WASHINGTON – Minnesota's citizens and businesses paid $85.9 billion in federal taxes in 2013. That same year the state got back just $45 billion in federal benefits payments, grants, contracts, salaries and other compensation.
The $40 billion gap is among the country's biggest, according to newly released research compiled by the National Priorities Project.
It raises questions about how — or if — Minnesotans can get a better return on their investment in the federal government.
"Minnesota is younger, healthier and wealthier" than the vast majority of the nation, said Dartmouth government professor Dean Lacy, who studies the relationship between states' federal contributions and benefits. "That's a good thing. But I'd rather have a better balance."
Minnesotans paid an average of $15,847 per person in inflation-adjusted federal taxes last year — twice the U.S. average.
Meanwhile, the state received just $570 per person in federal contracts, as the country averaged $1,482, and less than 2 percent of the workforce held federal jobs, the National Priorities Project data showed. Minnesota also ranks in the bottom third of all states in per person receipts for federal programs such as Medicare, food stamps, unemployment benefits and education aid.
Those numbers reflect a trend that stretches back several years and shows few signs of improvement. The figures pose a taxing dilemma for Minnesota and its politicians.
"We tend to take care of our problems before the federal government has to," said Jay Kiedrowski, an expert in leadership at the University of Minnesota's Humphrey School of Public Affairs. "That's why this is a tricky problem. It's really a hard dilemma. … In a sense, we're being penalized for being efficient."
In one way, the imbalance embodies economic prosperity that would be the envy of many other states.
"If you look at the reasons for this," said state economist Laura Kalambokidis, "it is the combination of Minnesota being a high-income, low-poverty state. The individual income tax is progressive. So higher-income states pay in more."
If the state were poorer, it would collect more federal benefits, Kalambokidis said. "But that would not be a laudable goal."
The states getting the best return on their federal tax dollars are the neediest, added Carleton College economist Jenny Bourne.
"Yes, we are transferring funds via the federal government to other states," said Bourne, a former member of Minnesota's Tax Expenditure Review Study Group. "But take a look at the states with the highest ratios of federal dollars in/dollars out. Most of them are in the bottom 10 in terms of per capita income and proportion of population graduating from high school, having a [college degree] or having an advanced degree."
Still, losing $40 billion a year raises hard questions for elected officials. That amount of money could help a lot of Minnesotans, Lacy explained. For instance, he said, "the University of Minnesota could be doing better and tuition could be lower if the state were not losing so much."
Increasing federal grants and contracts of all kinds is the way to go to close the gap, experts agree. Solutions are, however, much easier to imagine than to execute.
Members of Minnesota's congressional delegation who responded to a Star Tribune request for comment offered ideas but few specific details.
Democratic Sen. Amy Klobuchar said she would like to negotiate "direct congressional appropriations" for Minnesota projects. That power, known as "earmarks," is controversial. It was banned in 2010 because too many federal projects were being given to members of Congress in exchange for their votes on important bills.
"While I believe the process should be reformed to increase transparency and accountability," Klobuchar said, "I don't think we should rely on federal bureaucracy to decide where the money for roads and bridges goes and instead I would like to be able to fight for Minnesota projects directly."
Democratic Rep. Rick Nolan said he has been working with local leaders in his district to lobby for more federal spending on roads, bridges and education.
"While many states receive four or five dollars back for every tax dollar they send to Washington, Minnesota receives only about 65 cents," Nolan said. "I've made it my mission to boost that number."
Democratic Sen. Al Franken said that "Minnesotans deserve to see their federal tax dollars put to use supporting things that will help improve their lives and our state's economy: things like education, infrastructure and research and development."
Incoming Republican Rep. Tom Emmer said the gap proved the need for tax reform that would "lower rates for every Minnesotan" and return money "back to the states, individuals and businesses that are bearing this undue burden."
To be effective, any growth in federal jobs and contracts in Minnesota must add to employment, not substitute government-paid jobs for those that already exist, Kalambokidis said. Growth also needs to align with the state's strengths — medical technology, production of equipment and higher education.
Kiedrowski suggested that using its highly educated workforce, the state "could try to get more defense research and production facilities." But, he quickly added, the state lacks a critical mass of existing defense industries to attract others to join. It is a bit of a Catch-22.
Minnesota has relatively few existing military installations and even fewer prospects of attracting new ones. In 2013, defense contracts, which provide at least two-thirds of all federal contract dollars nationwide, amounted to only $370 per person in Minnesota — more than 2½ times below the national average.
The upshot, experts said, is that even a return to pork barrel politics might not be enough to keep states like Minnesota from subsidizing states like Mississippi, Alabama and West Virginia.
"The notion," said Kiedrowski, "is that those who are better off should help those who are worse off."
Jim Spencer • 1-202-383-6123
