Michael O’Keefe with budget wisdom


Michael O’Keefe was one of the standouts in a highly respected state cabinet that came together to help neophyte Gov. Jesse Ventura in 1999, and O’Keefe served ably as commissioner of the Department of Human Services, one of the state’s largest and most complex agencies.  

He’s also had a distinguished career as a foundation CEO (McKnight) and a college president (Minneapolis College of Art and Design), and he has degrees in mathematics and physics. So when he talks about state budget crisis realities, we really should pay attention.

Here are some of the standout excerpts from his recent interview with the Civic Caucus on the “Hard Realities of Minnesota’s Budget Situation”:

  •  Address the problem with every tool in sight, but do not dig a deeper hole. O’Keefe described how he was in government for “good years,” when they had extra money to spend. “Then we hit a bad year. The budget was good before the Legislature got ahold of it. Governor Ventura had actually put together a very reasonable plan that included some taxes and some cuts, and drew down some  state reserves with a strategy to replace them.”

  • Offset medical costs by accepting federal Medicaid assistance, and find efficiencies. In the area of health, O’Keefe advocates taking the federal Medicaid money – over $1billion – “because one of our goals of a state is to have a safety net.” The state really screwed up when it cut General Assistance Medical Care, he said. Now minor conditions become chronic or more serious, and people will show up at emergency rooms that cost someone – the state, the county, insured people – much more than if they had received preventative care.

  • The health care system will need a crisis to change. He has concerns about the system of care, and its methods of payment. “A third-party-payer marketplace is never going to work unless you have substantial restructuring. We have a system that rewards doctors on volume” and on the cleverness of their support staff to classify what it is that went on in the exam room. He described a doctor who told him that whenever he performs a service he cuts and pastes a description for the service directly out of the Medicare guidebook, which guarantees he’ll be reimbursed. Instead, O’Keefe said, the state needs more systems like Mayo where doctors are paid salaries.

  • The state may not need two public post-secondary systems. A participant asked whether the state government really needs two higher education systems. “I don’t think so,” O’Keefe responded. “Take a look at the administrative over-structure – it’s huge.” O’Keefe described his hope that new leadership at the University and at MNSCU will be willing to engage in a discussion about reducing the aggregate administrative overhead, admitting that it would be enormously unpopular with their constituents but nevertheless needs to be done.

  • Post-secondary costs are being driven up faster than inflation. Higher education costs have been rising at double the rate of inflation for 25 years, he said, and that’s not sustainable. Part of the cost-driver has been on the administrative side, and part because of increased complication caused by increased requirements of the federal government. “But a huge increase has been a market phenomenon driven by students and families: they want more, and they’re willing to pay for it.” Expectations have increased. “You can’t sell a dorm room with three beds anymore. What students and their families want is an apartment suite with living area, kitchen, laundry etc. And, they’re willing to pay for it. Witness private developers who are putting up such style dorms and making them profitable.”  O’Keefe recalled many years ago that The George Washington University was considered “middling” in terms of quality. They brought in a consultant whose recommendation was that they double tuition. They increased it by 40 percent in the face of deep concern that applications would go down; instead they went up by 60 percent. “People were willing to pay more because of the perception of quality implied by the higher tuition.”

  • Virtual education has significant, widespread potential. To a question about virtual education, O’Keefe said he thinks it has huge potential to bring students rich experiences without having to first bring them together in person. At the college of Art and Design he described a professor who taught via the internet from South Africa. The students were satisfied, he said, with a balance of internet-conferencing, faxing images to each other, and working face-to-face in groups on campus. “I was very surprised; it resulted in a quality experience.” Even so, the application of technology has increased costs: “So far when new technologies have been added they haven’t reduced costs, as some had promised. I’d argue you have to change the system of teaching for that to happen.”

There’s substantially more from O’Keefe on the Civic Caucus website, including a provocative challenge to rethink whether Minnesota’s spending on prisons and lifetime incarceration of sex offenders can be sustained. We’re proud to have Michael on our board of directors at Growth & Justice and as a significant influence on our policy thinking.