Northwestern Financial Review: Government officials describe challenges in Iowa, Minn.

State government leaders in Iowa and Minnesota recently brought their messages to banker groups. In Iowa, Gov. Tom Vilsack (D) opened the Day with the Superintendent Event on April 28 in West Des Moines. In Minnesota, Dan McElroy, the chief of staff for Minnesota Gov. Tim Pawlenty (R) spoke during the spring seminar of the Bank Holding Company Association on May 3.

Vilsack advocated for the re-establishment of a "Values Fund," a vehicle for attracting companies to Iowa and retaining existing employers in the state. McElroy described the administration's budget proposal, focusing on reasons for holding the line on taxes. Both government officials spoke about competition from globalization and the need to invest in the state's educational systems.

"If you take 100 ninth graders from across the state of Iowa," Vilsack explained, "only 83 would graduate from high school in four years. We are far above the national average, but 17 in Iowa do not graduate. Many of those folks go on to receive their education in a correctional facility at a very, very high cost to all of us.

"Of the 83 that graduated from high school, 54 go on to college of some kind within a year of graduating from high school. That means 29 do not. They feel satisfied with that high school diploma. In today's world, that will not be enough for you to succeed to support your family; the more you learn, the more you earn in this global economy. We have to encourage young people to continue beyond high school.

"Of the 54 who are in college, only 37 are in college the second year," Vilsack continued. "Some drop out because they believe they can't afford to stay in school; I believe they can't afford not to stay in school. But most of them drop out because they are not prepared as well as they need to be for the rigors of college. Two years of math, two years of science at most high schools is all you need in Iowa to graduate from high school. It is not enough. We have got to strengthen our graduation requirements. We have to ask more and expect more from our youngsters because they are in a very competitive circumstance. They are not competing against the kids in the adjoining school district; they are competing with every child their age all over the world. Youngsters in China, youngsters in India are working harder, they are going to school longer, and are motivated to go further. We have got to respond to that competition.

"Of the 37 who are in college, only 28 of the original 100 will graduate from a two-year program within three years, or from a four-year program within five years. And we are considered one of the best education states in the country. That's not good enough."

In Minnesota, McElroy explained the administration's efforts to set a budget with a 6 percent overall spending increase. He said the governor is proposing an 8 percent increase in education funding, if it includes adoption of a pay-for-performance system for educators.

"We ignored the fact that in some schools 70 percent of the students don't finish high school in four years, or 40 percent of the students can't read at an eighth grade level in time to graduate in four years," McElroy said. "On average, we graduate about 90 percent of our students in four years, compared to a national average of 74 percent, but we can't be content with educating averages.

"We have to educate every child. And so we have to be willing to change some things, like paying teachers based on their performance rather than their seniority, re-inventing the junior and senior year in high school so it is more effective. And we have to look more at school principals as CEOs, rather than bureaucrats and thoughtless disciplinarians. That is, someone who is running a business whose product is satisfied parents and educated children. We cannot have a competitive economy in the 21st century without effective schools."

McElroy said the governor wants the state to benefit from expansions in gambling which already are taking place. "It is a fact that Minnesotans love to gamble," he said. "We are among the top states in the country in terms of gambling per capita. We have 18 successful casinos in Minnesota. We have the third-largest casino gaming industry in the country after Connecticut and California. Our competitors get revenue from casino gaming. Connecticut, California, New York and others states get about 25 percent of the revenue from their tribal casinos in exchange for exclusivity. States around us get revenue from gaming. In Wisconsin's case, they have an agreement with their tribes. In Iowa, South Dakota, Illinois and Michigan, they have private gaming.

"The governor's preference would be not to expand gambling. But it would be delusional to say that gambling isn't expanding of its own initiative. We've gone from 15,000 slot machines in Minnesota five years ago to 21,000 machines today. There are more sales of lottery tickets, pull tabs, and online gaming than ever before. It's a $1.4 billion industry. The question is not should gambling expand, but who should benefit?

"The governor has partnered with the White Earth tribe to propose working with Canterbury Park, to have two facilities which we are calling the Casinos at Canterbury. It would not provide a geographic expansion of gaming. It would provide revenue to the state, and revenue to some of the poorest Indians of Minnesota."

McElroy concluded: "Would you rather get revenue from Minnesota gaming, or raise taxes on Minnesota families? We think it makes more sense to get revenue from gaming."

By Tom Bengtson