The Minneapolis Fed Sheds Its Reserve
While Minnesotans strain to address the pandemic, racial inequities, and a deeply wounded economy, Neel Kashkari has readily become an omnipresent figure in debates on all of these complex issues.
The president and CEO of the Federal Reserve Bank of Minneapolis isn’t content to simply be the purveyor of sound, data-based economic research. Instead of analyzing the Fed’s Ninth District communities from afar, he’s jumped into the mix in community dialogues, and he’s willing to accept the public criticism that accompanies his activism.
Of course, people who know Kashkari would never accuse him of timidity. He was an assistant secretary of the Treasury in 2008 and 2009, overseeing the Troubled Assets Relief Program during the financial crisis. “This was the most unpopular economic program in American history,” Kashkari says. But he maintains that the $700 billion federal bailout of banks and other businesses “was the right thing to do, and it crossed party lines.”
Since he arrived in Minnesota in 2016 to lead the regional Federal Reserve Bank, Kashkari and his staff have made a concerted effort to change the institution’s semi-reclusive image and to engage frequently with a range of citizens. The Fed has done everything from opening a booth at the 2019 Minnesota State Fair to convening local and national leaders tackling the affordable housing issue.
Kashkari also has entered the political arena, doing so when he believes it will help the Fed fulfill its mandate to achieve maximum employment. “I want us to go take on important public policy issues,” Kashkari says. “If we can make a difference, and we can do it in a bipartisan manner, then that’s what we’re here for.”
His most prominent foray into public policy development is a proposed education amendment to Minnesota’s Constitution, which states that all Minnesota children have an equal right to a quality public education.
Kashkari’s lead partner in advocating for the amendment is retired Minnesota Supreme Court Justice Alan Page, who wrote in a 1993 dissenting court opinion, “The State’s duty toward its children is not satisfied unless it provides equal educational opportunities for all children.”
Kashkari and Page want the Minnesota Legislature to pass a bill in 2021 that authorizes placing an education amendment on the 2022 ballot. The amendment would hold public schools accountable for providing a good education for each child. “We believe the political system is what has failed the children of Minnesota,” Kashkari says.
A 2019 Fed report, “A Statewide Crisis: Minnesota’s Education Achievement Gaps,” documented the disparities in achievement for children of color and those from low-income families.
The study found that only three in 10 African-American students were performing at grade level, while 65 percent of white students met that threshold.
Regardless of geography, family income plays a huge role in how students are being educated in Minnesota. The Fed study showed that 37 percent of students from low-income families were proficient in math and reading, compared with 68 percent for children from higher-income households.
Kashkari believes it’s time to disrupt Minnesota’s education system.
Why an amendment?
The achievement gap for students of color in urban schools is common knowledge among state politicians, private foundation heads, and business leaders. Yet most interventions they’ve made to remedy the problem have not substantially narrowed the gaps.
“A lot of effort and a lot of money has gone into trying to solve these persistent gaps, and it simply hasn’t worked,” Page says. “Both Neel and I think that by changing the constitution it will act as a catalyst to create that [political] will to do something different.”
Page is a longtime advocate for education. In 1988, he and his wife, Diane, created the Page Education Foundation, which provides scholarships that help many students of color attend college. In turn, the Page Scholars mentor children in grades kindergarten through eighth grade.
When Kashkari wanted to do something bold to break the inertia in Minnesota’s education establishment, he turned to Page for help. “Neel invited me to come down to the bank and talk about education,” Page recalls. “We talked about what other states had done, what their research was showing, what the possibilities were, and what we could do that would have some real impact.”
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They zeroed in on a constitutional amendment. They point to other states, including Florida, where they say voter approval of an amendment has exerted pressure on political leaders to achieve real progress in educational attainment.
“Everyone says, ‘We want to put kids first. We want to drive change,’ ’’ Kashkari says. But he expresses frustration that substantive change is often blocked. “So we’re making people put their money where their mouth is. ‘You say that you want to put kids first, and you really want to make changes.’ Here’s your chance,’’ Kashkari says.
Since Minnesota became a state in 1858, Page and Kashkari argue, education funding and teaching approaches have focused on the education system, rather than on the individual needs of each child in a particular school.
“You can’t tax the middle class to subsidize the middle class, because that doesn’t make sense.”
Neel Kashkari, president and CEO, Federal Reserve Bank of Minneapolis
“For the last 30 years, I’ve been saying education works best when we focus on one school at a time, one classroom at a time, one child at a time,” Page says.
The state Constitution’s current language says, “it is the duty of the legislature to establish a general and uniform system of public schools.” Kashkari asserts that the state needs to “create an individual civil right” that each child will receive a good education.
The proposed amendment says it is a “paramount duty of the state to ensure quality public schools that fulfill this fundamental right.” It states children would need to meet certain standards or educational outcomes, and the legal underpinning of the amendment would allow parents to hold schools accountable through litigation.
Page, an Ohio native, was 8 years old when the U.S. Supreme Court decided Brown vs. Board of Education, the landmark ruling that outlawed racial segregation in public schools. While the Brown case shattered the status quo in 1954, Kashkari and Page argue that dramatic change is needed in Minnesota’s K–12 schools many decades later.
Behind the wizard’s curtain
Before the coronavirus surfaced early this year, Kashkari was spending considerable time in meetings to build support for the education amendment. But his agenda has broadened because of the historic economic and social challenges that have been unfolding. In recent months, the outspoken Kashkari could be seen in numerous high-profile settings. He was a “60 Minutes” guest in March, talking about the huge infusion of government money he thought was needed to respond to the economic crisis caused by Covid-19.
In May, he appeared alongside epidemiologist Michael Osterholm in a virtual Economic Club of Minnesota event. At that time, he warned it was unrealistic to expect a V-shaped economic recovery and argued Americans would need more direct government benefits because it will take a long time to bring back many jobs and rebuild the economy.
Shortly before the July 4th holiday, he took part in a National Association for Business Economics webinar on “Race, Mobility, and Fairness in the U.S. Economy.” During his tenure at the Minneapolis Fed, Kashkari said he doubled the percentage of key leaders who are people of color. As a major part of the Fed’s mission to promote maximum employment, Kashkari said the Fed should address education, health, and housing problems that limit job opportunities.
Kashkari’s transparency in his communications and public access is a departure from how the Federal Reserve long has operated, particularly in Washington, D.C.
“Our jobs are to serve the public,” Kashkari says. “We need the public to have confidence in us and what we are doing, and that confidence has to be earned. Historically, the Fed was very buttoned-up and didn’t let people look behind the curtain. It was like the ‘Wizard of Oz.’ ”
Kashkari maintains that aloofness had a downside. “When the financial crisis hit [in 2008], we really needed people to trust us because we were doing extraordinary things,” he says, but many people didn’t know much about the Federal Reserve.
“It was very mysterious, and we were never seen,” he says. “You would just hear these interest rate pronouncements that came out. [Former Chairman] Alan Greenspan intentionally spoke in a very confusing manner to add to the mystery of the Fed.”
Kashkari says succeeding Fed chairs and regional Fed Bank leaders have been taking a different approach. “We’ve made a conscious effort to communicate more with the public, let them see what we are working on,” he says. “Just this past year, the board of governors led an initiative called Fed Listens, where we had a series of public forums, where community leaders and policy experts would come and meet with us to talk about how we conduct monetary policy.”
In Minneapolis, in addition to scores of public gatherings on key issues, the Fed has held informal events to meet a range of citizens. The Fed took part in Doors Open Minneapolis, which allowed people to walk around the building and ask questions. It also hosted a booth in the Education Building at the 2019 Minnesota State Fair, where staff listened to people from around the state. Though they lacked a Fed product on a stick, Kashkari says, “we did give out bags of shredded money.” (The Fed shreds old bills removed from circulation.)
Taking the policy plunge
Increasing engagement with the public is one strategy that Kashkari has championed, but he’s surprised some people by going a step further, into policy development.
“We want to make as big a positive impact as we can on our community and on the country in terms of public policy,” Kashkari says. Earlier in his Minneapolis tenure, he led a national conversation over banking regulation in the aftermath of the financial crisis.
Arguing that the biggest banks still pose an economic danger, Minneapolis Fed veterans Ron Feldman and Ken Heinecke authored “The Minneapolis Plan to End Too Big to Fail.” The plan recommended raising equity capital requirements for large banks with assets over $250 billion.
In that policy initiative’s case, Kashkari says, “We didn’t get any traction because the regulatory winds in America have been blowing in a deregulatory direction and we were advocating for more regulation.”
Kashkari, one of 12 members of the Federal Open Market Committee, which sets monetary policy including interest rates, says he has guardrails that help him determine his public policy advocacy.
Leadership on the education amendment fit his test for involvement, he says, because people’s ability to land good jobs is tied to the Fed’s maximum employment mission. Before moving forward on a major policy initiative, he also weighs three questions: “Is this an important public policy issue? Do we have expertise to bring to bear on it? Can we develop a proposal that is nonpartisan?”
More policy proposals are expected to flow from the Opportunity & Inclusive Growth Institute, which Kashkari established at the Minneapolis Fed in 2017. “One of my big surprises coming to Minnesota was discovering the disparities,” he says. In Minnesota, the median annual household income for whites is about $36,000 higher than the income for Blacks. Kashkari felt compelled to probe the reasons. “It’s too big of an issue for us not to try and use our really smart economists to try and understand the gap,” he says.
An economy for everyone
That type of work appealed to Abigail Wozniak, a Harvard Ph.D., who gave up her job as a tenured economics professor at Notre Dame to become the institute’s first director in early 2019.
She didn’t want to do academic research in isolation and believes in Kashkari’s vision for the Minneapolis Fed that’s built on groundbreaking work by former Fed research director Art Rolnick. That research, which showed a high return on investment from early childhood learning, has been used for many years to buttress support for funding preschool programs.
While Rolnick laid the research-policy advocacy foundation in 2003, Wozniak says, “Neel has really turbocharged this environment.” Recently, Wozniak led development of a framework for gathering Covid-19-related data, so public and business leaders would have good information and analysis for making decisions during the pandemic.
Alene Tchourumoff, the Minneapolis Fed’s senior vice president of community development and engagement, says she and other leaders have emphasized spending time in Upper Midwest communities to learn about people’s concerns. Before Covid-19 curtailed travel, key themes emerged.
“Almost everywhere we go in the Ninth District, people talk about housing,” Tchourumoff says. “They talk about access to child care, they talk about health care.” The Fed wants to identify the stress points for low- and moderate-income people, she adds, so they can conduct research, develop solutions and move toward an economy that works for everybody.
That egalitarian approach is highlighted in the spring 2020 premiere issue of For All, a magazine of the Opportunity & Inclusive Growth Institute. “The traditional view among central bankers is that there’s little we can—or should—do about economic opportunity and inclusive growth,” Kashkari wrote in a column. He favors reexamining that assumption. “We need to look beyond averages to see what effect national policies have on different groups.”
Housing costs have been rising at a much faster rate than incomes, so the Opportunity & Inclusive Growth Institute convened a conference last fall to discuss research and affordability options.
“You can’t tax the middle class to subsidize the middle class, because that doesn’t make sense,” Kashkari says. “So somehow we have to unlock the private sector to come in at much bigger scale to build more supply. That’s the only way we’re going to make things more affordable for the majority of people.”
From Kashkari’s perspective, he is shaping a Minneapolis Fed that will be highly relevant to policymakers, will garner the public’s trust, and will help improve the lives of people who struggle financially.
He’s not afraid of critics, which is why he’s pleased the Fed made a commitment to the city of Minneapolis to research the impact of the $15 minimum wage. “Minneapolis told us that we were the one research group that everybody trusted would do the analysis honestly, both the business community and the activist community,” Kashkari says.
“Are we going to be taking some risk that we might be upsetting people? Yeah, but this is exactly the kind of research we should be doing,” Kashkari concludes.
“Whether you are talking about criminal justice or justice generally, or housing or health care, central to all of those, and linked to all of those, is education.”
Alan Page, retired Minnesota Supreme Court justice
Unraveling Education’s Status Quo
Businesses, the Fed, and a bipartisan coalition of community leaders are making a big push to win approval of an education amendment to Minnesota’s Constitution.
By Liz Fedor
Before Covid-19 upended the 2020 legislative session, passing an education amendment to Minnesota’s Constitution was the No. 1 priority for the Minnesota Business Partnership.
“It’s the right thing to do,” says Charlie Weaver, executive director of the partnership, which represents Minnesota’s largest employers. “It’s criminal what we’ve done to those students of color over the last 25 years,” Weaver says. “Not only have they not gotten better scores, they’ve gotten worse. And it’s resulted in generations of kids who don’t have a hopeful future.”
Besides the principles of justice and equality, Weaver says, corporations have another key rationale for backing the amendment. “We need talent in this town,” he says. “One of the biggest challenges for our members is the lack of talent that will allow them to grow and prosper here in Minnesota. And if we’re leaving half of the students of color on the bench in Minneapolis, who don’t even get a high school diploma, that’s a huge challenge. Those kids are not going to be successful.”
The Business Partnership will return to the State Capitol in 2021 as a key player in the push to get the education amendment on the ballot. Weaver, a former Minnesota House member, argues that the way the amendment is worded will give the Legislature flexibility in addressing disparities.
Neel Kashkari, president and CEO of the Minneapolis Federal Reserve, and Alan Page, retired Minnesota Supreme Court justice, say they crafted the amendment to elevate the importance of a high-quality education for every child and to spur transformational changes.
“They’ve specifically avoided specific solutions with the education amendment,” Weaver says. He notes the emphasis is ensuring that “every child” is entitled to a quality education. “They don’t get into what ‘quality’ means,” Weaver explains. “They do say how to measure it, by accepted statewide standards, which is really important from our perspective.”
Kashkari and Page met individually with many corporate CEOs in January and February. Business leaders are embracing the strategy of leveraging the amendment to drive improvement in the education achievement gap, which the Fed defines as “deep, wide, and persistent.” CEOs support adoption of the amendment “even though they know there is uncertainty about where it is going to lead,” Kashkari says.
Page is comfortable working with Kashkari on an amendment he believes will yield constructive change, but he stresses that “neither one of us want to put our thumb on what the solutions are.” They are not advocating for a particular class size, curriculum design, or other specific measure.
Both say they are steering clear of a partisan breach. In their early work on the amendment, Page says, they’ve built allies in a nonpartisan way. “If I thought there was something inappropriate about it, I wouldn’t have come along for the ride,” says Page, who moved to Minnesota in 1967 to play for the Minnesota Vikings before he embarked on a legal career.
Bipartisan sponsors, mixed reception
Lead House sponsors of the education amendment bill are Rep. Rena Moran, a Black DFLer from St. Paul, and Rep. Ron Kresha, a white Republican from Little Falls in central Minnesota. They were joined by 31 co-sponsors when the bill was introduced in late February in the 134-member Minnesota House.
“My bet was that there would be Republicans and Democrats supporting us for this idea, and Republicans and Democrats opposed to it,” Kashkari says. “That to me is the cover that I need to go out and advocate for an idea.”
Kashkari was correct. There are advocates and opponents of the amendment among legislators of color, as well as white legislators. People within the DFL and Republican parties are split over the amendment. The same goes for lawmakers from rural and urban areas.
Sen. Jeff Howe, a white Republican from Rockville in the St. Cloud area, is the lead sponsor in the Senate. He told his Senate colleagues that any child can attend a school, but schools must be held accountable “if children don’t know how to learn.” The current educational system isn’t serving the needs of many children, he says.
While racial disparities in Twin Cities schools have drawn considerable media attention, Kashkari says his amendment also aims to help children in rural schools, where problems are less visible. “I actually think we are getting more support in rural areas, because if you look at the data, low-income white kids are also trailing dramatically,” Kashkari says.
Education Minnesota, the union that represents public school teachers, is an ardent opponent of the education amendment. If the state Constitution is amended, the union said in a statement, it “paves the way for taxpayer-funded vouchers for private schools” and “creates a situation in which any parent could bring a lawsuit against the state and their school.”
Denise Specht, Education Minnesota president, said in a January statement: “Minnesota schools are failing too many students of color and students in poverty. We shouldn’t expect their families to wait on the courts, which will take years. Educators have solutions ready and waiting for funding. The Legislature needs to fully fund public education.”
Kashkari says the amendment’s wording doesn’t promote vouchers. “The people who object to [the amendment] have no credible plan of their own,” he says. “The research has all shown, if you just put more money into the same schools and you don’t make any other changes, you don’t get any better outcomes.”
In early March, Kashkari and Page testified for the amendment before the Minnesota Senate’s E-12 Finance and Policy Committee, chaired by Sen. Carla Nelson, R-Rochester. Some of the pushback they received illustrates the difficulty of shepherding a constitutional amendment through the Legislature, especially one that challenges established education constituencies.
Sen. Roger Chamberlain, R-Lino Lakes, said the amendment “will not work” and that he favored “less dramatic” solutions to improve student performance. “You cannot claim that this will not turn the system over to the courts,” said Chamberlain, who chairs the powerful Taxes Committee.
Sen. Charles Wiger, a seven-term DFLer from Maplewood, said he was worried about the “unintended consequences” of the amendment. Sen. Karin Housley, R-St. Mary’s Point, said, “An equal right to a quality public education is a lofty goal.” But she had received many texts from parents who homeschool their children or send them to charter schools, and Housley said those parents were “really nervous” about the amendment.
Katherine Kersten, a senior policy fellow with the Center of the American Experiment, argued that the amendment would shift policy and funding decisions, now controlled by the Legislature and school boards, into the “hands of Minnesota judges.” If the Constitution is amended, she predicted, “It would open a Pandora’s box of lawsuits.”
In a Federal Reserve paper that explains the amendment’s rationale, proponents wrote, “We believe this amendment will lead to legislative and regulatory changes to improve educational outcomes, but if those changes prove insufficient, ultimately families will be able to turn to the courts to have their children’s rights vindicated.”
Committee chair Nelson said, “Education is the moral, racial, and economic issue of our day.” She called the amendment “aspirational” and said lawmakers follow aspirational goals with “real solutions.”
Kashkari acknowledged that the Senate hearing was “contentious,” but noted a “night-and-day” difference in the comments and feedback that he and Page received during a Minnesota House education symposium.
“I don’t think that Senate hearing reflects where we really are in the process,” Kashkari says. “That reflects the view of the chair of that committee. You can orchestrate a committee hearing to go however you want.”
All 201 seats in the Minnesota House and Senate will be on the ballot in November, so it’s unknown what the makeup will be of the new Legislature that considers the education amendment bill in 2021.
But the pro-amendment coalition that started forming in early 2020 is expected to remain intact. People who’ve joined Kashkari and Page in pushing for an amendment constitute a diverse group politically. For example, Weaver says he’s been working on the amendment with two prominent Black community leaders, Sondra Samuels, president and CEO of the Northside Achievement Zone, and Louis King II, president and CEO of Summit Academy OIC. Both organizations are based in Minneapolis.
Weaver, who’s run for public office as a Republican, pointed out that he’s collaborated on the amendment with Minnesota Attorney General Keith Ellison, a Democrat with close ties to U.S. Sen. Bernie Sanders. “That doesn’t happen a lot, and I love it,” Weaver says. “It’s a great opportunity to team up and get something done.”
Ellison is the lead prosecutor of four former Minneapolis police officers, who are charged in the killing of George Floyd, an unarmed Black man. Page reflected on whether public reactions to Floyd’s death in May could affect political support for the education amendment. “The people of Minnesota understand that our education system needs fundamental change, and maybe now they are beginning to see that some of our other systems need fundamental change also,” Page says. In 1992, Page was the first Black person elected to statewide office in Minnesota, when he won a seat on the Minnesota Supreme Court.
“Whether you are talking about criminal justice or justice generally, or housing or health care, central to all of those, and linked to all of those, is education,” Page says. “Given the links these things have, and the role that education can play in mitigating the effects of discrimination and racism, I just think moving on education [with the amendment] is an opportunity we can’t afford to pass up.”