Minnesota’s Moral Hazard

If Republicans want to grow their party beyond fascistic angry white men and gray-haired people, they had better change their course regarding higher education. Our state has witnessed a dramatic shift in state support of public colleges, a shift in financial aid for public college students versus private college students, and when the true costs of higher education are measured, including inflation, it means the burden is shared far more broadly, while the state benefits economically from a more educated workforce.

Minnesota’s Moral Hazard is the increase in structural debt for a vulnerable segment of the population which is placing an expectation on its own ability to meet the financial obligation through higher wages facilitated by a higher educational level. The state’s failure to meet its prior obligation and this burden shift have created a situation likely to face imminent failure.

These inequities in higher education started with the removal of the higher education cap on the state scholarship and grants program back in the late 1990’s. This meant that private college students were no longer bound by the level of financial cost of the highest state sponsored institution, the University of Minnesota, but rather the entire cost of education at private institutions was considered for financial aid purposes. This meant all private college students, who were financially eligible for aid, had a high need. This, in turn, meant the program which had funded public college students with 60% of the awards and private college students 40%, after the removal of the cap, the percentages inverted and now the gap between them continues to grow larger.

Additionally, the state moved to a high tuition/high financial aid model which held one essential flaw, the state never fulfilled its portion of the commitment. This meant students in public colleges had to pick-up the difference and this resulted in unnecessary increases in student loans and thereby student debt.

These structural changes were not all that occurred. Under Governor Tim Pawlenty’s (R-MN) Administration and even great injustice transpired. The state changed the law from 135A.031 Appropriations “The direct appropriation to each board for instructional services shall equal 67 percent of the estimated total cost of instruction for the University of Minnesota, the state universities, and the community colleges, and, for technical colleges, at least 67 percent of the estimated total cost of instruction.”

To: 135A.031 Subdivision 1. Determination of appropriation. The appropriations for the University of Minnesota and the Minnesota State Colleges and Universities are determined by considering the biennial budget documents submitted under section 135A.034, performance in advancing the objectives under section 135A.011, available resources according to the state budget forecast, the relative balance between state support for students and public postsecondary institutions, and other factors the legislature considers important in determining the level of state appropriations for public postsecondary education.

Subd. 2.[Repealed, 2007 c 144 art 2 s 52]

Subd. 3.[Repealed, 2007 c 144 art 2 s 52]

Subd. 4.[Repealed, 2007 c 144 art 2 s 52]

Subd. 5.[Repealed, 2007 c 144 art 2 s 52]

Subd. 6.[Repealed, 2007 c 144 art 2 s 52]

Effectively, these changes in the language from “shall” to “may” and took all the teeth out of the law.

Click on the following links to see how dramatic the shifts have been over the course of the last decade.

University of Minnesota Appropriation and Tuition Split (002)

MN State _Tuition Revenue and Appropriations Chart (002)

One major problem that also occurs is the systems no longer are required to present the cost of instruction in each institution. Since the law changed neither the University of MN or the State University and College system has had to provide these breakdowns. So effectively, the only conversation we are having now is the impact of tuition on the operating expenses of the institutions, including administrative costs.

Minnesota’s Tax Burden is Not a Deterrent to Growth, Failing to Fund Higher Education Is.

The Minnesota tax burden conversation is a specious argument. The state priorities are set by the collective mindset of its political leadership and a surplus in revenue is a reflection of a number of realities. One, our economic system is successful and more robust that estimated. This is a good thing. The old adage is you fix the roof when the sun is shining. Our state has numerous areas which are under-funded and areas of deferred maintenance and recognizing these first, prior to seeking a reduction in state revenue is far more responsible. Second, if our state is to thrive in future years we must prepare for the inevitable economic downturn. This idea is not as far away as some may think. The current uncertainty in Washington DC, the loss of federal funding is a looming issue and failure to reflect this problem in the budgeting process is just plain foolish. Federal funding accounts for a sizable portion of our state budget and the same amount should be retained to offset any loss in funding. This is responsible budgeting. Third, denial of inflationary figures in budgeting is a gimmick to force imaginary budget pressures downward, because arguments can be made against additional funding as an attempt to hold the line on spending. Fourth, Republicans as the anti-government party seek to create systemic failure of government in order to prove its ineffectiveness. Fifth, using one-time money for any expenditure without long-term benefit is shameful, and paying for transportation this way is ludicrous, because those costs can be borne over a loinger period through bonding.

Governor Mark Dayton (DFL) must face the reality every debate with the Republican-controlled legislature is a difference in philosophy and their’s is a direct attack on his fundamental belief system. Every proposition is intent on either starving the grape on the vine, sowing seeds of discontent by increasing bureaucratic response times due to fewer governmental employees and provision of fewer services to people in need.

Call for a Realignment of Priorities

Statutorily, Minnesota is required to disburse its surplus revenues in the following fashion: Shore up the cash account, apply one-third of the amount to the Budget Reserve, and funded unmet liabilities in K-12 education. We suggest a fourth priority be applied and that is the allocation of the remaining money to offset, reestablish the state’s unfunded mandate, the cost of instruction in higher education.

A reduction in the economic burden on the next generation will reap significant long-term benefits. It will position people entering the economy far better because their first mortgage will not need to be for their education, but empower them to actually mortgage their first home, become property tax payers and become more invested in the local community.


We think it is time for Minnesota to return to being the brain power state, envisioned by Governor Rudy Perpich (DFL). In our state priorities for addressing budget surpluses, Higher Education warrants a placement as a state priority. After the allocation to the cash flow account, the budget reserve, and Education, Higher Education should be the next place for replenishment.

Under Republican leadership, combined with DFL complacency, we are causing undue financial burdens on the next generations, just because the budget needed to be balanced after deep Republican tax cuts. Listening to Republican leadership it sounds like the same, tired arguments.

We offer the following quotes from Edmund Burke for your consideration;

“Those who don’t know history are destined to repeat it.”

“Nobody made a greater mistake than he who did nothing because he could do only a little.”



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