Spending on affordable housing won’t improve affordability in St. Paul
After enacting one of the strictest measures of rent control in the nation, St. Paul is set to make a significant investment in affordable housing. As reported by the Star…
Unfortunately, the list of bad spending proposals does not end here. Here is a look at more potential projects that legislators might spend Minnesota’s $7.7 billion budget surplus on and why those programs are a bad idea.
The cost of housing, like most traded goods and services, is determined by the interaction of demand and supply. The growing cost of housing in Minnesota is due to the failure of supply to meet demand –– in recent years, growth in housing supply, especially in the Twin Cities has lagged population growth.
Data from the Metropolitan Council shows that between 2010 and 2017, for instance, the Twin Cities added 83,091 households (a growth rate of 7.4 percent) and only 63,604 new housing units (a growth rate of 5.4 percent) — a shortfall of 19,487 units. And compared to other regions, the Twin Cities region has had the 4th highest housing growth shortfall among 12 peer metros between 2010 and 2020.
Increasing spending on affordable housing will not improve housing supply. It does not tackle excessive fees and regulations, which delay construction projects and significantly increase the cost of housing development –– costs that are ultimately passed down to consumers.
Earlier last year, the U.S. Congress passed a $1.2 trillion infrastructure spending bill. Out of that, the Minnesota state government is expected to receive $4.8 billion for infrastructure projects.
With such a high amount of money coming from the federal government, extra state spending on infrastructure is unwarranted. Granted, the state will have to match federal funds at 20 cents per dollar, but such matching will cost less than if legislatures decide to dedicate state funds to their infrastructure projects.
While funding for higher education doesn’t seem to be anyone’s priority, the University of Minnesota and the State Colleges and Universities system are requesting nearly $1 billion in extra funding from the state legislature due to the surplus.
The University of Minnesota has raised its initial ask of $274 million to $936 million after the surplus was announced, and the State Colleges and Universities system has raised its initial ask from $25 million to $356 million. In total, they are asking for an extra $990 million.
The fact that these colleges are asking for money simply because it is there seems to point to the likelihood that they do not need it. But apart from that, Minnesota generally spends a lot on education, including higher ed.
In the 2020-2021 biennium, for example, the Minnesota government spent close to half of its general fund budget on education. Of that spending, 17% went to higher ed. And in the next biennium, the state is expected to spend 46.5 percent of its general fund budget on education, with 17 percent ($3.5 billion) of that going to higher ed.
Dedicating more funds so that the U of M can implement “solar electricity generation on campus” or continue its use of electric vehicles is hardly a good use of taxpayers’ money, especially amid concerns regarding exorbitant pay for university administrators.
And if the state uses the budget surplus to increase funding entitlements to the University of Minnesota or the state’s college system, not only will that increase the portion of the state’s funds currently allocated to education –– leaving little room for other programs–– but it will also increase long-term expenditures in the state budget.
The Minnesota government is spending more money now than at any other point in history. The state also spends more compared to most other states. Increasing spending and introducing new programs should not be a priority in the upcoming legislative session.
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