Count every penny

Cut the waste, save the budget.

Eight years ago, American Experiment asked Minnesotans in our quarterly Thinking Minnesota Poll if they thought state government spends too much, not enough, or about the right amount. Back then, 36 percent said the state government spends too much. Today, that number jumped to 48 percent, a 12 percent increase. We also asked what percentage of state spending they believe is wasteful. Since 2023, that number has held steady at 33 percent. Imagine that: Minnesotans believe one-third of the state budget is wasted.

We also asked Minnesotans how much fraud and waste is acceptable as a percentage of their paycheck. Seventy-eight percent said less than five percent of their paycheck would be the acceptable amount of fraud and waste in state government. Sixty-one percent said zero. This is a notable gap between what Minnesotans believe is happening and what they will tolerate.

But the fact is, Minnesotans are waking up to government spending as a problem.

Recently, the Department of Government Efficiency, or DOGE, headed by Elon Musk, identified billions of dollars in waste and inefficiency in the federal budget. But what if there were a DOGE effort here in Minnesota? American Experiment has undertaken an examination of the state budget with a DOGE lens to identify billions of dollars in permanent, sustainable spending cuts — a solution to the government spending problem.

The budget just passed by the Minnesota Legislature is actually out of structural balance by $2 billion. In other words, we are spending $2 billion more than we are taking in through tax revenue.

The policy and budget changes recommended by American Experiment would bring the state budget into balance. But why stop there? We identified enough budget cuts to go beyond “balance” and allow for tax cuts that could put Minnesota back on the path to prosperity.

Setting the stage

Our state is facing two distinct and troubling challenges — one long-term, one short-term.

In the long term, our tax-and-spend policies have steadily contributed to the decline of the state’s economy, which, in turn, has caused many people, especially those with means, to leave. The result is an unsustainable status quo, and radical change is necessary to pull us out of our current death spiral.

According to American Experiment economist John Phelan, what matters for economic welfare is per capita income, measured as Gross Domestic Product, or GDP. This is a general measure of welfare, indicating the amount available per person for consumption, investment, or other use. To increase economic welfare, we need to raise per capita income.

Minnesota’s recent record on per capita GDP growth is concerning. The state has long been able to boast a per capita GDP above that of the United States generally, a “premium” for living here.

In 2004, this premium was $4,973 per Minnesotan, and as recently as 2014, it was $4,669 — or $18,676 for a family of four. Since 2014, however, this premium has fallen every year and was down to just $435 in 2023.

The annual data for 2024 make it official: For the first time, Minnesota’s GDP per capita was below that of the U.S. In 2024, Minnesota’s level of GDP per capita was $285 lower than the U.S. It used to be true that only Wisconsin could match Minnesota’s falling GDP record. As of April, that is no longer the case.

The two factors driving GDP growth are taxes and migration. It’s widely understood that Minnesota is a high-tax state. We are the fifth highest in income taxes, the 15th highest in combined state and local sales taxes, the second highest in corporate income tax, and 12th highest in state tax collections per capita.

The justification is, “high tax, high service.”

But taxes can hinder economic growth and harm the economy.

Taxes also influence migration, as taxpayers relocate to states with lower tax rates. This is the other troubling sign for Minnesota’s economic future.

Since 2019, U.S. Census Bureau data show Minnesota has lost a net 47,865 residents to other parts of the U.S., ranking 34th out of 50 states.

But who, exactly, are we losing?

The IRS records the ages and incomes of the primary taxpayers in a household as they move — or don’t — around the country.

On net, Minnesota lost residents in every single age category between 2019-2020 and 2021-2022. This is contrary to the narrative that retirees are the ones leaving Minnesota for sunnier climates.

This pattern isn’t repeated if we look at the breakdown of Minnesota’s net domestic migration by income. Since 2019-2020, Minnesota gained residents, on net, in the income categories below $25,000, but lost them in every income category above that.

The problem isn’t simply that the rich are fleeing our state. We record net losses of middle-class Minnesotans.

Despite these economic realities, the Minnesota Legislature just passed a budget that is structurally unbalanced going forward. They used leftover cash from the previous $18 billion surplus to meet the constitutional requirement of a balanced budget. But we are still spending around $2 billion more than we are taking in each biennium.

Where do we start cutting?

Diversity, Equity, and Inclusion (DEI)

We can start with a category that Elon Musk took on in his national DOGE effort: Diversity, Equity, and Inclusion (DEI).

Using the DOGE lens on the Minnesota state government, American Experiment identified 173 full-time employees working in Gov. Tim Walz’s state agencies whose sole function involves DEI.

Many have dubious titles, such as Equity and Inclusion Officer, Inclusion and Engagement Supervisor, Chief Inclusion Officer, and our favorite, Culturally Responsive Arts Education Art and Equity Systems Specialist.

We also identified 139 people working in DEI at Minnesota’s 12 four-year public colleges and universities, paid for by a combination of taxes and tuition.

If each of these 312 employees costs the state at least $100,000, that’s $31 million in savings.

Nonprofits

Direct funding of nonprofits by politicians has become the new source of fraud and waste in state government and deserves scrutiny. The most notorious is the Feeding Our Future fraud scandal.

Over $1 billion was allocated to nonprofits like Feeding Our Future in the last state budget. Assuming that at least 25 percent of that money is either wasted or flat-out stolen, enacting these three proposals would save $250 million over the next two years.

Education

There are two areas of the state budget that together account for 70 percent of the spending, and both are subject to automatic increases.

When it comes to education, lawmakers copped out this year and created a blue-ribbon commission to make $250 million in future cuts to the K-12 education budget. We can do better.

First, uncouple the per-student funding formula from inflation. We need to take it off autopilot and make the legislature vote each year on whether to increase funding. Not tying the general education basic formula allowance to inflation would save $570 million over the next two years.

Second, slowing principal and assistant principal growth to match that of teacher/ student growth would save roughly $25 million over the next two years.

Slowing administration growth to match that of teacher/student growth would save $21 million over the next two years.

Prevailing wage

Prevailing wage is a construction issue that artificially raises the cost of every construction project, especially road construction. The law dictates that employees working on state-funded construction and public works projects be paid wages comparable to those paid for similar work in the area. A 2024 change to Minnesota’s prevailing wage law now requires all conservation work to be covered by the statute, raising the rate on some projects from $18 to $40 per hour. With Minnesota spending over $1 billion per year on road construction alone, eliminating the prevailing wage requirement could save the state $143 million annually.

Public safety

American Experiment believes that public safety is the one area of state government where spending could be increased. In recent years, Minnesota has been among the states with the lowest incarceration rates in the nation: We currently imprison 144/100,000, while the national average is more than twice that rate at 323/100,000. We hold just over 8,000 criminals in our state prison system.

When one percent of the population commits the majority of crimes, incapacitating them when we have justification to do so is imperative for crime prevention.

We propose putting an additional $200 million per biennium back into the public safety budget.

To help offset some of that increase, Minnesota DOGE would slash the Community Crime Intervention and Prevention Grant Program (CCIP), saving $28 million over two years. CCIP is another example of nebulous grants to nonprofits that divert money away from imprisoning dangerous criminals.

Human services

Now it’s time to tackle the big kahuna of state spending: Health and Human Services (HHS). Defined broadly, it’s welfare and healthcare for different groups of Minnesotans, mainly the disabled, the poor, and seniors.

Human Services includes medical insurance coverage, including long-term care, Medicaid, Children’s Health Insurance Program (CHIP), MinnesotaCare, Cash Assistance, and General Assistance, among other programs. Minnesota leads the country in welfare spending per person in poverty. So, how do we get human services and welfare spending under control before that budgetary ticking time bomb goes off?

It’s important to note that making these budgetary changes is not about kicking people off welfare or taking away their healthcare. It’s about ensuring the system is fair and that our resources are allocated only to those who truly deserve our help, not to fraudsters or cheats.

The legislature made several expensive changes to welfare coverage in the 2023 session alone. Just growing HHS spending at the rate predicted back in February 2023 (before the budget was passed) would save us $4.2 billion.

The changes we propose are primarily aimed at slowing the growth in existing programs, not taking programs away. Some examples:

The 2023 legislature applied an onerous public union wage system to the Personal Care Attendant (PCA) program that raised costs and fast-tracked inflation adjustments in our complicated Medicaid formulas; it also accelerated cost growth.

Furthermore, we’ve stopped asking many Minnesotans on welfare to share some of the costs, such as high-income parents with disabled children, disabled individuals on Medicaid who are employed, and Medicaid recipients who no longer make copays.

Additionally, limiting payments to only those who are qualified (through eligibility checks) will reduce massive amounts of fraud. We think eligibility checks will save $300 million every two years.

The legislature also made several changes in 2023 making it easier for people to get on cash assistance. Repealing those changes that make it easier for people to get on cash assistance and stay for an extended time would save $99 million.

Additionally, eliminating free healthcare for illegal immigrants through MinnesotaCare saves $238 million, repealing COVID-era payments to childcare providers saves $260 million, and ending a COVID-era rental assistance program created with federal money that Minnesota continued after the pandemic would save $46 million.

State borrowing (B3)

All construction projects funded with state borrowing must use the expensive B3 design process. The B3 (Buildings, Benchmarks and Beyond) process artificially inflates construction costs to comply with progressive environmental regulations. Among other things, the B3 guidelines require buildings to be 90 percent more energy efficient than average. We estimate B3 adds as much as 20 percent to the cost of every project. If the legislature passes an average-sized bonding bill of $1 billion, $200 million will be wasted by the B3 building process.

Energy

Funding for energy nonprofits was a target for Elon Musk’s DOGE. Minnesota has similar programs that can be cut. Any spending that doesn’t make energy cheaper, safer, and easier to deliver to your home or business should be examined with a DOGE lens.

Energy policy should focus on lifting our nuclear energy moratorium, repealing the mandate for renewable electricity by 2040, and streamlining the state permitting process.

Broadband

The state spends hundreds of millions of dollars connecting people who live in the most remote parts of the state to high-speed internet. It’s a worthy goal, but it’s become the dog chasing the car as technology changes and yesterday’s standard becomes obsolete overnight. Government programs favor digging trenches and burying cable, even as Elon Musk continues to improve his Starlink technology. Minnesota will spend $200 million on broadband connectivity over the next two years.

Legacy funding

Although not part of the general fund, the Legacy fund provides a laundry list of wasteful and unnecessary spending using proceeds from the sales tax and the state lottery. Because the money is there and must be allocated for these constitutionally dedicated purposes, sometimes the normal scrutiny and discretion of the legislative process isn’t followed. A lot of the funding is handed out to state agencies and quasi-government organizations like the State Arts Board. These organizations then award grants to individuals and small groups to carry out projects that meet the mission of the funds.

This multi-layered grant-making process is how we end up with silly and wasteful expenditures that would never make it through the legislative process on merit. Projects from these funds often make it into the finals of our annual Golden Turkey Awards for the silliest government spending. (We like to think our Golden Turkey Award was DOGE before DOGE was cool.)

Our Minnesota DOGE effort identified $4 billion in permanent spending cuts to the Minnesota budget. Those cuts would not only erase the $1.9 billion structural imbalance, they would also provide enough savings to afford an across-the-board income tax cut of one-half of 1 percent! Spending reforms that lead to tax cuts would be a good start in giving productive Minnesotans a reason to stay in the state. Minnesota has plenty of work to do to reverse our path to financial despair. A state DOGE is a good place to start.