Income. MMB staff have descr ibed the POG as “the state’s main 1 legislative session. transparency method and tool for Policymakers created the POG with broad-based political s upport, including the endorsement of Minnesota’s business community, because it was seen as a simple, straightforward metric to track state and local government’s claim on Minnesotans’ income. Because it is seemingly so easy to u communicating the total cost of state and local government to citizens.” 3 evidence point in debates over budgets and acceptabl taxation and spending. onomic Analysis (BEA) is an extremely broad measure. BEA e metric problematic in the process. This is especially true when major changes are taking place in the compone nts of the metric, as has happened with Trend #1 – Rapid Growth in Non-Money Income Minnesota’s Price of Government. rendering interpretations of th Personal Income since the POG was developed two decades with respect to both evaluating taxpayer cost of state and local government and providing time-series comparisons about the level of invest ment Minnesotans make in state and local government are Specifically, two major trends have transformed Minnesota % of Total ago. As a result, the use of the POG However, simple metrics can often mask underlying complexity, severely compromised. as a Share of Total Minnesota Personal Income economists designed it to capture the income associated with participating in “production activities” and with transfer payments (largely from the government). Minnesota’s Personal Income for calendar year (CY) 2011 (the most recent year for which detailed information is available) was $238.2 “Personal Income” as determined by the U.S. Bureau of Ec billion, which can be broken into the following pieces : Table 1: Major Components of BEA Personal Income for Minnesota, CY 2011 Component Amount ($000) $ billions 4 e levels of government Dividends, Interest, & Rent 6 38.9 21.1% 20.4 8.6% Employers’ Pension and Insurance Contributions 20.2 8.5%  Employee & Self-Employed Contributions to “Social Insurance” (9.7) Proprietor Income (4.1%) Source: Bureau of Economic Analysis Annual State Personal Income and Employment, Table SA04. While “wages and salaries” is self-evident, some Programs; and Adjustment for Interstate Commuters rnment report, from the November 2012 Economic Forecast. Total 238.2 100.0% 2 Transfer Receipts 38.7 16.2% of the other components merit further description: assets (this excludes capital gains).  : represent income generated Transfer receipts individuals – examples include Social Security 16.3% payments, the value of Medicare and Medicaid 1 See http://www.mmb.state.mn.us/supporting-documents-nov-12 : these are mostly government benefit payments to for the most recent Price of Gove Dividends, interest, and rent benefits, and income maintenance benefits. sale of : basically, employers’ costs for fringe benefits, except for Social  such as state Local Government Aid given to cities. 3 Testimony before the Legislative Commission on Fiscal Policy, February 22, 2013 meeting. 4 All BEA personal income data in this publication are as of the September 25, 2012 update. See www.bea.gov other, for data. No. 0005 | April 2013  Amount Component 3 info@fiscalexcellence.org Security and Medicare. nmental revenues” – grants from one unit of government to an Proprietor income The final portion represents employees’ and self-employed persons contributions to “social insurance programs” – mainly Social Security and Medicare – and an adjustment for net flow of income between Minnesota and other Employer pension and insurance contributions states based on commuting patterns. Since more non-reside other states, the adjustment is negative. Own source revenues: all state and local revenues less “intergover As these descriptions make clear, Minnesota’s $238 billion Pers Minnesotan would not think of as income that could be used to pay taxes. And the average Minnesotan would be right. Personal Income includes non-money benefits and “imputed” income nts earn income in Minnesota than Minnesotans earn in  : income generated by businesses for their owners. onal Income amount includes many items that an average assets, but not income from the by – the market value of selected transactions that don’t $ billions % of Total Employers’ Pension and Insurance Contributions 20.2 8.5% Value of government sponsored medical benefits 2.0% (mainly Medicare and Medicaid) Amount 7.0% 5 7.9 3.3% Imputed rent 6 16.8 Table 2: Five Major Non-Money Components of BEA Personal Income for Minnesota, CY 2011 Imputed interest doubled over 20 years from 3.8% to 7.0% of state Personal Component Transfers to nonprofit institutions 0.7 0.3% Note: Numbers may not add due to rounding. Source: Bureau of Economic Analysis Annual State Personal Income and Employment; Tables SA 04, SA 35, and SA 40 Total As the table indicates, in 2011 non-money income – essentially 4.8 government and evaluating its affordability – represented over 20 is a major departure from the earliest days of Minnesota’s Pr ice of Government. As Table 3 shows; in 1990, these five pieces of non-money income were a much smaller share – 15.5% – of total Minnesota Personal Income. Most significantly, irrelevant to assessing the tax price of state and local the share of government sponsored medical benefits has nearly cents of every dollar of Minnesota Personal Income. This Table 3: Major Non-Money Components of 15.5% Note: Numbers may not add due to rounding. $ billions % of Total Employers’ Pension and Insurance Contributions 6.3 7.3% Transfers to nonprofit institutions 0.2 0.2% Imputed interest 3.8% Amount Value of government sponsored medical benefits 3.3 3.8% Imputed rent 0.3 3.3 taxes. Table 2 shows five major non-money income areas. occur in the market economy and that cannot be used to pay (mainly Medicare and Medicaid) Component BEA Personal Income for Minnesota, CY 1990 0.3% Source: Bureau of Economic Analysis Annual State Personal Income and Employment; Tables SA 04, SA 35 and SA 40. 5 13.4 This is the value of investment income earned on life insuran without an explicit charge for doing so. 6 This includes the value of things such as the rental value of owner-occupied housing, the value of farm products consumed at h ome by the producers, and pay-in-kind in the form of meals and lodging. ce and the value of services that depository institutions provide Income. Total 50.3 2013-2014 Research and Education Publications • Assessment limitation analysis offers new value added • Exploring new “median business” rankings for future editions • Incorporated into economic development and tax studies across the nation • “Invaluable…the gold standard for comparative property tax analysis” • Dr. Donald Boyd, Senior Fellow, Rockefeller Institute of Government 

6. 1 info@fiscalexcellence.org Abstract Since the early 1990’s, the Minnesota Pri ce of Government has been calculated to measure and track state and local government which represents a shift of approximately ’s claim on Minnesota income. However, Minnesota’s Troubled “Price of Government” esota Personal Income – the denominator of ears ago, five major non-money components of Minnesota Personal Income – that taxpayers cannot use to pay taxes or fees or remit in any way to finance government – were roughly 15% of the total. Today those non- since its inception, the composition of Minn upport, including the endorsement of Minnesota’s business the POG – has changed dramatically. 20 y Study. April 2013 $13 billion in Minnesota Personal Income from – including the value of Medicare and Medi caid benefits – which have grown over 2.5 times faster than wages and salaries over the past decade. These findings have major ramifications for the money to non-money income. Moreover, interpretation of the Price of Government money components are over 20% of the total, es. Including Personal Income in the POG aim on money income – which is 20%-35% higher when substituting the household in come measure used in the state’s metric and its use in public policy debat Tax Incidence understates state and local government’s cl growth are government transfer payments Personal Income and demographic trends ment and Budget (MMB) has prepared a Price of Government benchmark a sustainable “level” of spending. If policymakers want to maintain a POG- type measure, the state should modify the cu rrent metric by repl | acing Minnesota Personal measure to evaluate affordability or Even with this adaptation, we encourage ss the affordability of government or set a “price target” for government because some of the major demographic factors and trends affecting income will continue for the indefinite future. 2 info@fiscalexcellence.org Income with some measure of money income. benefits, and income maintenance benefits. caution in using the POG to asse For nearly twenty years, the state’s Department of Manage significantly compromise its common use as a April 2013 (POG) report to accompany the November and February economic forecasts and following the conclusion of each legislative session. 1 The POG metric measures th Introduction e ratio of state and local government own source revenues No. 0005 to statewide ibed the POG as “the state’s main transparency method and tool for communicating the total cost of state and local government to citizens.” 3 2 Moreover, trends in the composition of Personal Income. MMB staff have descr 1 the fastest growing sources of Personal Income community, because it was seen as a simple, straightforward evidence point in debates over budgets and acceptabl e levels of government taxation and spending. However, simple metrics can often mask underlying complexity, with respect to both evaluating taxpayer rendering interpretations of th nderstand and interpret, the POG has inevitably served as an process. This is especially true when nts of the metric, as has happened with Minnesota’s Price of Government. Specifically, two major trends have transformed Minnesota Personal Income since the POG was developed two decades e metric problematic in the metric to track state and local government’s claim on major changes are taking place in the compone Personal Income for Minnesota, CY 2011 Minnesotans’ income. Because it is seemingly so easy to u cost of state and local government and Trend #1 – Rapid Growth in Non-Money Income as a Share of Total Minnesota Personal Income “Personal Income” as determined by the U.S. Bureau of Ec onomic Analysis (BEA) is an extremely broad measure. BEA providing time-series comparisons about the level of invest economists designed it to capture the income associated with ago. As a result, the use of the POG payments (largely from the government). for which detailed information is available) was $238.2 billion, which can be broken into the following pieces 4 : participating in “production activities” and with transfer Table 1: Major Components of BEA Minnesota’s Personal Income for calendar year (CY) 2011 (the most recent year Policymakers created the POG with broad-based political s Amount ($000) of the other components merit further description: Wages & Salaries 129.7 54.4% Dividends, Interest, & Rent 38.9 16.3% Total 238.2 100.0% Transfer Receipts 38.7 16.2% % of Total 20.4 Employers’ Pension and Insurance Contributions 20.2 8.5% Employee & Self-Employed Contributions to “Social Insurance” Programs; and Adjustment for Interstate Commuters (9.7) Proprietor Income payments, the value of Medicare and Medicaid 8.6% While “wages and salaries” is self-evident, some $ billions Source: Bureau of Economic Analysis  Dividends, interest, and rent : represent income generated by Annual State Personal Income and Employment, Table SA04. assets, but not income from the (4.1%) assets (this  Transfer receipts : these are mostly government benefit payments to individuals – examples include Social Security sale of Component excludes capital gains). See 0.3 0.3% 2012 Economic Forecast. 2 Own source revenues: all state and local revenues less “intergover 3 info@fiscalexcellence.org nmental revenues” – grants from one unit of government to an such as state Local Government Aid given to cities. rnment report, from the November 3 4 All BEA personal income data in this publication are as of the September 25, 2012 update. See www.bea.gov other, As these descriptions make clear, Minnesota’s $238 billion Pers onal Income amount includes many items that an average Testimony before the Legislative Commission on Fiscal Policy, February 22, 2013 meeting. Minnesotan would not think of as income that could be used for the most recent Price of Gove for data. : income generated by businesses for their owners.  Employer pension and insurance contributions | : basically, employers’ costs for fringe benefits, except for Social  http://www.mmb.state.mn.us/supporting-documents-nov-12 The final portion represents employees’ and self-employed persons contributions to “social insurance programs” – for net flow of income between Minnesota and other states based on commuting patterns. Since more non-reside nts earn income in Minnesota than Minnesotans earn in Security and Medicare. other states, the adjustment is negative. No. 0005 mainly Social Security and Medicare – and an adjustment Proprietor income 6 2.0% occur in the market economy and that cannot be used to pay taxes. Table 2 shows five major non-money income areas. Table 2: Five Major Non-Money Components of BEA Personal Income for Minnesota, CY 2011 Component Amount $ billions – the market value of selected transactions that don’t % of Total Value of government sponsored medical benefits (mainly Medicare and Medicaid) 16.8 7.0% higher when substituting the household in 2 Employers’ Pension and Insurance Contributions 20.2 8.5% 4.8 Personal Income includes non-money benefits and “imputed” income Imputed interest Transfers to nonprofit institutions 0.7 0.3% Total 50.3 Imputed rent 21.1% Source: Bureau of Economic Analysis to pay taxes. And the average Minnesotan would be right. Annual State Personal Income and Employment; As the table indicates, in 2011 non-money income – essentially irrelevant to assessing the tax price of state and local government and evaluating its affordability – represented over 20 Note: Numbers may not add due to rounding. 7.9 3.3% 5 Tables SA 04, SA 35, and SA 40  April 2013 cents of every dollar of Minnesota Personal Income. This doubled over 20 years from 3.8% to 7.0% of state Personal Income. Table 3: Major Non-Money Components of BEA Personal Income for Minnesota, CY 1990 (mainly Medicare and Medicaid) Component the share of government sponsored medical benefits has nearly $ billions Employers’ Pension and Insurance Contributions 6.3 7.3% Imputed interest 3.3 3.8% Amount pieces of non-money income were a much smaller share – 15.5% % of Total 6 – of total Minnesota Personal Income. Most significantly, 3.3 3.8% Transfers to nonprofit institutions 0.2 0.2% Total 13.4 15.5% Imputed rent Note: Numbers may not add due to rounding. Value of government sponsored medical benefits Annual State Personal Income and Employment; 5 This is the value of investment income earned on life insuran ce and the value of services that depository institutions provide without Source: Bureau of Economic Analysis an explicit charge for doing so. Tables SA 04, SA 35 and SA 40. ome by money components are over 20% of the total, which represents a shift of approximately | April 2013 Minnesota’s Troubled “Price of Government” of Minnesota Personal Income – that taxpayers Abstract ce of Government has been calculated to No. 0005 measure and track state and local government since its inception, the composition of Minn esota Personal Income – the denominator of the POG – has changed dramatically. 20 y Since the early 1990’s, the Minnesota Pri ice of Government. As Table 3 shows; in 1990, these five is a major departure from the earliest days of Minnesota’s Pr ’s claim on Minnesota income. However, 1 info@fiscalexcellence.org the producers, and pay-in-kind in the form of meals and lodging. ears ago, five major non-money components $13 billion in Minnesota Personal Income from money to non-money income. Moreover, the fastest growing sources of Personal Income growth are government transfer payments any way to finance government – were roughly 15% of the total. Today those non- – including the value of Medicare and Medi times faster than wages and salaries over the past decade. These findings have major ramifications for the interpretation of the Price of Government metric and its use in public policy debat es. Including Personal Income in the POG understates state and local government’s cl caid benefits – which have grown over 2.5 This includes the value of things such as the rental value of owner-occupied housing, the value of farm products consumed at h cannot use to pay taxes or fees or remit in severely compromised. to statewide ment Minnesotans make in state and local government are come measure used Moreover, trends in the composition of Personal Income and demographic trends significantly compromise its common use as a measure to evaluate affordability or for government because some of the major demographic factors and trends affecting benchmark a sustainable “level” of spending. Study. type measure, the state should modify the cu acing Minnesota Personal Income with some measure of money income. Even with this adaptation, we encourage caution in using the POG to asse If policymakers want to maintain a POG- billion, which can be broken into the following pieces rrent metric by repl transparency method and tool for Tax Incidence income will continue for the indefinite future. April 2013 Introduction For nearly twenty years, the state’s Department of Manage ment and Budget (MMB) has prepared a Price of Government 2 info@fiscalexcellence.org (POG) report to accompany the November and February economic forecasts and following the conclusion of each ss the affordability of government or set a “price target” 1 e ratio of state and local government own source revenues 2 to statewide Personal Income. MMB staff have descr legislative session. ibed the POG as “the state’s main The POG metric measures th | 3 with respect to both evaluating taxpayer community, because it was seen as a simple, straightforward metric to track state and local government’s claim on Minnesotans’ income. Because it is seemingly so easy to u nderstand and interpret, the POG has inevitably served as an Minnesota’s Price of Government. evidence point in debates over budgets and acceptabl upport, including the endorsement of Minnesota’s business taxation and spending. rendering interpretations of th e metric problematic in the process. This is especially true when major changes are taking place in the compone e levels of government for net flow of income between Minnesota and other However, simple metrics can often mask underlying complexity, ago. As a result, the use of the POG Policymakers created the POG with broad-based political s Specifically, two major trends have transformed Minnesota cost of state and local government and providing time-series comparisons about the level of invest ment Minnesotans make in state and local government are severely compromised. Personal Income since the POG was developed two decades Trend #1 – Rapid Growth in Non-Money Income nts of the metric, as has happened with “Personal Income” as determined by the U.S. Bureau of Ec economists designed it to capture the income associated with participating in “production activities” and with transfer payments (largely from the government). Minnesota’s Personal Income for calendar year (CY) 2011 (the most recent year as a Share of Total Minnesota Personal Income communicating the total cost of state and local government to citizens.” onomic Analysis (BEA) is an extremely broad measure. BEA states based on commuting patterns. Since more non-reside No. 0005 4 Component Amount ($000) $ billions % of Total Employee & Self-Employed Contributions to “Social Insurance” Wages & Salaries 129.7 54.4% Personal Income for Minnesota, CY 2011 38.9 Transfer Receipts 38.7 16.2% Proprietor Income 20.4 8.6% Dividends, Interest, & Rent : 16.3% Transfer receipts Table 1: Major Components of BEA Programs; and Adjustment for Interstate Commuters Source: Bureau of Economic Analysis Annual State Personal Income and Employment, Table SA04. While “wages and salaries” is self-evident, some of the other components merit further description: (9.7)  Employers’ Pension and Insurance Contributions 20.2 8.5% : represent income generated assets, but not income from the sale of assets (this excludes capital gains). Dividends, interest, and rent  by for which detailed information is available) was $238.2 individuals – examples include Social Security 3 info@fiscalexcellence.org 1 See http://www.mmb.state.mn.us/supporting-documents-nov-12 for the most recent Price of Gove 4 rnment report, from the November benefits, and income maintenance benefits. 2 nmental revenues” – grants from one unit of government to an other, such as state Local Government Aid given to cities. 3 2012 Economic Forecast. mainly Social Security and Medicare – and an adjustment Own source revenues: all state and local revenues less “intergover for data. payments, the value of Medicare and Medicaid All BEA personal income data in this publication are as of the September 25, 2012 update. See No. 0005 | April 2013  www.bea.gov Proprietor income Testimony before the Legislative Commission on Fiscal Policy, February 22, 2013 meeting.  : basically, employers’ costs for fringe benefits, except for Social Security and Medicare.  The final portion represents employees’ and self-employed persons contributions to “social insurance programs” – : income generated by businesses for their owners. : these are mostly government benefit payments to Employer pension and insurance contributions nts earn income in Minnesota than Minnesotans earn in ears ago, five major non-money components of Minnesota Personal Income – that taxpayers Minnesotan would not think of as income that could be used to pay taxes. And the average Minnesotan would be right. Personal Income includes non-money benefits and “imputed” income Value of government sponsored medical benefits – the market value of selected transactions that don’t taxes. Table 2 shows five major non-money income areas. onal Income amount includes many items that an average Table 2: Five Major Non-Money Components of BEA Personal Income for Minnesota, CY 2011 Amount $ billions % of Total occur in the market economy and that cannot be used to pay Tables SA 04, SA 35, and SA 40 As the table indicates, in 2011 non-money income – essentially Component irrelevant to assessing the tax price of state and local As these descriptions make clear, Minnesota’s $238 billion Pers Employers’ Pension and Insurance Contributions 20.2 8.5% 7.9 3.3% Imputed rent 6 16.8 4.8 Transfers to nonprofit institutions 0.7 0.3% other states, the adjustment is negative. Total 21.1% Note: Numbers may not add due to rounding. Source: Bureau of Economic Analysis 2.0% Annual State Personal Income and Employment; (mainly Medicare and Medicaid) 50.3 5 Value of government sponsored medical benefits 3.3 3.8% ice of Government. As Table 3 shows; in 1990, these five pieces of non-money income were a much smaller share – 15.5% – of total Minnesota Personal Income. Most significantly, the share of government sponsored medical benefits has nearly doubled over 20 years from 3.8% to 7.0% of state Personal Income. is a major departure from the earliest days of Minnesota’s Pr Table 3: Major Non-Money Components of Component Amount $ billions % of Total in the state’s Annual State Personal Income and Employment, Table SA04. BEA Personal Income for Minnesota, CY 1990 (mainly Medicare and Medicaid) cents of every dollar of Minnesota Personal Income. This Employers’ Pension and Insurance Contributions 6.3 7.3% Imputed rent 0.3 0.3% 3.8% Transfers to nonprofit institutions 0.2 0.2% 13.4 government and evaluating its affordability – represented over 20 15.5% Source: Bureau of Economic Analysis Annual State Personal Income and Employment; Tables SA 04, SA 35 and SA 40. Total 3.3 Imputed interest Note: Numbers may not add due to rounding. Imputed interest 7.0% 5 This includes the value of things such as the rental value of owner-occupied housing, the value of farm products consumed at h ome by the producers, and pay-in-kind in the form of meals and lodging. 1 info@fiscalexcellence.org since its inception, the composition of Minn No. 0005 6 April 2013 Abstract Since the early 1990’s, the Minnesota Pri ce of Government has been calculated to measure and track state and local government | without Minnesota’s Troubled “Price of Government” metric and its use in public policy debat an explicit charge for doing so. esota Personal Income – the denominator of cannot use to pay taxes or fees or remit in any way to finance government – were roughly 15% of the total. Today those non- money components are over 20% of the total, which represents a shift of approximately the POG – has changed dramatically. 20 y $13 billion in Minnesota Personal Income from ’s claim on Minnesota income. However, the fastest growing sources of Personal Income – including the value of Medicare and Medi caid benefits – which have grown over 2.5 times faster than wages and salaries over the past decade. These findings have major ramifications for the money to non-money income. Moreover, interpretation of the Price of Government growth are government transfer payments understates state and local government’s cl ss the affordability of government or set a “price target” for government because some of the major demographic factors and trends affecting in the state’s Tax Incidence Study. Income with some measure of money income. Moreover, trends in the composition of significantly compromise its common use as a come measure used measure to evaluate affordability or If policymakers want to maintain a POG- type measure, the state should modify the cu rrent metric by repl Personal Income and demographic trends ce and the value of services that depository institutions provide This is the value of investment income earned on life insuran benchmark a sustainable “level” of spending. higher when substituting the household in aim on money income – which is 20%-35% acing Minnesota Personal income will continue for the indefinite future. 2 info@fiscalexcellence.org No. 0005 | caution in using the POG to asse April 2013 For nearly twenty years, the state’s Department of Manage ment and Budget (MMB) has prepared a Price of Government (POG) report to accompany the November and February economic forecasts and following the conclusion of each legislative session. 1 The POG metric measures th Introduction es. Including Personal Income in the POG Even with this adaptation, we encourage aim on money income – which is 20%-35% Personal Income. MMB staff have descr Amount $ billions 3 Policymakers created the POG with broad-based political s upport, including the endorsement of Minnesota’s business e metric problematic in the community, because it was seen as a simple, straightforward Minnesotans’ income. Because it is seemingly so easy to u communicating the total cost of state and local government to citizens.” nderstand and interpret, the POG has inevitably served as an e levels of government taxation and spending. However, simple metrics can often mask underlying complexity, metric to track state and local government’s claim on participating in “production activities” and with transfer payments (largely from the government). evidence point in debates over budgets and acceptabl Minnesota’s Personal Income for calendar year (CY) 2011 (the most recent year transparency method and tool for rendering interpretations of th Personal Income since the POG was developed two decades ago. As a result, the use of the POG with respect to both evaluating taxpayer major changes are taking place in the compone cost of state and local government and ment Minnesotans make in state and local government are ibed the POG as “the state’s main severely compromised. as a Share of Total Minnesota Personal Income “Personal Income” as determined by the U.S. Bureau of Ec onomic Analysis (BEA) is an extremely broad measure. BEA providing time-series comparisons about the level of invest economists designed it to capture the income associated with process. This is especially true when Trend #1 – Rapid Growth in Non-Money Income Specifically, two major trends have transformed Minnesota Employee & Self-Employed Contributions to “Social Insurance” (9.7) : Table 1: Major Components of BEA Personal Income for Minnesota, CY 2011 Component Amount ($000) $ billions 4 % of Total Dividends, Interest, & Rent 38.9 16.3% Transfer Receipts 38.7 16.2% 21.1% | Wages & Salaries 129.7 54.4% Programs; and Adjustment for Interstate Commuters billion, which can be broken into the following pieces Proprietor Income (4.1%) Total 238.2 100.0% Source: Bureau of Economic Analysis Employers’ Pension and Insurance Contributions 20.2 8.5% Annual State Personal Income and Employment, Table SA04. of the other components merit further description: for which detailed information is available) was $238.2  : represent income generated by assets, but not income from the While “wages and salaries” is self-evident, some 8.6% 20.4 Dividends, interest, and rent Note: Numbers may not add due to rounding. Minnesota’s Price of Government. sale of payments, the value of Medicare and Medicaid benefits, and income maintenance benefits. 1 such as state Local Government Aid given to cities. See for the most recent Price of Gove individuals – examples include Social Security rnment report, from the November 2 Own source revenues: all state and local revenues less “intergover nmental revenues” – grants from one unit of government to an http://www.mmb.state.mn.us/supporting-documents-nov-12   2012 Economic Forecast. mainly Social Security and Medicare – and an adjustment : these are mostly government benefit payments to other, for data. 3 info@fiscalexcellence.org No. 0005 Testimony before the Legislative Commission on Fiscal Policy, February 22, 2013 meeting. |  Transfer receipts Proprietor income  Employer pension and insurance contributions : basically, employers’ costs for fringe benefits, except for Social April 2013 Security and Medicare. 3 : income generated by businesses for their owners. nts of the metric, as has happened with Value of government sponsored medical benefits 16.8 other states, the adjustment is negative. As these descriptions make clear, Minnesota’s $238 billion Pers onal Income amount includes many items that an average $ billions Minnesotan would not think of as income that could be used Personal Income includes non-money benefits and “imputed” income nts earn income in Minnesota than Minnesotans earn in – the market value of selected transactions that don’t taxes. Table 2 shows five major non-money income areas. Table 2: Five Major Non-Money Components of BEA Personal Income for Minnesota, CY 2011 Component to pay taxes. And the average Minnesotan would be right. excludes capital gains). assets (this occur in the market economy and that cannot be used to pay (mainly Medicare and Medicaid) states based on commuting patterns. Since more non-reside Amount 7.0% Imputed interest 5 Employers’ Pension and Insurance Contributions 20.2 8.5% 7.9 3.3% 6 for net flow of income between Minnesota and other 4.8 Transfers to nonprofit institutions 0.7 0.3% Total 50.3 Imputed rent The final portion represents employees’ and self-employed persons contributions to “social insurance programs” – % of Total 2.0% Annual State Personal Income and Employment; Income with some measure of money income. Even with this adaptation, we encourage government and evaluating its affordability – represented over 20 cents of every dollar of Minnesota Personal Income. This is a major departure from the earliest days of Minnesota’s Pr Amount ice of Government. As Table 3 shows; in 1990, these five – of total Minnesota Personal Income. Most significantly, irrelevant to assessing the tax price of state and local the share of government sponsored medical benefits has nearly Income. Table 3: Major Non-Money Components of BEA Personal Income for Minnesota, CY 1990 pieces of non-money income were a much smaller share – 15.5% Source: Bureau of Economic Analysis Annual State Personal Income and Employment; doubled over 20 years from 3.8% to 7.0% of state Personal Tables SA 04, SA 35 and SA 40. As the table indicates, in 2011 non-money income – essentially Component 3.8% Value of government sponsored medical benefits (mainly Medicare and Medicaid) % of Total 3.3 3.8% 0.3 Tables SA 04, SA 35, and SA 40 0.3% Total 13.4 15.5% Imputed rent Note: Numbers may not add due to rounding. $ billions Transfers to nonprofit institutions 0.2 0.2% 3.3 since its inception, the composition of Minn the POG – has changed dramatically. 20 y without an explicit charge for doing so. 6 This includes the value of things such as the rental value of owner-occupied housing, the value of farm products consumed at h ome by the producers, and pay-in-kind in the form of meals and lodging. ce and the value of services that depository institutions provide 1 info@fiscalexcellence.org | April 2013 Minnesota’s Troubled “Price of Government” Abstract Source: Bureau of Economic Analysis No. 0005 No. 0005 esota Personal Income – the denominator of This is the value of investment income earned on life insuran Since the early 1990’s, the Minnesota Pri ears ago, five major non-money components of Minnesota Personal Income – that taxpayers cannot use to pay taxes or fees or remit in ’s claim on Minnesota income. However, any way to finance government – were roughly 15% of the total. Today those non- which represents a shift of approximately 5 $13 billion in Minnesota Personal Income from the fastest growing sources of Personal Income growth are government transfer payments – including the value of Medicare and Medi money components are over 20% of the total, measure and track state and local government ce of Government has been calculated to money to non-money income. Moreover, Imputed interest Employers’ Pension and Insurance Contributions 6.3 7.3% caid benefits – which have grown over 2.5 understates state and local government’s cl aim on money income – which is 20%-35% higher when substituting the household in come measure used type measure, the state should modify the cu in the state’s es. Including Personal Income in the POG Study. Personal Income and demographic trends significantly compromise its common use as a measure to evaluate affordability or benchmark a sustainable “level” of spending. Tax Incidence interpretation of the Price of Government Moreover, trends in the composition of 1 metric and its use in public policy debat rrent metric by repl caution in using the POG to asse ss the affordability of government or set a “price target” for government because some of the major demographic factors and trends affecting income will continue for the indefinite future. acing Minnesota Personal 2 info@fiscalexcellence.org If policymakers want to maintain a POG- | Introduction For nearly twenty years, the state’s Department of Manage ment and Budget (MMB) has prepared a Price of Government (POG) report to accompany the November and February economic forecasts and following the conclusion of each No. 0005 legislative session. April 2013 e ratio of state and local government own source revenues e metric problematic in the process. This is especially true when ibed the POG as “the state’s main transparency method and tool for communicating the total cost of state and local government to citizens.” taxation and spending. 3 upport, including the endorsement of Minnesota’s business Personal Income. MMB staff have descr community, because it was seen as a simple, straightforward Minnesotans’ income. Because it is seemingly so easy to u nderstand and interpret, the POG has inevitably served as an evidence point in debates over budgets and acceptabl Policymakers created the POG with broad-based political s These findings have major ramifications for the times faster than wages and salaries over the past decade. metric to track state and local government’s claim on to statewide 2 e levels of government major changes are taking place in the compone nts of the metric, as has happened with Minnesota’s Price of Government. Specifically, two major trends have transformed Minnesota rendering interpretations of th Personal Income since the POG was developed two decades with respect to both evaluating taxpayer cost of state and local government and providing time-series comparisons about the level of invest ment Minnesotans make in state and local government are severely compromised. Trend #1 – Rapid Growth in Non-Money Income ago. As a result, the use of the POG The POG metric measures th However, simple metrics can often mask underlying complexity, www.bea.gov All BEA personal income data in this publication are as of the September 25, 2012 update. See 4 as a Share of Total Minnesota Personal Income for which detailed information is available) was $238.2 billion, which can be broken into the following pieces 4 38.9 : Personal Income for Minnesota, CY 2011 Minnesota’s Personal Income for calendar year (CY) 2011 (the most recent year Component $ billions % of Total Wages & Salaries 129.7 54.4% Table 1: Major Components of BEA  : represent income generated Amount ($000) assets, but not income from the payments (largely from the government). Dividends, Interest, & Rent Employers’ Pension and Insurance Contributions 20.2 8.5% Employee & Self-Employed Contributions to “Social Insurance” Programs; and Adjustment for Interstate Commuters Transfer Receipts 38.7 16.2% (9.7) Total 238.2 100.0% participating in “production activities” and with transfer Source: Bureau of Economic Analysis While “wages and salaries” is self-evident, some of the other components merit further description:  (4.1%) Dividends, interest, and rent 16.3% Annual State Personal Income and Employment, Table SA04. 8.6% other, 3  Transfer receipts : these are mostly government benefit payments to 2 individuals – examples include Social Security benefits, and income maintenance benefits. excludes capital gains). 1 http://www.mmb.state.mn.us/supporting-documents-nov-12 for the most recent Price of Gove rnment report, from the November payments, the value of Medicare and Medicaid Total 13.4 See such as state Local Government Aid given to cities. assets (this 2012 Economic Forecast. Testimony before the Legislative Commission on Fiscal Policy, February 22, 2013 meeting. 4 All BEA personal income data in this publication are as of the September 25, 2012 update. See nmental revenues” – grants from one unit of government to an www.bea.gov 3 info@fiscalexcellence.org sale of No. 0005 April 2013  Proprietor income for data. by Own source revenues: all state and local revenues less “intergover | 20.4 Proprietor Income : income generated by businesses for their owners. The final portion represents employees’ and self-employed persons contributions to “social insurance programs” – mainly Social Security and Medicare – and an adjustment for net flow of income between Minnesota and other states based on commuting patterns. Since more non-reside taxes. Table 2 shows five major non-money income areas. nts earn income in Minnesota than Minnesotans earn in  As these descriptions make clear, Minnesota’s $238 billion Pers Minnesotan would not think of as income that could be used to pay taxes. And the average Minnesotan would be right. Personal Income includes non-money benefits and “imputed” income – the market value of selected transactions that don’t other states, the adjustment is negative. : basically, employers’ costs for fringe benefits, except for Social onal Income amount includes many items that an average Transfers to nonprofit institutions 0.7 0.3% Security and Medicare. Table 2: Five Major Non-Money Components of BEA Personal Income for Minnesota, CY 2011 % of Total Employers’ Pension and Insurance Contributions 20.2 8.5% Value of government sponsored medical benefits (mainly Medicare and Medicaid) Component 16.8 occur in the market economy and that cannot be used to pay Imputed interest 7.9 3.3% Imputed rent 6 4.8 7.0% 2.0% 5 50.3 Component Amount Annual State Personal Income and Employment; Tables SA 04, SA 35, and SA 40 As the table indicates, in 2011 non-money income – essentially Income. irrelevant to assessing the tax price of state and local cents of every dollar of Minnesota Personal Income. This Source: Bureau of Economic Analysis is a major departure from the earliest days of Minnesota’s Pr pieces of non-money income were a much smaller share – 15.5% – of total Minnesota Personal Income. Most significantly, the share of government sponsored medical benefits has nearly government and evaluating its affordability – represented over 20 Transfers to nonprofit institutions 0.2 0.2% Employer pension and insurance contributions ice of Government. As Table 3 shows; in 1990, these five Note: Numbers may not add due to rounding. 21.1% doubled over 20 years from 3.8% to 7.0% of state Personal $ billions % of Total Employers’ Pension and Insurance Contributions 6.3 7.3% Imputed interest BEA Personal Income for Minnesota, CY 1990 3.3 Value of government sponsored medical benefits (mainly Medicare and Medicaid) 3.3 3.8% Imputed rent 0.3 0.3% 3.8% Total Table 3: Major Non-Money Components of 15.5% Total 238.2 100.0% e levels of government However, simple metrics can often mask underlying complexity, 5 This is the value of investment income earned on life insuran | ce and the value of services that depository institutions provide an explicit charge for doing so. 6 Tables SA 04, SA 35 and SA 40. This includes the value of things such as the rental value of owner-occupied housing, the value of farm products consumed at h the producers, and pay-in-kind in the form of meals and lodging. 1 info@fiscalexcellence.org without money to non-money income. Moreover, the fastest growing sources of Personal Income growth are government transfer payments ome by If policymakers want to maintain a POG- Annual State Personal Income and Employment; Note: Numbers may not add due to rounding. ’s claim on Minnesota income. However, since its inception, the composition of Minn Minnesota’s Troubled “Price of Government” esota Personal Income – the denominator of ears ago, five major non-money components of Minnesota Personal Income – that taxpayers Source: Bureau of Economic Analysis cannot use to pay taxes or fees or remit in money components are over 20% of the total, which represents a shift of approximately the POG – has changed dramatically. 20 y $13 billion in Minnesota Personal Income from April 2013 No. 0005 any way to finance government – were roughly 15% of the total. Today those non- measure and track state and local government type measure, the state should modify the cu acing Minnesota Personal interpretation of the Price of Government metric and its use in public policy debat es. Including Personal Income in the POG understates state and local government’s cl aim on money income – which is 20%-35% higher when substituting the household in These findings have major ramifications for the come measure used Tax Incidence Study. Moreover, trends in the composition of economists designed it to capture the income associated with onomic Analysis (BEA) is an extremely broad measure. BEA “Personal Income” as determined by the U.S. Bureau of Ec in the state’s rrent metric by repl times faster than wages and salaries over the past decade. – including the value of Medicare and Medi Income with some measure of money income. Even with this adaptation, we encourage benchmark a sustainable “level” of spending. caution in using the POG to asse for government because some of the major demographic factors and trends affecting income will continue for the indefinite future. caid benefits – which have grown over 2.5 2 info@fiscalexcellence.org | April 2013 ss the affordability of government or set a “price target” measure to evaluate affordability or significantly compromise its common use as a Personal Income and demographic trends No. 0005 ce of Government has been calculated to Since the early 1990’s, the Minnesota Pri Abstract e ratio of state and local government own source revenues 2 to statewide Minnesotans’ income. Because it is seemingly so easy to u Personal Income. MMB staff have descr transparency method and tool for The POG metric measures th communicating the total cost of state and local government to citizens.” Policymakers created the POG with broad-based political s upport, including the endorsement of Minnesota’s business community, because it was seen as a simple, straightforward ibed the POG as “the state’s main (POG) report to accompany the November and February economic forecasts and following the conclusion of each ment Minnesotans make in state and local government are 3 Trend #1 – Rapid Growth in Non-Money Income 1 metric to track state and local government’s claim on rendering interpretations of th e metric problematic in the process. This is especially true when evidence point in debates over budgets and acceptabl major changes are taking place in the compone Minnesota’s Price of Government. legislative session. Specifically, two major trends have transformed Minnesota ago. As a result, the use of the POG with respect to both evaluating taxpayer cost of state and local government and nts of the metric, as has happened with providing time-series comparisons about the level of invest nderstand and interpret, the POG has inevitably served as an Personal Income since the POG was developed two decades Dividends, Interest, & Rent 38.9 16.3% participating in “production activities” and with transfer payments (largely from the government). $ billions Minnesota’s Personal Income for calendar year (CY) 2011 (the most recent year billion, which can be broken into the following pieces 4 economists designed it to capture the income associated with : Personal Income for Minnesota, CY 2011 Component for which detailed information is available) was $238.2 ment and Budget (MMB) has prepared a Price of Government For nearly twenty years, the state’s Department of Manage Introduction Table 1: Major Components of BEA onomic Analysis (BEA) is an extremely broad measure. BEA “Personal Income” as determined by the U.S. Bureau of Ec as a Share of Total Minnesota Personal Income Transfer Receipts 38.7 16.2% Proprietor Income 20.4 Wages & Salaries 129.7 54.4% 8.6% Employee & Self-Employed Contributions to “Social Insurance” Programs; and Adjustment for Interstate Commuters (9.7) (4.1%) Total 238.2 100.0% Source: Bureau of Economic Analysis Employers’ Pension and Insurance Contributions 20.2 8.5% severely compromised. % of Total Amount ($000) taxation and spending. (4.1%) e ratio of state and local government own source revenues Value of government sponsored medical benefits by assets, but not income from the sale of assets (this http://www.mmb.state.mn.us/supporting-documents-nov-12 excludes capital gains). : represent income generated Transfer receipts individuals – examples include Social Security payments, the value of Medicare and Medicaid benefits, and income maintenance benefits. 1  Imputed rent : these are mostly government benefit payments to April 2013 Dividends, interest, and rent for the most recent Price of Gove Own source revenues: all state and local revenues less “intergover nmental revenues” – grants from one unit of government to an other, such as state Local Government Aid given to cities. rnment report, from the November 3 See 4 www.bea.gov for data. 3 info@fiscalexcellence.org No. 0005 Testimony before the Legislative Commission on Fiscal Policy, February 22, 2013 meeting. | All BEA personal income data in this publication are as of the September 25, 2012 update. See 2 Proprietor income taxes. Table 2 shows five major non-money income areas. Employer pension and insurance contributions : basically, employers’ costs for fringe benefits, except for Social Security and Medicare.  to pay taxes. And the average Minnesotan would be right. The final portion represents employees’ and self-employed persons contributions to “social insurance programs” –  for net flow of income between Minnesota and other nts earn income in Minnesota than Minnesotans earn in other states, the adjustment is negative. As these descriptions make clear, Minnesota’s $238 billion Pers onal Income amount includes many items that an average mainly Social Security and Medicare – and an adjustment any way to finance government – were roughly 15% of the total. Today those non- states based on commuting patterns. Since more non-reside occur in the market economy and that cannot be used to pay : income generated by businesses for their owners. Personal Income includes non-money benefits and “imputed” income Table 2: Five Major Non-Money Components of BEA Personal Income for Minnesota, CY 2011 Component Amount $ billions – the market value of selected transactions that don’t % of Total Minnesotan would not think of as income that could be used Value of government sponsored medical benefits 16.8 7.0% Imputed interest 5 Employers’ Pension and Insurance Contributions 20.2 8.5%  (mainly Medicare and Medicaid) money components are over 20% of the total, 2012 Economic Forecast. 6 Total 50.3 21.1% Note: Numbers may not add due to rounding. pieces of non-money income were a much smaller share – 15.5% Source: Bureau of Economic Analysis Transfers to nonprofit institutions 0.7 0.3% Tables SA 04, SA 35, and SA 40 irrelevant to assessing the tax price of state and local government and evaluating its affordability – represented over 20 cents of every dollar of Minnesota Personal Income. This is a major departure from the earliest days of Minnesota’s Pr Annual State Personal Income and Employment; 4.8 As the table indicates, in 2011 non-money income – essentially Imputed rent 2.0% – of total Minnesota Personal Income. Most significantly, Table 3: Major Non-Money Components of BEA Personal Income for Minnesota, CY 1990 Component Amount the share of government sponsored medical benefits has nearly $ billions ice of Government. As Table 3 shows; in 1990, these five Employers’ Pension and Insurance Contributions 6.3 7.3% 3.3 3.8% Value of government sponsored medical benefits (mainly Medicare and Medicaid) % of Total 3.3 3.8% Imputed interest 7.9 3.3% 0.3% | 13.4 15.5% Note: Numbers may not add due to rounding. Source: Bureau of Economic Analysis ome by Annual State Personal Income and Employment; Total 5 ce and the value of services that depository institutions provide without an explicit charge for doing so. 6 Tables SA 04, SA 35 and SA 40. cannot use to pay taxes or fees or remit in This is the value of investment income earned on life insuran No. 0005 Transfers to nonprofit institutions 0.2 0.2% the producers, and pay-in-kind in the form of meals and lodging. April 2013 Minnesota’s Troubled “Price of Government” Abstract Since the early 1990’s, the Minnesota Pri 1 info@fiscalexcellence.org ce of Government has been calculated to This includes the value of things such as the rental value of owner-occupied housing, the value of farm products consumed at h ’s claim on Minnesota income. However, esota Personal Income – the denominator of the POG – has changed dramatically. 20 y ears ago, five major non-money components of Minnesota Personal Income – that taxpayers measure and track state and local government 0.3 since its inception, the composition of Minn which represents a shift of approximately Amount ($000) $ billions growth are government transfer payments – including the value of Medicare and Medi caid benefits – which have grown over 2.5 in the state’s times faster than wages and salaries over the past decade. interpretation of the Price of Government the fastest growing sources of Personal Income metric and its use in public policy debat understates state and local government’s cl aim on money income – which is 20%-35% higher when substituting the household in These findings have major ramifications for the 2 info@fiscalexcellence.org No. 0005 es. Including Personal Income in the POG | money to non-money income. Moreover, come measure used measure to evaluate affordability or benchmark a sustainable “level” of spending. If policymakers want to maintain a POG- Study. type measure, the state should modify the cu acing Minnesota Personal $13 billion in Minnesota Personal Income from Income with some measure of money income. caution in using the POG to asse ss the affordability of government or set a “price target” for government because some of the major demographic factors and trends affecting rrent metric by repl income will continue for the indefinite future. Tax Incidence Even with this adaptation, we encourage significantly compromise its common use as a metric to track state and local government’s claim on nderstand and interpret, the POG has inevitably served as an ment and Budget (MMB) has prepared a Price of Government (POG) report to accompany the November and February economic forecasts and following the conclusion of each legislative session. 1 The POG metric measures th e ratio of state and local government own source revenues For nearly twenty years, the state’s Department of Manage 2 Personal Income. MMB staff have descr ibed the POG as “the state’s main transparency method and tool for communicating the total cost of state and local government to citizens.” for data. Employers’ Pension and Insurance Contributions 20.2 8.5% to statewide Minnesotans’ income. Because it is seemingly so easy to u Introduction 3 evidence point in debates over budgets and acceptabl e levels of government taxation and spending. community, because it was seen as a simple, straightforward However, simple metrics can often mask underlying complexity, e metric problematic in the April 2013 process. This is especially true when nts of the metric, as has happened with Minnesota’s Price of Government. Specifically, two major trends have transformed Minnesota rendering interpretations of th upport, including the endorsement of Minnesota’s business Policymakers created the POG with broad-based political s major changes are taking place in the compone Personal Income and demographic trends Moreover, trends in the composition of Personal Income since the POG was developed two decades severely compromised. Trend #1 – Rapid Growth in Non-Money Income as a Share of Total Minnesota Personal Income “Personal Income” as determined by the U.S. Bureau of Ec Table 1: Major Components of BEA onomic Analysis (BEA) is an extremely broad measure. BEA ment Minnesotans make in state and local government are participating in “production activities” and with transfer Minnesota’s Personal Income for calendar year (CY) 2011 (the most recent year for which detailed information is available) was $238.2 billion, which can be broken into the following pieces 4 economists designed it to capture the income associated with cost of state and local government and payments (largely from the government). (4.1%) providing time-series comparisons about the level of invest Personal Income for Minnesota, CY 2011 % of Total Wages & Salaries 129.7 54.4% Dividends, Interest, & Rent 38.9 Component 16.3% : Proprietor Income 8.6% Employers’ Pension and Insurance Contributions 20.2 8.5% Employee & Self-Employed Contributions to “Social Insurance” Programs; and Adjustment for Interstate Commuters Transfer Receipts 38.7 16.2% (9.7) 20.4 Source: Bureau of Economic Analysis See http://www.mmb.state.mn.us/supporting-documents-nov-12  Dividends, interest, and rent : represent income generated payments, the value of Medicare and Medicaid by sale of of the other components merit further description: assets (this  Transfer receipts : these are mostly government benefit payments to assets, but not income from the with respect to both evaluating taxpayer ago. As a result, the use of the POG excludes capital gains). While “wages and salaries” is self-evident, some Annual State Personal Income and Employment, Table SA04. individuals – examples include Social Security for the most recent Price of Gove rnment report, from the November 2012 Economic Forecast. 2 1 Own source revenues: all state and local revenues less “intergover other, such as state Local Government Aid given to cities. 3 Testimony before the Legislative Commission on Fiscal Policy, February 22, 2013 meeting. 4 All BEA personal income data in this publication are as of the September 25, 2012 update. See nmental revenues” – grants from one unit of government to an Total 238.2 100.0% benefits, and income maintenance benefits. Income. doubled over 20 years from 3.8% to 7.0% of state Personal www.bea.gov 3 info@fiscalexcellence.org  Proprietor income : income generated by businesses for their owners.  other states, the adjustment is negative. Employer pension and insurance contributions April 2013 Security and Medicare. The final portion represents employees’ and self-employed persons contributions to “social insurance programs” – mainly Social Security and Medicare – and an adjustment for net flow of income between Minnesota and other states based on commuting patterns. Since more non-reside : basically, employers’ costs for fringe benefits, except for Social 3.8%  7.0% | As these descriptions make clear, Minnesota’s $238 billion Pers Personal Income includes non-money benefits and “imputed” income – the market value of selected transactions that don’t occur in the market economy and that cannot be used to pay taxes. Table 2 shows five major non-money income areas. onal Income amount includes many items that an average Table 2: Five Major Non-Money Components of BEA Personal Income for Minnesota, CY 2011 nts earn income in Minnesota than Minnesotans earn in Amount % of Total Employers’ Pension and Insurance Contributions 20.2 8.5% Value of government sponsored medical benefits (mainly Medicare and Medicaid) Component 16.8 $ billions to pay taxes. And the average Minnesotan would be right. 5 pieces of non-money income were a much smaller share – 15.5% 6 4.8 2.0% Transfers to nonprofit institutions 0.7 0.3% government and evaluating its affordability – represented over 20 Total Imputed rent 21.1% Source: Bureau of Economic Analysis Annual State Personal Income and Employment; Tables SA 04, SA 35, and SA 40 As the table indicates, in 2011 non-money income – essentially 50.3 caution in using the POG to asse Note: Numbers may not add due to rounding. ice of Government. As Table 3 shows; in 1990, these five 7.9 3.3% cents of every dollar of Minnesota Personal Income. This – of total Minnesota Personal Income. Most significantly, the share of government sponsored medical benefits has nearly doubled over 20 years from 3.8% to 7.0% of state Personal Income. is a major departure from the earliest days of Minnesota’s Pr Table 3: Major Non-Money Components of irrelevant to assessing the tax price of state and local Component $ billions % of Total Employers’ Pension and Insurance Contributions 6.3 7.3% Imputed interest BEA Personal Income for Minnesota, CY 1990 Imputed interest Amount Minnesotan would not think of as income that could be used 3.3 Value of government sponsored medical benefits Imputed rent 0.3 0.3% Transfers to nonprofit institutions 0.2 0.2% Total without 3.3 3.8% 13.4 Source: Bureau of Economic Analysis Annual State Personal Income and Employment; Tables SA 04, SA 35 and SA 40. 5 This is the value of investment income earned on life insuran 15.5% Note: Numbers may not add due to rounding. (mainly Medicare and Medicaid) ce and the value of services that depository institutions provide esota Personal Income – the denominator of ome by the producers, and pay-in-kind in the form of meals and lodging. 1 info@fiscalexcellence.org No. 0005 | 6 an explicit charge for doing so. April 2013 Since the early 1990’s, the Minnesota Pri ce of Government has been calculated to measure and track state and local government ’s claim on Minnesota income. However, since its inception, the composition of Minn Minnesota’s Troubled “Price of Government” Abstract the POG – has changed dramatically. 20 y of Minnesota Personal Income – that taxpayers come measure used money components are over 20% of the total, which represents a shift of approximately $13 billion in Minnesota Personal Income from money to non-money income. Moreover, understates state and local government’s cl the fastest growing sources of Personal Income any way to finance government – were roughly 15% of the total. Today those non- – including the value of Medicare and Medi times faster than wages and salaries over the past decade. These findings have major ramifications for the interpretation of the Price of Government metric and its use in public policy debat growth are government transfer payments Even with this adaptation, we encourage caid benefits – which have grown over 2.5 cannot use to pay taxes or fees or remit in es. Including Personal Income in the POG aim on money income – which is 20%-35% in the state’s Tax Incidence Study. Moreover, trends in the composition of Personal Income and demographic trends higher when substituting the household in significantly compromise its common use as a benchmark a sustainable “level” of spending. If policymakers want to maintain a POG- type measure, the state should modify the cu rrent metric by repl acing Minnesota Personal Income with some measure of money income. measure to evaluate affordability or ears ago, five major non-money components ss the affordability of government or set a “price target” While “wages and salaries” is self-evident, some for government because some of the major demographic factors and trends affecting payments, the value of Medicare and Medicaid | April 2013 Introduction Personal Income. MMB staff have descr For nearly twenty years, the state’s Department of Manage (POG) report to accompany the November and February economic forecasts and following the conclusion of each No. 0005 legislative session. The POG metric measures th e ratio of state and local government own source revenues 2 ment and Budget (MMB) has prepared a Price of Government major changes are taking place in the compone nts of the metric, as has happened with 1 Minnesota’s Price of Government. 2 info@fiscalexcellence.org to statewide upport, including the endorsement of Minnesota’s business community, because it was seen as a simple, straightforward metric to track state and local government’s claim on transparency method and tool for Minnesotans’ income. Because it is seemingly so easy to u evidence point in debates over budgets and acceptabl income will continue for the indefinite future. e levels of government However, simple metrics can often mask underlying complexity, rendering interpretations of th e metric problematic in the nderstand and interpret, the POG has inevitably served as an process. This is especially true when ibed the POG as “the state’s main taxation and spending. Policymakers created the POG with broad-based political s : Personal Income for Minnesota, CY 2011 with respect to both evaluating taxpayer cost of state and local government and providing time-series comparisons about the level of invest ment Minnesotans make in state and local government are severely compromised. Trend #1 – Rapid Growth in Non-Money Income ago. As a result, the use of the POG as a Share of Total Minnesota Personal Income onomic Analysis (BEA) is an extremely broad measure. BEA economists designed it to capture the income associated with participating in “production activities” and with transfer payments (largely from the government). No. 0005 % of Total “Personal Income” as determined by the U.S. Bureau of Ec Table 1: Major Components of BEA Personal Income since the POG was developed two decades Minnesota’s Personal Income for calendar year (CY) 2011 (the most recent year Component Amount ($000) $ billions 4 % of Total Dividends, Interest, & Rent Specifically, two major trends have transformed Minnesota 38.9 Transfer Receipts 38.7 16.2% Proprietor Income 20.4 Wages & Salaries 129.7 54.4% billion, which can be broken into the following pieces for which detailed information is available) was $238.2 16.3% 3 communicating the total cost of state and local government to citizens.” 8.6% Total 238.2 100.0% Source: Bureau of Economic Analysis Annual State Personal Income and Employment, Table SA04. While “wages and salaries” is self-evident, some  of the other components merit further description: (4.1%) Dividends, interest, and rent by assets, but not income from the sale of assets (this  Programs; and Adjustment for Interstate Commuters : represent income generated Testimony before the Legislative Commission on Fiscal Policy, February 22, 2013 meeting. (9.7) Transfer receipts benefits, and income maintenance benefits. 1 See http://www.mmb.state.mn.us/supporting-documents-nov-12 : these are mostly government benefit payments to for the most recent Price of Gove excludes capital gains). 2012 Economic Forecast. Own source revenues: all state and local revenues less “intergover nmental revenues” – grants from one unit of government to an other, such as state Local Government Aid given to cities. rnment report, from the November 3 2 All BEA personal income data in this publication are as of the September 25, 2012 update. See nts earn income in Minnesota than Minnesotans earn in other states, the adjustment is negative. No. 0005 | April 2013 mainly Social Security and Medicare – and an adjustment  : income generated by businesses for their owners. 3 info@fiscalexcellence.org  : basically, employers’ costs for fringe benefits, except for Social Security and Medicare.  Proprietor income Employee & Self-Employed Contributions to “Social Insurance” Employers’ Pension and Insurance Contributions 20.2 8.5% Employer pension and insurance contributions for data. www.bea.gov The final portion represents employees’ and self-employed persons contributions to “social insurance programs” – As these descriptions make clear, Minnesota’s $238 billion Pers onal Income amount includes many items that an average Minnesotan would not think of as income that could be used to pay taxes. And the average Minnesotan would be right. states based on commuting patterns. Since more non-reside Personal Income includes non-money benefits and “imputed” income occur in the market economy and that cannot be used to pay taxes. Table 2 shows five major non-money income areas. Table 2: Five Major Non-Money Components of BEA Personal Income for Minnesota, CY 2011 Component Amount $ billions – the market value of selected transactions that don’t 4 for net flow of income between Minnesota and other individuals – examples include Social Security This includes the value of things such as the rental value of owner-occupied housing, the value of farm products consumed at h (mainly Medicare and Medicaid) e ratio of state and local government own source revenues 5 7.9 3.3% Imputed rent Annual State Personal Income and Employment; 6 2.0% Imputed interest Transfers to nonprofit institutions 0.7 0.3% 50.3 21.1% Note: Numbers may not add due to rounding. 4.8 % of Total Employers’ Pension and Insurance Contributions 6.3 7.3% Total Imputed interest 7.0% Source: Bureau of Economic Analysis is a major departure from the earliest days of Minnesota’s Pr ice of Government. As Table 3 shows; in 1990, these five pieces of non-money income were a much smaller share – 15.5% As the table indicates, in 2011 non-money income – essentially – of total Minnesota Personal Income. Most significantly, doubled over 20 years from 3.8% to 7.0% of state Personal 16.8 Income. BEA Personal Income for Minnesota, CY 1990 Component Amount the share of government sponsored medical benefits has nearly $ billions Tables SA 04, SA 35, and SA 40 Table 3: Major Non-Money Components of cents of every dollar of Minnesota Personal Income. This without 6 (mainly Medicare and Medicaid) 3.3 3.8% Imputed rent 0.3 0.3% Transfers to nonprofit institutions 0.2 0.2% Value of government sponsored medical benefits Total 15.5% Note: Numbers may not add due to rounding. Source: Bureau of Economic Analysis Annual State Personal Income and Employment; However, simple metrics can often mask underlying complexity,  13.4 an explicit charge for doing so. 3.8% Tables SA 04, SA 35 and SA 40. This includes the value of things such as the rental value of owner-occupied housing, the value of farm products consumed at h ome by the producers, and pay-in-kind in the form of meals and lodging. ce and the value of services that depository institutions provide 1 info@fiscalexcellence.org | 3.3 April 2013 Abstract Since the early 1990’s, the Minnesota Pri ce of Government has been calculated to No. 0005 This is the value of investment income earned on life insuran 5 Minnesota’s Troubled “Price of Government” rendering interpretations of th government and evaluating its affordability – represented over 20 measure and track state and local government cannot use to pay taxes or fees or remit in any way to finance government – were roughly 15% of the total. Today those non- money components are over 20% of the total, interpretation of the Price of Government which represents a shift of approximately money to non-money income. Moreover, of Minnesota Personal Income – that taxpayers the fastest growing sources of Personal Income – including the value of Medicare and Medi caid benefits – which have grown over 2.5 times faster than wages and salaries over the past decade. $13 billion in Minnesota Personal Income from esota Personal Income – the denominator of acing Minnesota Personal growth are government transfer payments Even with this adaptation, we encourage ears ago, five major non-money components These findings have major ramifications for the come measure used in the state’s Tax Incidence es. Including Personal Income in the POG Study. Personal Income and demographic trends the POG – has changed dramatically. 20 y significantly compromise its common use as a benchmark a sustainable “level” of spending. If policymakers want to maintain a POG- type measure, the state should modify the cu Moreover, trends in the composition of rrent metric by repl metric and its use in public policy debat measure to evaluate affordability or irrelevant to assessing the tax price of state and local Personal Income. MMB staff have descr transparency method and tool for income will continue for the indefinite future. 2 info@fiscalexcellence.org No. 0005 e ratio of state and local government own source revenues | Introduction for government because some of the major demographic factors and trends affecting For nearly twenty years, the state’s Department of Manage (POG) report to accompany the November and February economic forecasts and following the conclusion of each legislative session. 1 April 2013 since its inception, the composition of Minn ’s claim on Minnesota income. However, ment and Budget (MMB) has prepared a Price of Government ibed the POG as “the state’s main ss the affordability of government or set a “price target” The POG metric measures th communicating the total cost of state and local government to citizens.” 3 Policymakers created the POG with broad-based political s to statewide upport, including the endorsement of Minnesota’s business metric to track state and local government’s claim on caution in using the POG to asse Minnesotans’ income. Because it is seemingly so easy to u evidence point in debates over budgets and acceptabl e levels of government taxation and spending. community, because it was seen as a simple, straightforward Income with some measure of money income. 2 nderstand and interpret, the POG has inevitably served as an process. This is especially true when mainly Social Security and Medicare – and an adjustment for net flow of income between Minnesota and other Specifically, two major trends have transformed Minnesota Personal Income since the POG was developed two decades ago. As a result, the use of the POG economists designed it to capture the income associated with with respect to both evaluating taxpayer providing time-series comparisons about the level of invest Minnesota’s Price of Government. ment Minnesotans make in state and local government are Trend #1 – Rapid Growth in Non-Money Income as a Share of Total Minnesota Personal Income “Personal Income” as determined by the U.S. Bureau of Ec cost of state and local government and Transfer Receipts 38.7 16.2% Proprietor Income severely compromised. 20.4 nts of the metric, as has happened with onomic Analysis (BEA) is an extremely broad measure. BEA 4 : Table 1: Major Components of BEA payments (largely from the government). Personal Income for Minnesota, CY 2011 Amount ($000) major changes are taking place in the compone $ billions Wages & Salaries 129.7 54.4% Dividends, Interest, & Rent 38.9 Component 16.3% participating in “production activities” and with transfer % of Total billion, which can be broken into the following pieces  : these are mostly government benefit payments to Programs; and Adjustment for Interstate Commuters (9.7) (4.1%) Total 238.2 100.0% Source: Bureau of Economic Analysis Annual State Personal Income and Employment, Table SA04. Employee & Self-Employed Contributions to “Social Insurance” While “wages and salaries” is self-evident, some  Dividends, interest, and rent : represent income generated by e metric problematic in the of the other components merit further description: of the other components merit further description: Transfer receipts Employers’ Pension and Insurance Contributions 20.2 8.5% assets, but not income from the individuals – examples include Social Security payments, the value of Medicare and Medicaid benefits, and income maintenance benefits. excludes capital gains). 1 http://www.mmb.state.mn.us/supporting-documents-nov-12 8.6% for the most recent Price of Gove 2012 Economic Forecast. 2 Own source revenues: all state and local revenues less “intergover See assets (this sale of rnment report, from the November for which detailed information is available) was $238.2 Minnesota’s Personal Income for calendar year (CY) 2011 (the most recent year nmental revenues” – grants from one unit of government to an All BEA personal income data in this publication are as of the September 25, 2012 update. See www.bea.gov for data. 3 info@fiscalexcellence.org Security and Medicare. No. 0005 4 April 2013 Proprietor income : income generated by businesses for their owners.  Employer pension and insurance contributions | 3  Amount Testimony before the Legislative Commission on Fiscal Policy, February 22, 2013 meeting.  states based on commuting patterns. Since more non-reside nts earn income in Minnesota than Minnesotans earn in other states, the adjustment is negative. As these descriptions make clear, Minnesota’s $238 billion Pers The final portion represents employees’ and self-employed persons contributions to “social insurance programs” – onal Income amount includes many items that an average : basically, employers’ costs for fringe benefits, except for Social to pay taxes. And the average Minnesotan would be right. – the market value of selected transactions that don’t occur in the market economy and that cannot be used to pay taxes. Table 2 shows five major non-money income areas. Table 2: Five Major Non-Money Components of BEA Personal Income for Minnesota, CY 2011 Minnesotan would not think of as income that could be used Component Personal Income includes non-money benefits and “imputed” income % of Total Annual State Personal Income and Employment; Tables SA 04, SA 35, and SA 40 16.8 7.0% Imputed interest 21.1% 5 Imputed rent (mainly Medicare and Medicaid) 6 2.0% Transfers to nonprofit institutions 0.7 0.3% Total 7.9 3.3% such as state Local Government Aid given to cities. other, 4.8 Value of government sponsored medical benefits Employers’ Pension and Insurance Contributions 20.2 8.5% 50.3 As the table indicates, in 2011 non-money income – essentially irrelevant to assessing the tax price of state and local government and evaluating its affordability – represented over 20 cents of every dollar of Minnesota Personal Income. This Source: Bureau of Economic Analysis is a major departure from the earliest days of Minnesota’s Pr pieces of non-money income were a much smaller share – 15.5% – of total Minnesota Personal Income. Most significantly, the share of government sponsored medical benefits has nearly doubled over 20 years from 3.8% to 7.0% of state Personal Income. Table 3: Major Non-Money Components of ice of Government. As Table 3 shows; in 1990, these five $ billions Note: Numbers may not add due to rounding. higher when substituting the household in aim on money income – which is 20%-35% understates state and local government’s cl BEA Personal Income for Minnesota, CY 1990 3.3 3.8% Value of government sponsored medical benefits Note: Numbers may not add due to rounding. (mainly Medicare and Medicaid) Imputed rent Imputed interest 0.3 Transfers to nonprofit institutions 0.2 0.2% Total 13.4 3.3 3.8% benchmark a sustainable “level” of spending. Abstract 0.3% ce of Government has been calculated to Employers’ Pension and Insurance Contributions 6.3 7.3% 15.5% ce and the value of services that depository institutions provide without an explicit charge for doing so. Annual State Personal Income and Employment; 6 ome by % of Total the producers, and pay-in-kind in the form of meals and lodging. No. 0005 | April 2013 This includes the value of things such as the rental value of owner-occupied housing, the value of farm products consumed at h Minnesota’s Troubled “Price of Government” Source: Bureau of Economic Analysis 1 info@fiscalexcellence.org This is the value of investment income earned on life insuran These findings have major ramifications for the metric and its use in public policy debat esota Personal Income – the denominator of the POG – has changed dramatically. 20 y ears ago, five major non-money components – including the value of Medicare and Medi of Minnesota Personal Income – that taxpayers any way to finance government – were roughly 15% of the total. Today those non- since its inception, the composition of Minn money components are over 20% of the total, $13 billion in Minnesota Personal Income from money to non-money income. Moreover, the fastest growing sources of Personal Income cannot use to pay taxes or fees or remit in Wages & Salaries 129.7 54.4% Dividends, Interest, & Rent which represents a shift of approximately interpretation of the Price of Government ’s claim on Minnesota income. However, growth are government transfer payments es. Including Personal Income in the POG understates state and local government’s cl aim on money income – which is 20%-35% times faster than wages and salaries over the past decade. higher when substituting the household in in the state’s measure and track state and local government Tax Incidence Moreover, trends in the composition of Personal Income and demographic trends significantly compromise its common use as a come measure used Since the early 1990’s, the Minnesota Pri caid benefits – which have grown over 2.5 Study. 5 Tables SA 04, SA 35 and SA 40. measure to evaluate affordability or Income with some measure of money income. Even with this adaptation, we encourage caution in using the POG to asse ss the affordability of government or set a “price target” (POG) report to accompany the November and February economic forecasts and following the conclusion of each for government because some of the major demographic factors and trends affecting acing Minnesota Personal 2 info@fiscalexcellence.org | April 2013 Introduction For nearly twenty years, the state’s Department of Manage income will continue for the indefinite future. type measure, the state should modify the cu No. 0005 evidence point in debates over budgets and acceptabl rrent metric by repl legislative session. 2 to statewide Personal Income. MMB staff have descr ibed the POG as “the state’s main 1 transparency method and tool for ment and Budget (MMB) has prepared a Price of Government 3 upport, including the endorsement of Minnesota’s business community, because it was seen as a simple, straightforward metric to track state and local government’s claim on Minnesotans’ income. Because it is seemingly so easy to u communicating the total cost of state and local government to citizens.” nderstand and interpret, the POG has inevitably served as an Policymakers created the POG with broad-based political s taxation and spending. onomic Analysis (BEA) is an extremely broad measure. BEA economists designed it to capture the income associated with process. This is especially true when major changes are taking place in the compone nts of the metric, as has happened with Trend #1 – Rapid Growth in Non-Money Income Minnesota’s Price of Government. Personal Income since the POG was developed two decades e metric problematic in the ago. As a result, the use of the POG cost of state and local government and providing time-series comparisons about the level of invest ment Minnesotans make in state and local government are Specifically, two major trends have transformed Minnesota % of Total If policymakers want to maintain a POG- with respect to both evaluating taxpayer rendering interpretations of th However, simple metrics can often mask underlying complexity, severely compromised. participating in “production activities” and with transfer payments (largely from the government). Minnesota’s Personal Income for calendar year (CY) 2011 (the most recent year for which detailed information is available) was $238.2 “Personal Income” as determined by the U.S. Bureau of Ec billion, which can be broken into the following pieces : Table 1: Major Components of BEA Personal Income for Minnesota, CY 2011 Component Amount ($000) $ billions 4 e levels of government as a Share of Total Minnesota Personal Income 38.9 The POG metric measures th 50.3 Note: Numbers may not add due to rounding. 8.6% Employers’ Pension and Insurance Contributions 20.2 8.5%  Employee & Self-Employed Contributions to “Social Insurance” (9.7) (4.1%) 20.4 Total 238.2 100.0% Annual State Personal Income and Employment, Table SA04. While “wages and salaries” is self-evident, some Programs; and Adjustment for Interstate Commuters rnment report, from the November 2012 Economic Forecast. 2 Source: Bureau of Economic Analysis : basically, employers’ costs for fringe benefits, except for Social Proprietor Income 16.3% excludes capital gains).  : represent income generated Transfer receipts individuals – examples include Social Security payments, the value of Medicare and Medicaid Transfer Receipts 38.7 16.2% benefits, and income maintenance benefits. See http://www.mmb.state.mn.us/supporting-documents-nov-12 : these are mostly government benefit payments to for the most recent Price of Gove Dividends, interest, and rent of the other components merit further description: 1 assets (this Security and Medicare. The final portion represents employees’ and self-employed persons contributions to “social insurance programs” – 3 Testimony before the Legislative Commission on Fiscal Policy, February 22, 2013 meeting. 4 All BEA personal income data in this publication are as of the September 25, 2012 update. See www.bea.gov for data. such as state Local Government Aid given to cities. 3 info@fiscalexcellence.org | April 2013  $ billions Amount Component No. 0005  other, Own source revenues: all state and local revenues less “intergover mainly Social Security and Medicare – and an adjustment for net flow of income between Minnesota and other Employer pension and insurance contributions states based on commuting patterns. Since more non-reside other states, the adjustment is negative. As these descriptions make clear, Minnesota’s $238 billion Pers nmental revenues” – grants from one unit of government to an onal Income amount includes many items that an average to pay taxes. And the average Minnesotan would be right. Personal Income includes non-money benefits and “imputed” income nts earn income in Minnesota than Minnesotans earn in  : income generated by businesses for their owners. Proprietor income Minnesotan would not think of as income that could be used sale of assets, but not income from the by % of Total Employers’ Pension and Insurance Contributions 20.2 8.5% Value of government sponsored medical benefits 2.0% (mainly Medicare and Medicaid) 7.0% $ billions Imputed interest 7.9 3.3% Imputed rent 6 16.8 Table 2: Five Major Non-Money Components of BEA Personal Income for Minnesota, CY 2011 doubled over 20 years from 3.8% to 7.0% of state Personal 5 Table 3: Major Non-Money Components of Amount 4.8 Source: Bureau of Economic Analysis Annual State Personal Income and Employment; Tables SA 04, SA 35, and SA 40 Total As the table indicates, in 2011 non-money income – essentially government and evaluating its affordability – represented over 20 Component cents of every dollar of Minnesota Personal Income. This ice of Government. As Table 3 shows; in 1990, these five pieces of non-money income were a much smaller share – 15.5% – of total Minnesota Personal Income. Most significantly, irrelevant to assessing the tax price of state and local the share of government sponsored medical benefits has nearly Transfers to nonprofit institutions 0.7 0.3% is a major departure from the earliest days of Minnesota’s Pr 15.5% Note: Numbers may not add due to rounding. Source: Bureau of Economic Analysis % of Total Employers’ Pension and Insurance Contributions 6.3 7.3% Transfers to nonprofit institutions 0.2 0.2% Imputed interest 3.8% Value of government sponsored medical benefits $ billions (mainly Medicare and Medicaid) Imputed rent 0.3 3.3 taxes. Table 2 shows five major non-money income areas. occur in the market economy and that cannot be used to pay – the market value of selected transactions that don’t 3.3 3.8% Amount Component BEA Personal Income for Minnesota, CY 1990 Annual State Personal Income and Employment; Tables SA 04, SA 35 and SA 40. 5 13.4 This is the value of investment income earned on life insuran without an explicit charge for doing so. 6 This includes the value of things such as the rental value of owner-occupied housing, the value of farm products consumed at h ome by the producers, and pay-in-kind in the form of meals and lodging. ce and the value of services that depository institutions provide Income. Total 0.3% 21.1% 2013-2014 Research and Education Publications I Lincoln Institute of Land Policy Working Paper Series: “Evaluating the Accuracy of American Community Survey Data on Housing Values and Property Taxes”

7. Analysis and Commentary • Fiscal Focus features have included: • Why Minnesota’s tax policy demands a very healthy budget reserve • A look at the stability and balance of the state and local revenue system post 2013 • How Minnesota’s health and human service safety net compares to other states • How a $17 billion pension deficit came into existence • An examination of the economic status and performance of rural Minnesota • Plus: • Session analysis and recaps • Tax practitioner features on inversions and federal conformity

8. Session Information • Five editions issued bi-weekly during this past session • Bill introductions, session commentary, and updates on tax and fiscal • committee developments

9. Advocacy and Public Communications • Legislative testimony • Radio features • Newspaper editorials and opinion pages • State Tax Notes • Public and professional presentations including • COST • Tax Executives Institute • Institute for Professionals in Taxation • MN Government Finance Officers Association

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11. “Coming Attractions” in 2014-2015 • “Framing the 2015 Budget Debate”A series of articles, blog posts and op-eds examining various reports and analyses which heavily influence public perception of budgets and budget trends • Recommendations for upgrading Minnesota’s “Price of Government” report • Use and misuse of price indexes in examining real revenue and spending trends • Questions that deserve to be answered before putting inflation formally back in the forecast. • Fully Revamped “Understanding your Property Taxes” based on our government transparency work • Anticipated Releases in 2015 Session • K-12 finance and cost trends since the Big Plan • Examination of value capture strategies for transportation finance • Examination of Minnesota’s “Local Price of Government” • Examination of interest arbitration history

12. Looking Forward • Multistate individual income tax comparison study – the nation’s only effective individual income tax rate study -- capturing effects of 2013 changes • Updating our 2013 study on state competitiveness

13. Looking Forward – Key Administrative Initiatives • Continue to build upthe MCFE membership base • Continue to seek ways to strengthen MCFE activities and services • supporting tax professionals • Reinforce organizational relationships to extend the reach of our work • Reinvest in the Minnesota Foundation for Fiscal Excellence • Expand the MCFE Operations and Strategy Committee Help Set the Agenda for Your Organization

14. QUESTIONS? • Thank you for your continuing support of • Sound Tax Policy, • Efficient Spending, and • Accountable Government • in our state www.FiscalExcellence.org