here for PDF format
here for participants' responses to this interview.
Blazar, Business Leader
Caucus, 8301 Creekside Circle, Bloomington, MN 55437
Friday, July 30, 2010
Verne Johnson (Chair); David Broden, Janis Clay, Paul Gilje, Jim Hetland,
Dwight Johnson, Joe Mansky, Tim McDonald, John Mooty (phone), Jim Olson
(phone), Wayne Popham (phone), Bob White
Summary of Blazar's comments:
healthiest Minnesota companies market their goods world-wide; tax rates
are very significant in a global economy; redesign services to get more
productivity for less; bring market forces to bear on Medicaid,
transportation and higher education; look closely at pay freezes and
pension changes in the public sector; discontinue automatic entitlements,
such as homestead credits and low higher ed tuition; instead means-test
everything; push candidates for governor on redesign strategy; don't
accept simple "tax" or "cut" options.
Context of the meeting-In
the work of balancing budgets and planning for state finances, there are
short term tools and there are long term tools. Over the short term to
raise revenue a government may levy new and larger taxes; to cut spending
they may cut services. Over the long term, to raise revenue a government
may seek economic growth through the design of public policies.
address spending over the long term there will need to be redesign of
services. That is the challenge Bill Blazar has for the gubernatorial
candidates: To resolve Minnesota's public finances, do not raise taxes and
do not cut services. Instead relentlessly innovate to seek ways to get
better quality for less cost.
Welcome and introductions-Bill
Blazar is Senior Vice President of Public Affairs and Business Development
at the Minnesota Chamber of Commerce. Blazar is responsible for the
Chamber's public affairs program, including policy development, lobbying
and elections. He also manages Grow Minnesota, the Chamber's
business retention and expansion program. He is a member and past chair of
the board of the Minnesota Government Relations Council. Prior to joining
the Chamber Bill was Manager of Government Affairs for Target Corporation,
an independent consultant, and worked for the Citizens League in the
Comments and discussion-This
summary is divided into three sections: Introductory content about the
state chamber of commerce today, an assessment of the economy, and
Blazar's proposals for redesign. It went like this:
evolving character of the chamber of commerce--The
state chamber has been around for 101 years, Blazar explained. For the
first 94 of those years they were exclusively a lobbying organization.
Through a series of meetings and requests that illuminated the important
of individual service to members, the chamber moved into retention and
retaining of business as well. 'Grow Minnesota' is an effort at this:
about chambers of commerce, he said, understand there are three levels and
though they talk to each other a lot they are not related. There are about
130 local chambers that have a staff. "We work very closely with them but
they are by no means obliged to follow what we say." Before adopting a
policy the state chamber shares it with the local chambers and ask for
input in hopes that they'll come along. Nine times out of ten they do.
said that the state chamber sees 900 businesses a year on a one-on-one
basis. They visit, tour, and share information. "When we meet with them we
thank them for having a business in Minnesota," he said. "Until this there
was nobody in the thank you business." It sounds simple, he said, but is
actually very significant.
learn about what they do in Minnesota, and their plans for the future. We
ask if there is anything we can help with." About one in seven companies
have something they ask for help with. Most do not. But Blazar said the
chamber has found just by asking you improve the relations with the
company, and over time their region.
STATE OF THE ECONOMY
Minnesota will not regain its lost jobs until 2014--Blazar
said that the chamber believes it will be until 2014 that Minnesota gains
back all the jobs lost in the economy. "That's what makes this recession
so unique," he said. This is a tough one to pull out of. But the
businesses that have reached into the global market have the best outlook.
The good news is that the world's economy is strengthening.
Those companies weathering the recession best have customers outside the
companies that are doing the best right now-that are climbing their way
out of the recession-are those that have clients outside of the United
States. Those that are not doing well are those with clients exclusively
in the United States, and are particularly those reliant on construction.
Glass, for example. Minnesota has a large cluster of industries around
glass that are being reduced.
challenge is that to be competitive in a global economy than to be
competitive in the United States alone." First a company has got to get
whatever their product is to a global market, and even if they are
shipping bits and bites they must compete with wages and working
conditions. The competitive pressures are very difficult.
illustrated his point with a story of a software company that used to do
all of its work in Minnesota, then opened a new facility in China. They
reported that the workers in China were just as efficient as in Minnesota,
but at much less cost. A while later they opened another facility in
India, and observed that the workers there were more educated and more
efficient than the Chinese at a comparable cost. Recently they opened a
newer facility in Indonesia, and said they are proving even better
workers, at the lowest cost yet.
a global economy tax rates are very meaningful--The
type of tax matters. Increasingly, Blazar said, the corporate income tax
is assuming the form of a personal income tax. Revenues are being passed
through as dividends via S-corporations, and so corporate profits are
being taxed as personal income. (S-corporations are very popular in the
a company whose new ownership has taken issue with the personal income
tax, and since they are not native to Minnesota aren't sure they want to
step foot in the state.
are a growing number of Minnesota companies that are, A) increasingly able
to move elsewhere, and B) under growing competitive pressures from the
global economy. Compounding this, the executive leadership of companies do
not have local roots in Minnesota.
executive has told Blazar, 'I could have the headquarters in North
Carolina, and its only a plane ride from my cabin on the Minnesota lake.'
When you fix the budget problem, Blazar said of policy makers, you've got
to have this in mind.
are part of the cost of doing business, like the price of energy or labor.
"When we did our Grow Minnesota visit to a company planning to relocate
the executive looked David Olson (MN Chamber President) in the eye and
said: 'You've got to figure out how to lower our cost of doing business in
Minnesota by $5 million.' He not only had thought about it, but had a
person who hasn't lived in Minnesota long looked at David Olson and said
"You're nuts." He asked what do you mean? 'You Minnesotans think you can
just tax people whatever you want and that it won't affect you."
PUBLIC SECTOR REDESIGN
opened his remarks by saying he reads all the summaries the Civic Caucus
prepares, and so knows people have laid out the financial position of the
state. "Let me provide you with some answers."
not raise taxes, but do not cut services, either-instead, redesign--"We
just finished 26 focus groups with chamber members around the state,
Blazar said. They all know about the budget problem, and say: 'You can't
raise our taxes,' citing the competitive pressures, then in the same
breath say with a straight face, 'and you can't cut our services.' They
also need a qualified work force, good infrastructure, and like to go
fishing every now and then.
Understand their frame of mind, Blazar pressed: "They are coming from a
world where they are continually delivering more value at the same or
lower price. They are not saying run government like business-they do not
know how to run a government-but they do know the pressures of needing to
improve the quality of services without raising cost, and expect
government to do the same thing."
like Target: more for less--Why
should public services be any different? "I think that when people look at
state and local government they think about Target: they want more for
less." They are very value conscious. I was talking with a CEO recently
who said he won't go into Macy's without a coupon. That is what we have
come to expect as a society.
is partly the responsibility of the governor, Blazar said. On the back
end, a governor may redesign processes to measure outcomes and base
choices off of the results. On the front end, they may direct agencies to
align priorities and use competitive sourcing.
Minnesota Chamber's agenda: target the spending-side of public finances--
of years ago when the statewide chamber directors had their planning
conference they spent some time talking about the budget issues. After
some years of beating our heads about the tax-side, Blazar said, we
thought we may make more progress on taxes if we address the spending-side
challenge is to reshape or redesign services so the government can get
more for the same or lower cost. This takes purposeful work. We have a
couple of ideas we're working with, including a statewide effort."
came up with what Blazar described as a four-part strategy:
Base the budget process on outcomes.
"We want the state to change the process it uses for budgeting to a system
based on outcomes." Instead of putting a shopping list to the agencies of
what it will do, it gives them a goal, provides the money, and assesses on
outcomes. What if people don't meet goals? "We need to get past the idea
that if you don't make the mark you go to jail; in real life if you don't
make the mark you go to plan B. Resiliency. That's an entrepreneurial
spirit that needs to be taught."
Focus redesign on Medicaid and health care, transportation, and higher ed.
"Our association is focused on three areas in particular: Medicaid and
health care; transportation; and higher ed. We've got to look at these key
state services and figure out a way to reshape them so we get more for
less dollars." There are opportunities: The work done in the Minnesota
Bottom Line report we could restructure Medicaid to save $3.7 billion over
two years. (See below.)
Structure and support redesign efforts at the local level.
Get those in the best position to know how to improve things working on
the problem. Blazar reported that his office just put out an RFP to about
40 local chambers of commerce to lead local service redesign efforts in
their community. In six pilot locations city managers, local
administrators, superintendents of schools, and administrators of
hospitals will all sit around the table. They know this budget problem
will end up in their lap. So they can sit around and wait for the state
legislature to do something to them, or they can take the bull by the
horns and think about ways to change the way services are delivered. A
recent grant from the Bush Foundation will enable the chambers to convene
and help staff the work. Once we get the results of the groups, Blazar
said, we'll publish their work state wide (around November).
Target current public expenses.
"You can't just look at how the services are delivered," Blazar said, but
you've got to look at the expense." And that gets at the levels of public
sector compensation and benefits. The chamber has commissioned a study on
the topic with the help of partners. They will have final results at the
end of September.
you an idea about the potential savings: We lined up public sector
compensation next to comparable positions in the private sector in 1992
and 1996. We found that for low and medium skilled work, compensation is
much higher in the public sector. Comparable to the private sector
however, city administrators and city managers are underpaid. The top
people in the public sector are significantly underpaid and the bottom
guys are significantly overpaid. That's how it was in the early '90s, and
we suspect it's more exacerbated now.
A public sector pay freeze could save $350 million over the next
The Minnesota Taxpayers Association has figured if the state instituted a
pay freeze-halting only their inflationary adjustment and steps and lanes,
but not legitimate promotions-over the next biennium we would you save
$350 million. If you go around the private sector almost everyone has had
pay freezes and/or layoffs. It is not unreasonable to expect public sector
employees to contribute fairly."
Modifying public sector retirement plans could save $700 million--Another
opportunity on the compensation front is to move from defined benefit
retirement to a defined contribution. Particularly, as an austerity
measure when Governor Quie managed the budget crisis in the 1980's for a
couple of years they split the contribution 50/50 with employees. "If we
were to implement that again now, the state could save in the biennium
almost $700 million.
get these results we need to figure out how we talk about these things in
a way that can be helpful," Blazar said. Otherwise people will just say
we're going after public employees and why don't we look at CEO's.
Save $500 million+ by means-testing everything
(redesign in processes). Including property taxes and higher education.
The homestead tax credit is unnecessary for many people that receive it.
Unnecessary, and unjust.
both the MNSCU and University of Minnesota systems, figure: What does it
cost to educate a student? Beef up the state grant program...we don't need
to help everybody. The benefit to everyone else is that we're helping move
society forward. "If you price tuition at cost you could probably save
about $500 million, because right now you're subsidizing people that could
be paying more." It is true that to get these programs started-as was the
case with the GI bill and social security-we probably needed to give it to
everybody to earn credibility. But that was before the global economy,
Huge savings potential: Bring market forces to bear on key state
services, including Medicaid
(redesign in health and human services). We could go to a tiered system,
where we take medical providers and put them into categories by cost and
outcomes. To incentivize them to choose marry that choice with the
creation of a health savings account so when a person picks the
lower-cost/better-quality provider they will also be saving money in a
health savings account. When a person leaves Medicaid-which many do-they
are leaving with the beginnings of a health savings account. That's good
because when they enter a workplace most are entering a health savings
account environment instead of the type of environment of Medicaid, with
little or low cost sharing.
this up? The state health plan includes a three-tier system, so we have an
example. Deloitte consultants designed the state health plan. Get them to
talk about applying that to Medicaid.
attributed this progress to Walt McClure's work that originated in the
1980's. Tiered system; communicate cost and quality; incentivize people to
choose. McClure has shown that the best-quality providers in fact operate
at a 20 percent lower cost. So, he reasons, if all providers are as
efficient as the best quality not only will costs drop but we will cut
(likely by attrition) 20 percent of the system. Communities in Minnesota
can move on this, beginning with the Twin Cities. Despite much fanfare
indicating to the contrary, health care is essentially a regional system.
The challenge now and in the future is to communicate information to
consumers and insurers.
The need for redesign needs to be communicated to the gubernatorial
are very prescient ideas. What matters is how they are communicated.
"We've been thinking about this, and have been talking with some PR people
but haven't devised a purposeful strategy." He referred the group to
www.MyMinnesota.org where the chamber documents visits around the
state talking with people about the state budget and how to fix it. "There
is a lot of support for doing things differently," Blazar observed,
"probably more than public leaders realize. If we can get more public
leaders to recognize this they may feel the support to do it.
Hold the candidates to redesign-remove the 'cut and tax' options from
is too easy to spar over cut and tax. Naming what to cut and who
to tax is being mistaken for substance. "Any time a candidate comes to
your door, speaks at a forum, asks you a question, say 'I'm against taxes,
I'm against cutting services,' and look them in the eye and ask what they
are going to do to redesign services." Blazar is simply convinced there is
a sea of alternatives that has hardly been explored. "You've got to raise
this during the election, and be direct and persistent."
a participant asked Blazar what, come the end of the next session, would
leave him with a smile and what would leave him frustrated?
answered that he would be happy if the state had taken a giant leap toward
resolving the budget imbalance through methods of improving the value of
services instead of merely spending more and getting less.
biggest frustration would be if the state continues doing what it has been
doing, raising taxes and cutting services. "We've run out of excuses. I
don't think there is a justification because even when times were good in
2006 we were talking about doing things differently."
have been a groundswell growing in the state around redesigning public
services, but it must be put to action. "A Jesuit Priest told me once,
'the spirit is strong but the flesh is weak.' We've got to get beyond just
that, thank you Mr. Blazar for an insightful meeting.