Minnesota will be recovering from COVID-19 for years

It seems like this has been going on forever. On March 6, I wrote the following in our newsletter, Daily Reformer: 

With Super Tuesday over we turn our attention to the most important event happening in American politics: COVID-19. The reason I say that is because of its economic effects, which are already massive, and we haven’t even felt the brunt of it yet.

At the time the U.S. had 394 confirmed cases and 16 known fatalities. Exponential math, the billionaire’s best friend, has been cruel to us ever since. As I write, about 11 weeks later, about 80,000 have died. 

Minnesota is now seeing rapid growth after boasting one of the lowest per capita infection rates for weeks. 

And in that time, life has been more radically altered at a collective level than at any moment in my and almost certainly your lifetime. 

But here’s what we must reckon with: It’s just beginning. 

As scientists are now warning us, we will endure this plague for quite some time. Even if it recedes this summer, it will come back in the fall. 

The virus didn’t create the problems we’re now facing. It’s just made them impossible to ignore. In the coming years we will have to confront crises in our hospitals, our schools, our courthouses, our workplaces and our Capitol. 

We’ve been tracking this story closely and decided to take a moment and look out at the horizon.

What are the big challenges we’ll face both here in Minnesota and nationwide in the months and years ahead? More than ever, Minnesota needs smart, assertive government, compassionate businesses and effective nonprofits. We’ll be watching. — J. Patrick Coolican

Health care care system is ailing

The American health care system was already both bloated and ineffective before COVID-19 — wildly expensive compared to other countries even though our life expectancy is no better and actually falling for poorer Americans.

And now the system is being blown up. Health care providers are faced with a bedeviling new disease that is ramping up demand, while hundreds of thousands of newly unemployed workers will require care and may not be able to pay for it. 

The state recently forecasted that enrollment in Medical Assistance — the public health program for poor people and Minnesotans with disabilities — would balloon by 10%. Most of the increase is expected to come from skyrocketing unemployment. This is a major hit to the state budget, but also not great for health care providers because Medical Assistance reimbursement rates are lower than private insurance. 

Take the state’s largest safety net hospital: Hennepin Health Care expects to lose $110 million, and that’s after an infusion of federal cash. 

Health care providers also lost lots of money for two months when Walz stopped elective surgeries, allowing hospitals to stock up on personal protective equipment and other supplies in preparation for coronavirus. In a bizarre twist, thousands of health care workers were furloughed during the pandemic. 

In greater Minnesota, health systems were already struggling. If the pandemic hits, it could overrun rural hospitals.   

Finally, doctors, nurses, technicians, home health aides and other workers — all of them at risk of contracting the virus — are also at great risk of burnout. Minnesota’s much vaunted health care infrastructure will need an infusion of energy, talent and money when this is all over. — J. Patrick Coolican

Contending with a COVID learning slide

School closures will surely worsen Minnesota’s already-alarming racial achievement gaps, as students without laptops, high-speed internet and parental support will struggle to keep up during distance learning.

After weeks without school, thousands of students in some of the state’s largest districts never logged on to virtual learning platforms during the first week of distance learning, meaning they missed out on at least another five days of lessons. Some districts aren’t tracking student participation while schools are closed, which experts say will make it difficult to assess student learning. 

School readiness will vary widely when in-person instruction resumes — and educators and policymakers need to be prepared to help students catch up. Researchers suggest funding summer school, assuming schools can open during the summer; tutoring for at-risk students; and training for educators in online instruction to mitigate learning loss.

Walz issued an executive order Thursday allowing schools to hold summer learning programs that could involve some in-person instruction, as long as they have safety measures in place. At least one metro district, Saint Paul Public Schools, has already canceled some summer programs.

Advocates and experts were already critical of Minnesota’s lack of action on the achievement gap. The Legislature had been considering a number of proposals aimed at improving student outcomes, among them a constitutional amendment and increased funding for early childhood education programs. But those issues have been sidelined this session as legislators have devoted all their attention to COVID-19. — Rilyn Eischens

A wave of evictions and foreclosures

Preventing a tsunami of evictions and foreclosures because of the coronavirus will be a challenge for leaders at all levels of government. Walz issued an executive order in March suspending evictions and foreclosures during his peacetime emergency (now ending on June 12), but it doesn’t suspend rent and mortgages. 

As soon as that moratorium is lifted, landlords and banks could line up to evict people who’ve fallen months behind on their housing payments. It’s difficult to assess just how many people are at risk of losing their housing. Government payments including $1,200 to most Americans and an extra $600 per week in unemployment insurance have helped those out of work continue to pay their bills. Cities and counties have also allocated millions toward rental assistance, while the state is mulling its own housing assistance package. 

Landlord surveys show only a small drop in rent payments from last year, suggesting many are getting the help they need. Housing advocates point out that those surveys overrepresent large, commercial landlords, which tend to have middle and high-income tenants. And, even if the surveys offer an accurate snapshot of the entire rental market, with over 600,000 rental units in the state, a drop of even a couple percentage points represents thousands of households who haven’t been able to pay because of the coronavirus. 

Minnesota was already confronting a housing crisis before the pandemic with over 550,000 Minnesotans spending more than one-third of their income on housing. But just one in four households who are eligible for rental assistance gets it. 

That means even governments relief packages will almost certainly fall short of the need. 

Given how evictions destabilize families and can hurt their chances of finding stable housing in the future, a wave of evictions will send ripple effects through the coming years. Housing instability threatens to foil any attempt to stabilize schools and jobs.

— Max Nesterak

Long-term unemployment can ruin careers

Being out of work for six months or more doesn’t just create an immediate economic crisis for people. The effects can last for years — decades even. 

According to a 2016 paper from the Bureau of Labor Statistics, studies have shown long-term unemployment leads to “persistent subsequent earnings losses, earnings volatility, and later periods of job loss.” 

Not surprisingly, long-term unemployment leads to indebtedness and higher likelihood of eviction and foreclosure. The children of the long-term unemployed also suffer, and experience lower rates of academic achievement. 

While someone is unemployed for a long-time, their skills atrophy, they get discouraged and don’t look as hard for work. Meanwhile, potential employers view joblessness with suspicion. Which leads to a vicious cycle. 

Long-term unemployment has also been shown to affect the person’s mental and physical health. 

And, long-term unemployment will likely skyrocket in the next year. 

Minnesota will need to figure out how to address it. — J. Patrick Coolican

New grads will suffer lower wages — and worse

Research has shown that people who graduate from school into a recession will earn less than they otherwise would have — for at least 10 to 15 years. 

But according to Hannes Schwandt, a visiting fellow at the Stanford Institute for Economic Policy Research, it’s worst for high school dropouts and people not going on to college. 

And the effects aren’t just economic. 

“We find that negative impacts on socioeconomic outcomes persist in the long run. In midlife, recession graduates earned less, while working more. And they were less likely to be married and more likely to be childless,” Schwandt writes. 

Most troubling, Schwandt found that “recession graduates” had higher rates of midlife mortality, and it could be traced to unhealthy habits like smoking, alcohol and drugs. 

Mortality from these causes are often called “deaths of despair.” 

Minnesota needs to take aggressive action to lift up the incomes of these new graduates. Lifting wages is a notoriously difficult task, but there are ways to help new graduates, by subsidizing their housing and health care and reducing their college debt.

— J. Patrick Coolican

The crushed dreams of small business owners

In a recent national survey of small businesses, nearly 30% said another 30 days of stay-at-home orders would likely put them out of business for good. Most don’t carry much cash. And even when public health officials give the OK to open, many of their customers — especially older Minnesotans who have lots of disposable income — will be wary of contracting coronavirus. 

This means by the end of the year, we can expect empty storefronts and a wave of business bankruptcies. Small business owners who put not just their life’s labor but also their personal fortune on the line will be forced into personal bankruptcy. 

Minneapolis Fed Chair Neel Kashkari recently said we should expect the economic malaise to last another year at least, not weeks or months, and that Congress and the Federal Reserve Bank need to keep offering relief. 

There are 8,700 restaurants in Minnesota alone. Small businesses employ 1.26 million Minnesotans.  

It’s not clear what the solution is here, other than beseeching the federal government to keep expanding its small business forgivable loan program. 

At the state level, policymakers may have to design a program to encourage more people to start businesses. If Minnesotans could affordably buy health insurance from a public plan, for instance, that might encourage them to quit their jobs and start businesses.

— J. Patrick Coolican

Higher ed may face a financial crisis

Between dwindling enrollment, canceled events, refunds for students and the real possibility that campuses won’t reopen this fall, Minnesota’s public colleges and universities could lose hundreds of millions of dollars in revenue next academic year.

Funding from a federal stimulus package will partly cover the losses, but the extra expenses come at a time when some campuses were already experiencing budget woes; at least one Minnesota college — Minnesota State University Moorhead — recently announced across-the-board job cuts.

Campuses across the state also anticipate enrollment declines next fall but say it’s too early to know just how much smaller classes might be. Minnesota State projects that if enrollment declines 5% to 20%, the system could lose between $63 million and $194 million in revenue, nearly 10% of its total budget. 

For the fall semester, the University of Minnesota is preparing for a number of scenarios, including a best-case scenario where in-person instruction can resume and a worst-case scenario where campuses remain closed through the end of 2020. In that case, the system could lose up to $324 million in revenue, amounting to nearly 8% of its total budget.

If the state’s public higher education administrators think a bailout is coming from the Legislature, they should get in line. The needs are great, the money is scarce.

— Rilyn Eischens 

The digital divide is starker than ever

Rural Minnesotans have been fighting for internet access for years, and the COVID-19 pandemic has pushed the issue to the forefront. More than 150,000 Minnesota households don’t have access to reliable broadband, and thousands more live within range but don’t have service, according to Census data. In the 21st century, this is the equivalent of not having electricity in the 20th. 

Experts fear the digital divide will exacerbate existing disparities during the pandemic, especially in health and education, as health services and K-12 instruction move online. The pandemic is likely to fundamentally alter the way we work and study, making us ever more reliant on a reliable internet connection. Advocates are pushing for more state funding for grants to improve access across the state and hope the increased attention will further their cause at the Legislature. — Rilyn Eischens

State budget woes

In a matter of weeks, Minnesota’s projected $1.5 budget surplus evaporated, becoming a $2.4 billion deficit as the COVID-19 pandemic cratered revenue projections. State budget officials issued a May budget forecast that provided an accounting of the economic hit, predicting a $3.6 billion drop in anticipated revenue. On the spending side, the Legislature has already spent more than $500 million on the state’s COVID-19 response.

Myron Frans, Minnesota Management and Budget commissioner, told a House committee recently the emergency COVID-19 fund the Legislature created in late March would need to be replenished to allow Walz to deal with the ongoing emergency. 

Under the federal CARES Act, Minnesota will receive $2 billion in aid to pay for COVID-19 related spending, but that can’t be used to replace lost revenue. 

Minnesota also has a big fiscal cushion: a nearly $2.4 billion budget reserve and $350 million cash-flow account, giving the state a nearly $2.7 billion rainy-day fund that could be used to plug the budget hole.

The current two-year budget is not set to expire until June 30, giving the Legislature time to address the deficit. 

But there are huge unknowns: How bad will the outbreak get here? And how long will the economic collapse continue? A nasty outbreak and a prolonged recession will have brutal effects on the state budget. 

Unlike the federal government, state government can’t borrow its way out of the problem because the constitution requires a balanced budget. Which means tax increases or spending cuts, or both. — Ricardo Lopez 

Political polarization deepens rifts

Even in COVID times, the political divide at the Capitol is on full display — literally. As Peter Callaghan at MinnPost observed, Republicans — who have questioned the need for draconian public health orders — have also taken to going sans mask at the Capitol. The frequency of Senate floor sessions prompted a letter from Senate Minority Leader Susan Kent, DFL-Woodbury, who said she was concerned about the risk of spread. A Senate aide would eventually test positive.  

Republicans have been pushing back against Walz’s policies, clamoring for small businesses to be allowed to reopen. Despite widespread support for Walz’s handling of the pandemic, according to a recent KSTP/Survey USA poll, House Republicans nonetheless pressed Walz to end his peacetime emergency and work more closely with the Legislature in the pandemic response, including giving lawmakers oversight of the $2 billion in federal CARES funding. 

The virus is nonpartisan and defeating it requires trust in institutions and our fellow Minnesotans. The polarization of our politics does not lend much hope in this regard.

— Ricardo Lopez

Local government budgets strained

COVID-19 is wreaking havoc on both sides of the ledger for city and county budgets. Local leaders — particularly in counties — are spending more to fill in the gaps of state and federal relief efforts while demand increases on their usual services: public health, food and housing assistance, health care and other social services. At the same time, revenue is down from licensing fees, building permits and sales taxes. This has led Duluth to lay off about 50 employees while Minneapolis has instituted a pay and hiring freeze and a freeze on big purchases in hopes of averting layoffs. 

The real moment of truth for counties will come on May 15, when the first half of the year’s property taxes are due. Property taxes fund schools, libraries, roads and even mosquito control. Typically 95-98% of homeowners in Minnesota pay their property taxes on time. Hennepin and Ramsey counties both waived late penalties for two months, and it will be telling how many people decide to use the extra time to pay. 

So far, Hennepin County has been reimbursed by the federal government for most of the millions it’s spent on COVID-19 relief efforts, including moving hundreds of homeless people into hotel rooms. But how much federal support they can count on in the future is unclear. The promise of a federal bailout for state and local governments seemed likely as the Congress negotiated a fourth major bailout package, but it’s now tied up in a partisan fight over state pensions. — Max Nesterak 

Nonprofits in crisis 

Working and newly jobless Minnesotans will need nonprofit agencies more than ever to meet their basic needs. And policymakers will rely on the expertise of nonprofits to help solve problems that were already seemingly intractable but are now in need of urgent attention, like public health, education achievement gaps and housing instability.

And just as our robust nonprofit sector is more important than ever, these agencies are facing a sudden financial calamity. 

According to a report from the Minnesota Council of Nonprofits, they collectively lost $1 billion of income in April alone, an estimate based on a 20% income loss due to facility closures, service disruptions and canceled events. 

In a survey of 528 Minnesota nonprofits, “most organizations reported that they expect to experience financial distress in a matter of months, with 32% seeing this happening in less than three months, and 29% in between three and six months,” according to the report.

— J. Patrick Coolican