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Dayton’s $37.9B budget proposal summarized

January 22, 2013 by seanolsen 61 Comments

This morning, Governor Mark Dayton released his long-awaited 2014-15 budget proposal.  And, true to his word, there’s a lot to chew on here.  Dayton’s proposal contains fundamental tax reform and some new spending initiatives that are sure to raise some eyebrows.  In this post, we’ll summarize the proposal.  In the coming days, we’ll get into more detail on the merits and problems with specific elements of the plan.

The November economic forecast from Minnesota Management and Budget projected $35.8 billion in revenue and $36.9 billion in expenses under current law for the 2014-15 biennium.  Dayton’s proposal wipes out that $1.1 billion deficit by increasing revenue by a new $2.1 billion and increasing spending by a smaller amount: $1 billion.  Total spending for the biennium totals $37.9 billion, much lower than what some GOP sources were floating prior to the proposal being announced.

Revenue:  Net increase $2.1 billion

Dayton has put together a comprehensive tax reform plan in his proposal, with a lot of moving pieces.  Let’s break it down by the type of tax.

Individual income taxes:  Dayton would add a new top bracket to Minnesota’s individual income tax code, a marginal rate of 9.85% on taxable income over $250,000 (couples) or $150,000 (individuals).  This proposal would raise $1.1 billion in 2014-15.  Dayton also proposes a new property tax rebate, which would give back up to $500 on each property.  This proposal would cost $1.4 billion for the biennium.  Net impact: -$300 million.

Sales taxes:  This is the largest component of the tax reform plan.  Dayton’s proposal would remove many of the exceptions from the state’s sales tax code.  Consumer and business services (except for a very limited set) would now be taxed.  This includes legal services, accounting services, haircuts, auto repair, etc.  Most goods would also now be taxed.  Remaining goods exceptions would be food, prescription drugs, and clothing (items that cost under $100).  In return for broadening the base of the sales tax, the rate would be reduced from 6.875 percent to 5.5 percent.  Dayton Administration estimates show that this change would work out to be essentially neutral for most families.  Opponents of the provision have already called out that the sales tax charged on business services will be baked into consumer prices, leading to a net increase in what consumers pay.  Also included is a 0.25% sales tax increase for the seven-county metro area designed to fund transit projects.  Net impact: $2.1 billion.

Corporate income taxes:  Dayton proposes cutting the corporate income tax rate from 9.8% to 8.4%.  Such a change would drop Minnesota to the 12th highest corporate income tax rate.  To pay for the rate change, Dayton’s proposal would eliminate tax breaks for foreign operating companies and foreign royalty payments, making the reform essentially revenue neutral.  Net impact: $5 million.

Cigarette taxes:  Cigarette taxes would be raised by 94 cents per pack under the Dayton proposal, reaching $2.54 per pack.  Net impact: $370 million.

Spending:  Net increase $1 billion.

Most of Governor Dayton’s proposed new spending goes to education.  Let’s see how it breaks down:

E-12 Education:  The two largest components here are a significant increase to special education funding ($125 million) and a 2% increase in the basic education formula ($118 million, or $52 per student).  Additionally, Dayton proposes additional funding for all-day kindergarten ($40 million).  Finally, early education programs get a major boost ($93 million in total, with the largest single element being $44 million in Early Learning Scholarships which fund pre-school for low income families).  Dayton does not propose paying off any of the remaining K-12 shift in the next biennium, waiting to pay it off until the 2016-17 budget. Net impact:  $344 million.

Higher Education:  Dayton proposes an $80 million expansion of the State Grants program, which will allow 5,000 additional students to enter the program, and increase the payout to 90,000 students already on it. Additionally, Dayton proposes $80 million in expanded funding for MnSCU to expand internship and apprentice programs, improve facilities and equipment, and retain faculty (assuming required administrative cuts are made).  Dayton also was going to propose an additional $80 million in funding for the University of Minnesota, but is withholding support for that increase pending the Legislature’s requested review of administrative costs.  Net impact:  $170 million ($250 million if the U of M makes it back in).

Health and Human Services:  Programs receiving increased funding in this part of the budget include child permanency and mental health programs ($44 million), the Statewide Health Improvement Plan ($40 million), and funding for the health care exchange ($29 million).  Net impact:  $128 million.

Local Aids and Credits:  Dayton’s proposal would increase aid to cities and counties by $120 million.

Where are the spending cuts, you may ask?  Dayton points to last session’s budget, where $4 billion in spending reductions were achieved ($2 billion in cuts, $1 billion in additional reductions since the budget was passed, and $1 billion in inflation not added to department budgets).  In his 2014-15 proposal, Dayton cites an additional $225 million in reductions, much of which comes in the Health and Human Services budget, such as $74 million in savings from restructuring in the long term services program and $65 million in negotiated savings with service providers and drug companies.  Additionally, inflation totaling $890 million was not included in the budget for the various departments.

Additional details on the proposal can be found at the Minnesota Management and Budget website.

Economy, Legislative Watch, State, State Legislature, Taxes
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Rep. Joe Hoppe

The Stretch Run: looking at education bills in the Legislature

April 16, 2012 by seanolsen 4 Comments

The Minnesota State Legislature returned today from Easter break.  Legislative leaders have promised a quick to end to a session that has thus far produced very little legislation — other than a Voter ID constitutional amendment — lots of stadium talk that has gone nowhere, and more than the usual amount of partisan hijinks.

One of the policy areas, though, where there have been some substantive actions so far in this session has been in K-12 education.  Let’s take a look at some of the important legislation in education, and what the last couple of weeks of the session may mean.

Repayment of the K-12 funding shifts:  Legislation by Rep. Pat Garofalo (R-Farmington) and Sen. Gen Olson (R-Minnetrista) would have taken an additional $430 million out of state reserves to partially payback the K-12 funding shifts enacted in the last two state budgets.  The bill was passed on largely party-line votes in both houses, then vetoed by Governor Mark Dayton.  Dayton cited the potential risk to the state budget if the economy does not meet expectations as well as the fact that the bill is not a long-term solution to repaying the shifts (there would still be about $2 billion outstanding).  Dayton favored repaying the shift by closing certain tax loopholes.  OUTLOOK:  Poor.  The two parties are a long ways off on this issue, and look content at this point to litigate the school shift as part of the campaign.

Tenure reform:  House and Senate Republicans passed bills that would end the practice of laying off teachers using the Last In, First Out (LIFO) methodology.  Instead, the bill mandates a combination of seniority and teacher evaluations.  The bill is currently in conference committee, and is expected to be re-passed by both chambers shortly.  Gov. Dayton has already announced his intent to veto, saying it would be premature to pass laws dictating requirements for layoffs based on teacher evaluation standards that are not in place yet.  OUTLOOK:  Shaky.  Again, there seems to be a difference here that will be difficult to bridge.  Most people agree about ending layoffs solely based on LIFO, but question whether this bill is the right way (or whether this is the right time).

PEIP changes:  Legislation authored by Rep. Joe Hoppe (R-Chaska) would change the process for education unions to enter the Public Employees Insurance Program  (PEIP).  Currently, if a majority of eligible union members approve, the union can enter PEIP.  Under the legislation, additional approval by the employer (in this case, the school district) would be required as well.  Versions of the bill have been passed in both houses, and are currently in conference committee.  Re-passage by both houses is expected before the end of the session.  Additional legislation that would prevent new groups from entering PEIP for three years is also in conference committee.  OUTLOOK:  Hazy.  Hoppe’s bill passed on a party-line basis, while the second bill had slightly broader support.  Given his positions on other bills, it seems unlikely Gov. Dayton would sign Hoppe’s bill.

Omnibus education bill:  A number of policy reforms are included in the omnibus education bill.  Among them are early graduation scholarships, which would reward students who graduate from high school early by helping to fund their post-secondary options.  The Republican bills would fund said scholarships by taking the money from their school district.  Also included is the call for a state report card on each school, prohibitions on political activities by school employees on public property, an extension on the ability for school districts to transfer dollars between funds, and allowing districts to use general fund dollars on all-day kindergarten programs.  OUTLOOK:  Possible.  The funding of the early graduation scholarship could be problematic, but it is an issue that ought to be able to be worked out if the two sides are truly serious about getting a bill passed.

State Legislature, Schools, Legislative Watch, State
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epidata

Let’s talk equality of opportunity for a moment

March 7, 2012 by seanolsen 11 Comments

With the issue of income inequality poised to play a significant role in the 2012 election, let’s talk about the  rhetoric that’s flying around.  Republicans like to talk about how the policies of Democrats and President Obama would create “equality of outcomes”, while Republicans wish to create “equality of opportunity”.  And, in fact, the implication has been from many Republicans, that “equality of opportunity” already exists.  Like Mitt Romney, for instance:

“It would be popular for me to stand up and say I’m going to give you government money to pay for your college, but I’m not going to promise that,” he said, to sustained applause from the crowd at a high-tech metals assembly factory here. “Don’t just go to one that has the highest price. Go to one that has a little lower price where you can get a good education. And hopefully you’ll find that. And don’t expect the government to forgive the debt that you take on.”

Does equality of opportunity exist?  Well, that’s highly questionable.  Look, for instance, at the higher-education situation:

What this data is shows is the percentage of students completing a four-year degree broken down by their test scores in eighth grade and their income levels.  What it shows is that low-income (bottom 25%) students with high test scores (top 25%) have basically the same probability of graduating college as high income (top 25%) students with low test scores (bottom 25%).  

We’re not strictly dealing with a meritocracy here, are we?

Rhetorically, I completely agree with the notion of “equality of opportunity” as being preferable to “equality of outcomes”.   Let’s not delude ourselves, though, into thinking that equality of opportunity exists.  It doesn’t.  This isn’t the time to cut vital programs (like Pell Grants) that help low-income students climb the ladder.  This isn’t the time to continue to squeeze our public schools and subject them to budget games on a yearly basis.  This isn’t the time to pull up the ladder and tell everyone at the bottom of the scale, “you’re on your own”.

2012 Election, National, Schools
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leidiger cropped

Don’t forget: Leidiger voted to cut K-12 first

September 27, 2011 by seanolsen 0 Comments

As we’ve noted previously, legislative Republicans have taken great pride in their K-12 education funding “accomplishments” during the last session.

But we shouldn’t forget what happened early in the session when the Republican caucus was working on bills without the restraint of worrying about what was acceptable to Governor Dayton.   House File 934 was the omnibus education finance bill.

During the run-up to the first passage of the bill in March, Rep. Mark Buesgens of Jordan brought an amendment to the floor of the House.  The Buesgens amendment would have cut the per-pupil funding rate by $15 and reduced funding for early childhood education — what would have been a total of $25 million in cuts over the next two years.

The amendment went down to defeat by a rousing 112-16 count.  Among the 16 who voted in favor of these cuts:  Rep. Ernie Leidiger of Mayer.

So, if you hear Rep. Leidiger talking about his votes for increased education funding, make sure to ask him why he first voted for K-12 education cuts earlier in the session.

(h/t Bluestem Prairie and Winona Daily News)

Legislative Watch, Schools, State Legislature
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ernie

3 reasons to be wary of GOP attacks on local school boards

September 12, 2011 by seanolsen 0 Comments

In recent days, we’ve seen Minnesota Republicans ramp up rhetoric against school boards who have put levy referendums on the ballot this November.  It’s expected that there will be over 130 such ballot questions this November, from all corners of the state.  This would be the largest number of school levy referendums in a single year in state history.

Unhappy with what such a spate of referendums would imply about state levels of funding for education, several of them have started to spout off.  For instance, Rep. Pat Garofalo, the chair of the House Education Finance Committee said ”Unfortunately, we have some school boards that are using people’s generosity to engage in the fleecing of taxpayers, and that’s just not acceptable.”  He’s threatening — along with other members of the House Republican caucus — to publicly attack particular referendums they think are out-of-bounds.  Meanwhile, Rep. Steve Drazkowski recently urged voters in his district to oppose referendum votes in the Lewiston-Altura and St. Charles districts.

Garofalo and Drazkowski both cite changes in the recently-passed budget as making such referendums unnecessary — specifically a $50 increase in the per-pupil formula in each of the next two years and one-time increases in compensatory funds.  While I’m not here to pass judgment on any of the merits of a specific district’s referendum, what is clear is that such attacks by Republican politicians on locally-elected school boards are hypocritical on many levels.

First off, locally-elected school boards don’t have the variety of accounting tricks and gimmicks at their disposal the same way Republican politicians like Garofalo and Drazkowski do.  They don’t have the ability to shift when they pay expenses at their whim like the politicians in St. Paul have done each of the last two sessions.  And despite the happy talk from Garofalo and Drazkowski, the implementation of the additional school shift will do far more damage to school district finances than can be recouped through the changes to the funding formulas.  Here in Carver County, the Eastern Carver County School District will see a net loss in funding of $3.6 million over the next two years because of the Republican budget.  Total state borrowing from public schools now totals over $2 billion.

Second, Legislative Republicans who chafe under federal mandates are now passing that same treatment down to local officials.  Garofalo trumpets the need for local control of schools, but now threatens to stick his nose into the business of school districts outside of his home in Farmington.  Since when does he know better than the folks in, say, Thief River Falls about their local needs?  Drazkowski, meanwhile, has supported legislation that would stop implementation of the Affordable Care Act in Minnesota and a constitutional amendment that would allow state nullification of federal statutes.  Drazkowski and Carver County’s own Ernie Leidiger backed a bill that would have mandated a pay freeze on teachers.  Funny — Garofalo, Drazkowski, and Leidiger all bleat about their support for “local control” of schools on their websites.

Finally, the notion offered by Garofalo that most of these districts are looking for additional funds is just flat-out not factual.  If you look at the list complied by the Minnesota School Boards Association, most of the levy questions are actually renewals of existing levies, which would maintain existing tax levels, not increase them.

[NOTE:  I have not taken a position on the District 112 technology referendum as of yet and will not until I see additional information on specifically how the levy dollars are intended to be used.]

Schools, State Legislature, Taxes
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k12 funding

One graph that explains it all

June 16, 2011 by seanolsen 0 Comments

It’s not always easy to explain the trends in the state budget and make it easily understandable.  As an absolute number, spending has been increasing in the state over the last decade.  Republicans play up that number — spending is out of control! — without providing the context.

What they don’t tell you is that the rate of spending hasn’t been increasing as fast as inflation and population growth — meaning that in fact, areas of state government are truly spending less today than they did before.  Overall, in fact, state government is spending nearly $900 per person less today than it did in 2002.  That’s why you’re seeing fewer government services AND higher property tax bills.

A graph of the trends in K-12 funding since 2003 (from Minnesota 2020) shows this rather clearly.

Inflation-adjusted per-pupil state spending on K-12 education has dropped 13.9% over the last eight years (the blue line on the graph).

The green line on the graph shows how local school districts have responded to the problem — by raising property tax levies to try to cover the shortfall.  In fact, local school district levies have increased 56.3% over that same time period.

The red line shows the net impact — in total, despite the local property tax increases, we’re spending 4% less per pupil today than we did in 2003.

This trend, sadly, is repeated all across our state government.  Cuts to higher education have led to tuition at our public colleges and universities that has doubled over the last decade (in absolute terms and increased by over 60% when adjusted for inflation).  Failure to fund transportation has caused our roads to decay and we’ve lagged the country in job growth, wage growth, and many other metrics.

Minnesota’s strong economic performance over the last three decades didn’t happen by accident.  We’re not guaranteed to stay there going forward.  We can’t assume that we can blithely cut away at the cornerstones of our success — education and infrastructure — and pretend that we’re not going feel the pain.  Republicans want us to abandon the principles that have made our state successful. 

We’ve spent the last decade playing the no new taxes/disinvestment game and the results are clear:  it hasn’t worked.

Let’s restore the principles that made our state so successful for so long.  That starts with a balanced solution to our current budget stalemate, including some new revenues to protect critical priorities.

Economy, Schools, State Legislature, Taxes, Transportation
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A 3-Step Plan to Legislative Victory (and Public Ruin)

May 17, 2011 by seanolsen 0 Comments

The legislative session thus far has been a disappointing display of short-sighted thinking. As we’ve seen for much of the last decade, many legislators have focused on a devotion to political ideology over real-world results. Instead of focusing on facts, they have taken to declaring their positions with little backing. It’s played out in a three-step process; let’s see how it works in the K-12 education arena…

Read the rest here at Minnesota 2020.

MN2020, Schools, State Legislature
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Building a better business climate in Minnesota

January 12, 2011 by seanolsen 3 Comments

The new legislative session has started, and even though we’ve got a $6.2 billion deficit to address, there are already calls for tax cuts for business.  It’s seemingly taken as a matter of widespread agreement that Minnesota has an “unfriendly” environment for business.  But is that really the case?  Crunching the numbers indicates that the conventional wisdom on this issue may not in fact be correct.

A recent study by the Council on State Taxation (a collection of 600 large corporations) and the accounting firm Ernst & Young compared states by calculating the ratio of actual tax dollars paid by businesses to states, counties, and cities versus the GSP (Gross State Product) of private sector companies.

This is a different measure used than in most analyses, which merely rank states based on their corporate income tax rate.  Minnesota has a fairly high base corporate income tax rate, and as such doesn’t fare well in these rankings.  As we all know from our personal income taxes, though, the actual tax that we end up paying doesn’t match what bracket we are in because of the various exemptions, deductions, and credits that are in our tax law.  Well, the same things apply to business taxes as well.

When you look at the actual amount of business taxes paid as a ratio the economic activity in the state, Minnesota fares significantly better.  In fact, Minnesota’s ratio of 4.3%, is tied for 16th in the nation, ahead of such purported tax havens as Arizona (4.8%, tied for 26th) or Florida (5.3%, 37th).  Minnesota even fares better than Nevada, South Dakota, and Texas (all at 4.9%, tied for 28th).

Yes, you heard that right.  Minnesota businesses pay less in taxes as a percentage of total economic activity than businesses in Nevada, South Dakota, and Texas.  What’s the Sioux Falls radio guy going to say now?

So the answer to getting Minnesota’s economy back on track isn’t cutting business taxes.  We know that.  All we have to do is look at the experience of the last decade.  Since 2000, we have had five rounds of federal tax cuts and created about 2 million private sector jobs nationwide over that time.  In the 1990s, we increased taxes and created 20 million private sector jobs.  The answer to encouraging economic growth is much larger and diverse than merely cutting taxes.

So what are those answers?  Well, we know what they are.  They are time-tested and proven.  Even with our deficit, we need to protect and promote the societal infrastructure that has given Minnesota such strong economic performance over the last three decades and which has begun to decay over that time.

It’s physical infrastructure (roads and bridges, the electrical grid), it’s education (from early childhood through our colleges and universities) and it’s health care (protecting children and the poor).  As Jeff Rosenberg at mnpublius.com points out, for the cost of the corporate tax cuts, we could make investments that would almost certainly do more to add jobs and create long-term prosperity.

State Legislature, Taxes
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