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participants' responses to this interview.
O’Keefe,, former Minnesota Commissioner, Human Services
Civic Caucus, 8301 Creekside Circle #920, Bloomington, MN 55437
Verne Johnson (Chair); David Broden, Janis Clay, Bill Frenzel, Paul Gilje,
Jim Hetland, Jan Hively, Sallie Kemper, Dan Loritz, Joe Mansky, Tim
McDonald, Wayne Popham, Clarence Shallbetter, Bob White
Summary of O'Keefe's comments:
Former state official and college president Michael O'Keefe visits with
the Civic Caucus about the complex nature of the state budget crisis and
the need for a balanced response. He advocates restructuring the budgeting
process to encourage greater cooperation among the state and local
governments, since the majority of public funds are spent locally. He
makes recommendations for saving money in health care, and argues that
higher education costs are being driven upward by a consumer ability to
pay that will not last.
Context of the meeting-
Michael O'Keefe has a diverse and interesting background, including stints
as both public official and private college president. The Civic Caucus is
seeking ideas for reform in those areas in which Mr. O'Keefe has worked,
and is interested in his perspective on both the challenges in and the
prospects for rethinking state services.
B. Welcome and
has served in a variety of roles in government, non-profit, and
educational settings. Most recently O'Keefe served as president of the
Minneapolis College of Art and Design (MCAD), from 2002 to June 2009. He
was commissioner of the Minnesota Department of Human Services during
governor Ventura's term, and spent ten years as executive vice president
and chief executive officer for the McKnight Foundation. His educational
background includes degrees in mathematics and physics.
Comments and discussion-During
O'Keefe's visit with the Civic Caucus, the following points were raised:
1. A real crisis in
thanked the caucus for having these conversations. The state is in a real
crisis-there is a $7 billion deficit counting inflation, which O'Keefe
believes should be factored in. The state has shifted money, spent down
the tobacco fund and reserves and borrowed money from schools in order to
avoid having to do things differently. Without rethinking things, cuts
will soon begin occurring across the board.
Follow the money: The majority of public spending happens locally--O'Keefe
opened his remarks about the budget by saying that the state is in a mess,
and "a bigger mess than it needs to be." The problem requires a complex
combination of solutions, he continued, and the strategy has to deal with
both local and state spending. The state collects a lot of money, he
noted, but it doesn't do all the spending. "Follow the money: 41 percent
of public spending is by local governments, 27 percent by school
districts, and 32 percent by the state. So almost 70 percent of public
money is spent by local forms of government."
Address the problem with every tool in sight, but do not dig a deeper hole--O'Keefe
described how he was in government for "good years," when they had extra
money to spend. "Then we hit a bad year. The budget was good before the
Legislature got a hold of it. Governor Ventura had actually put together a
very reasonable plan that included some taxes and some cuts, and drew down
some state reserves with a strategy to replace them."
the sound way of handling a budget emergency, O'Keefe argued. "When you
have a problem you use every solution in sight," but "do nothing that digs
you a deeper hole."
makers deal with the budget in a highly fragmented way. "Each of the
candidates is looking at where to cut here, where to cut there-nobody is
looking at the budget in a comprehensive way," that includes state and
local spending including school districts, counties and municipalities.
Everything is interconnected. So while Governor Pawlenty has said he
wouldn't raise taxes, in fact he has-not at the state level, but the local
'price-of-government' approach is essential," he said of the strategy
described by David Osborne and Peter Hutchinson to budget by first
outlining desired results, then determining the willingness to pay.
4. Local and state
governments need to collaborate to redesign--We
have to look at local expenditures, O'Keefe insisted, and begin
redesigning services there. We have too many school districts, too many
higher education campuses-in part because we're holding onto a model of
local control. As a state we need to ease toward a model of collaborative
relationships. The local governments have the ability to raise local
property taxes. There need to be constraints on that, to force them to
rework their delivery of services.
the Legislature made it illegal, a participant asked, for the local
governments that receive state money to lobby for more state money?
"They'd probably lobby against it...and they'd win."
Set up legislative 'super-committees' to make allocation recommendations--Lobbyists
work in "silos". They've got their control of certain issues locked in
particular committees. This hinders a comprehensive overall view of the
budget. A participant asked: Is there any way that the lawmaking body
could bring people together so there is more forced cooperation?
"Governor Ventura allowed me to set up committees of all interested
parties to figure out how to allocate money, and he would follow their
recommendations," he responded. The Legislature could set up a
super-committee (including some county commissioners as well as higher
education administrators and superintendents) and make allocation
recommendations through a multi-way discussion among committees, with a
super-committee having the final say. "This is a model that could work,
but you need a governor who supports it."
6. Offset medical
costs by accepting federal Medicaid assistance, and find efficiencies--In
the area of health, O'Keefe advocates taking the federal Medicaid
money-over $1billion-"because one of our goals of a state is to have a
safety net." The state really screwed up when it cut general assistance
medical care, he said. Now minor conditions become chronic or more serious
and people will show up at emergency rooms that cost someone--the state,
the county, insured people-- much more than if they had received
7. The health care system will need a crisis to change--He
has concerns about the system of care, and its methods of payment. "A
third-party-payer marketplace is never going to work unless you have
substantial restructuring. We have a system that rewards doctors on
volume, on throughput," and on the cleverness of their support staff to
classify what it is that went on in the exam room. He described a doctor
who told him that whenever he performs a service he cuts and pastes a
description for the service directly out of the Medicare guidebook, which
guarantees he'll be reimbursed. Instead, O'Keefe said, the state needs
more systems like Mayo where doctors are paid salaries.
expressed skepticism that the system can be reformed piecemeal but feels
that it will need to break under crisis before true and comprehensive
reform will be acceptable.. "I used to think that I'd work on it and the
system could be changed. I've come to believe the medical system is now
insoluble. There are so many players, and so many moving parts, that any
change to the system will 'gore the ox of enough parties' that they'll
join together and stop it." The only way to reform health care is to have
a roaring crisis that causes us to remake it from the ground up.
"Piecemeal won't work."
majority of expenses now are incurred at the very end of life, even if
they don't significantly affect the outcome. Even so, the Medicaid system
allows doctors to provide procedures and get paid. "I don't think there
are many answers to that-that's where the salary structure could help, or
we could have a Canadian- or British-style process for controlling costs.
But that raises the specter of 'death panels.'"
problem with health care," he said, is that it is an infinitely desirable
good. If it is offered and paid for, people will consume it in greater and
greater volume. As technology advances there are more and more medical
service offerings. "It's a cultural issue that we need to resolve."
8. Divert nursing home
payments to assist with home care--The
state has too many nursing home beds, O'Keefe continued. An alternative is
to issue modest reimbursements for relatives to care for elderly people in
their home. "We're all familiar with the institutional nursing home
setting. What the private sector demonstrates as workable is a lower-cost
alternative," a communal living environment where other areas of the
facility have more intensive care. Lutheran Social Services has facilities
like this and non-profit and for-profits have made them work for the
people today are providing care for elderly family members for no money
at all. The state could encourage more creative solutions-neighbors,
family, retired nurses providing the care-by agreeing to offset some of
the personal costs.
expressed concern that if the door for payment were opened, it could cause
an avalanche of claims. "That would need to be considered," he
acknowledged. But something has to be done differently, and not just for
costs. "If you think your medical bills are complicated, take a look at
the payment structure for nursing homes."
option for compensating care might be to offer tax deductions for
expenses. "There's a whole set of strategies. The question is how public
policy facilitates these without creating a whole new bureaucracy."
participant expressed a need to change the notion that life consists of
first the nuclear family, then nursing homes. There is a transition, and
there are facilities that span the whole range. "But that perception I
hope is changing. The incentives are the wrong way-everything's supporting
the nursing homes."
9. The state may not need two public post-secondary systems--A
participant asked whether the state government really needs two higher
education systems. "I don't think so," O'Keefe responded. "Take a look at
the administrative over-structure-it's huge." O'Keefe described his hope
that new leadership at the University and at MNSCU will be willing to
engage in a discussion about reducing the aggregate administrative
overhead, admitting that it would be enormously unpopular with their
constituents but nevertheless needs to be done."
costs are being driven up faster than inflation--Higher
education costs have been rising at double the rate of inflation for 25
years, he said, and that's not sustainable. Part of the cost-driver has
been on the administrative side, and part because of increased
complication caused by increased requirements of the federal government.
"But a huge increase has been a market phenomenon driven by students and
families: they want more, and they're willing to pay for it."
Expectations have increased. "You can't sell a dorm room with three beds
anymore. What students and their families want is an apartment suite with
living area, kitchen, laundry etc. And, they're willing to pay for it.
Witness private developers who are putting up such style dorms and making
recalled many years ago that The George Washington University was
considered "middling" in terms of quality. They brought in a consultant
whose recommendation was that they double tuition. They increased it by 40
percent in the face of deep concern that applications would go down;
instead they went up by 60 percent. "People were willing to pay more
because of the perception of quality implied by the higher tuition."
Perception is a major contributor to the increase in price, O'Keefe said,
and so long as people are willing to pay, colleges will compete with each
other to increase offerings, amenities and, in turn, tuition. "With the
endowment Harvard has, they wouldn't need to charge any tuition. But if
they didn't it would be embarrassing-people would think the education must
not be worth much."
11. Virtual education
has significant, widespread potential--To
a question about virtual education, O'Keefe said he thinks it has huge
potential to bring students rich experiences without having to first bring
them together in person.
college of Art and Design he described a professor who taught via the
internet from South Africa. The students were satisfied, he said, with a
balance of internet-conferencing, faxing images to each other, and working
face-to-face in groups on campus. "I was very surprised; it resulted in a
the application of technology has increased costs: "So far when new
technologies have been added they haven't reduced costs, as some had
promised. I'd argue you have to change the system of teaching for that to
12. Sex offender
treatment programs ineffective and costly--O'Keefe
offered a final area for potential savings that he acknowledged is
attractive from a policy analyst's perspective but political dynamite:
the state's sex offender treatment program. Offenders who have served
their prison time but are still judged (by the courts on petition from
local prosecutors) dangerous to the community are confined by the state
but at huge cost. The number of people in such facilities is growing such
that we're building a new facility about every five years. The intent is
rehabilitation then release into the community but the record is that
only a couple of people have been released since the program began and
both were re-admitted. "The whole underlying model doesn't work." People
feel sex-offenders can be treated successfully but they're not. O'Keefe
said that his proposal would be to reform the justice system so that when
sex-offenders are finished with their sentences, if they're able to rejoin
the community they should be let go.
problem is that the odds are, in a situation like this, some of them are
going to re-offend. And the politics are that when one of them offends
you'll get pressure to say 'I don't care how much it costs...retain them.'
I don't have a solution, but this is something that must be resolved.
People go into treatment programs but don't come out," and that is not
brings me to sentencing reform," he continued. Minnesota has one of the
highest prison populations in a country that has among the highest prison
population ratio in the world. The state has got to look at what people
are being sentenced for.
13. Simply maintain
the status quo on budgeting?--A
participant asked O'Keefe what the situation would look like if the state
simply maintained the status quo? "We will go through a process that will
lead to across-the-board cuts." This would not be strategic, he
said-instead of targeting cuts, or forcing redesign, it would be like
using a blunt instrument to cut everything.
14. Importance of leadership by the Governor--O'Keefe
closed with thoughts about the coming role of the governor. "The question
is whether we have the will to solve the budget crisis. The Governor I'd
like to see in office is a person with a comprehensive view who and
understands what direction we need to go and then begins to prod others to
move in that direction.
these things you won't see in the campaign. But I think a Governor needs
to come in and open a community conversation in the state about what our
values are, and where we're going to go. Otherwise the process will be
blunt, and we are going to get cutbacks in areas where we don't want
cutbacks. What we need is a reassertion of our values and priorities,
perhaps even a change in the whole way we think about government and
you to Michael O'Keefe, for a good discussion.