Tag Archives: MnSCU

Dayton’s $37.9B budget proposal summarized

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.


2013 Legislative To-Do List [UPDATED]

The 2013 legislative session kicks off next week, and there’s a long list of things that the newly-minted Democratic majorities should look at as their top priorities.

#1:  Fix the budget.  It’s long past time for the folks in St. Paul to get on with it and take care of the structural problems in the state budget.  No more stalling, no more half-measures, no more one-time fixes or gimmicks to solve this year’s $1.1 billion projected deficit.  This means:

1a.) Get a plan in place to pay back the school shifts.  My talks with local school district officials indicate that they are more interested in certainty at this point, so we need not necessarily pay back the entire $1.1 billion still remaining (this is on top of the $1.1 billion deficit) in one budget cycle.  A bipartisan commitment, though, to repaying $275 million a year for the next four years should be sufficient.

1b.) Real tax reform.  The elements required here are pretty simple, but the devil is in the details.  First, broaden the base of the sales tax by removing distorting exemptions on some categories of goods and services — it should be possible to broaden the base, lower the rate, and still end up revenue-neutral to revenue-positive.  Second, recognize that the sales tax changes are regressive, so cut income taxes on lower- and middle-income taxpayers.  Third, remove unnecessary tax expenditures (credits and deductions) that essentially function as handouts via the tax code.  This should free up additional revenue that can be applied to across-the-board rate reductions in both the individual income and corporate income taxes.  And that’s all before addressing our overly complex property tax system.  It may be too much to ask legislators to fix that in 2013, too, but we can hope.

1c.) Accountability in state spending.  State government needs to do a much better job of measuring effectiveness of state programs, and requiring reforms for programs that don’t measure up.  Additionally, there are programs that just aren’t needed any more.  It’s time to end them, now.  That said, we should be wary of sound-bite proposals like legislative Republicans proposed last session that imposed across-the-board cuts without an analysis of the work required.

#2:  Improve the job-creation environment in the state.  An odd-year bonding bill seems unlikely at this point, but the Legislature can take some concrete steps to improve conditions for job creation in the state.  A commitment to infrastructure is paramount.  For starters, the legislature can begin indexing the gasoline tax to inflation in order to maintain its buying power. (Minnesota’s gasoline tax, even with the increase passed after the 35W bridge collapse, has less purchasing power than it did 20 years ago and our road and bridge construction needs are much more significant.)  Renewing our commitment to our public universities is vital as well.  Even though enrollment is up 23,000 over that time, funding for the University of Minnesota system and MnSCU has declined back to Ventura Administration levels.  This is a significant factor in the doubling of college tuition over the last decade.  In return, those institutions should provide concrete plans on how they can reform their operations and become more efficient.  The U of M, in particular, has some administrative bloat that needs to be addressed.

#3:  Support implementation of the Affordable Care Act.  Minnesota’s health insurance exchange, required as part of the Affordable Care Act, is scheduled to go live in October to enable enrollment in plans starting on January 1, 2014.  It is critical that the Department of Commerce have the necessary resources to finish development and provide ongoing support for the exchange.

#4:  Government accountability, campaign finance and election reform.  There’s a gaping hole in the finance disclosures that our elected officials have to provide.  If they work as an independent contractor or consultant, legislators don’t have to disclose who they work for.  That’s a problem, as demonstrated during the campaign in the case of Senator David Hann.  Unlike some, I don’t have a problem with Hann chairing the committee with critical oversight on health insurance while being licensed to sell it.  But I do have a problem with not knowing who’s paying Hann’s salary outside of the Capitol so I can fairly judge his actions in the legislature.  Same goes for anyone else.  It’s time to require folks in those categories to disclose who they’re getting paid by (over a limit, say $2,500).  From a campaign finance perspective, it’s time to bring some additional sunshine into the process and require additional disclosures.  I would recommend moving to a four times per year model (quarterly in odd years, then Q1, pre-primary, pre-general, and year-end in even years).  Finally, even though the Voter ID constitutional amendment failed, there are things that can be done in the realm of election law to improve perceptions of fraud incidence and improve access to the polls.  Such provisions should include the introduction of early voting (how about the two Saturdays before Election Day), automatic voter registration of holders of drivers licenses and identification cards, and a close look at the electronic poll book concept as an alternative to voter ID requirements.

Certainly, these won’t be the only items that come up — social issues like a push for recognition of same-sex marriage will undoubtedly be discussed (and eventually, I believe it should and will be passed) — but these are what should be at the top of the list.

[UPDATE, 1/4]:  Let me clarify a few points regarding Hann’s relationship with Boys & Tyler Financial.  Hann has completed his licensing requirements with the state of Minnesota, but has not been enrolled as an agent by an insurance company.  Until that has been completed, Hann cannot sell insurance in the state.  Hann works on a contract basis with Boys & Tyler, and claims to earn no compensation for that relationship. (Under current law, Hann would not be required to disclose any income earned on a contract basis.)  This seems to be an arrangement designed to fight efforts at disclosure, and leads me to believe that all contract employment/consulting relationships should be disclosed instead of those surpassing the dollar limit originally indicated in the post.

[State Capitol picture courtesy of Minnesota House of Representatives Public Information Services.]

Dayton unveils $775 million bonding package

Governor Mark Dayton today revealed his proposed bonding bill for the upcoming legislative session.  Dayton proposes $903 million in state funding, $775 million of which is general obligation bonding. The total plan includes an additional $575 million in federal or local matching funds, which would result in an estimated 21,000 new jobs.  Some of the proposed projects include:

  • $111 million in projects around the Minnesota State Colleges and Universities system, including a combined $44 million for expansions and renovations at North Hennepin Community College, South Central College, Minneapolis Community and Technical College, and Ridgewater College
  • $107 million in projects in the University of Minnesota system, most notably renovation of the Old Main Utility Building to function as a multi-utility power plant for the Twin Cities campus
  • $76 million in transportation projects including repairs to 82 bridges, expansion of transit in Greater Minnesota, and expansion of four maintenance facilities
  • $60 million in expansions and remodeling at civic centers in Rochester, Mankato, and St. Cloud
  • $42 million in clean drinking water and wastewater infrastructure projects
  • $40 million in remodeling/expansion at the St. Peter Security Hospital
  • $33 million in expanded loans and financing for farmers
  • $29.9 million expansion to the St. Cloud prison
  • $28.5 million in maintenance and upgrades to the State Capitol and nearby office buildings
  • $27 million for a new St. Paul Saints ballpark
  • $26 million for a new state emergency operations center
  • $25 million for the Southwest Corridor Light Rail Transit line
  • $25 million for renovations of the Nicollet Mall in Minneapolis

Republicans are critical of the package, although as of yet they have not released their own bonding proposals.

Ernie Leidiger votes against creating 15,000 jobs

One of the conditions Governor Mark Dayton placed on his acceptance of the Republican budget offer was the addition of a bonding bill.  In a bonding bill, the state issues bonds (debt) that is used to build capital projects around the state. 

If you’re going to be issuing debt as a state, bonding for capital projects — infrastructure — is the best possible thing you can do with that debt.  And now, with the economic downturn, is an even better time to invest heavily in infrastructure.  It has the immediate impact of getting people back to work, and it creates lasting projects that can serve as the basis for future growth.  Additionally, you can build infrastructure more cheaply now than you can when times are good.  Why?  Because interest rates are low (so it costs you less to issue the bonds) and there’s a lot of excess capacity in the construction industry (so you can get a good deal on your bids for the projects).

Governor Dayton and the Republican majority agreed on a bonding package of $531 million.  It’s full of great projects, including:

  • $51 million for a new Physics and Nanotechnology building at the University of Minnesota
  • $48.7 million for new science facilities at St. Cloud State University, Metropolitan State University and Mesabi Range Community College
  • $16 million to renovate the Coon Rapids Dam, including construction of an invasive species barrier
  • $50 million for flood mitigation
  • $33 million in local bridge replacement
  • $22.5 million in Twin Cities and greater Minnesota transit

These are projects that are going to have beneficial long-term impacts on our state.  It’s hard to pinpoint the exact number of jobs that will be created by these investments, but using historical rates, a $531 million level of investment will result in about 15,000 new jobs.  15,000 new jobs would shave half a percent off of the state’s current unemployment rate, reducing it to 6%.

Who could be opposed to such a common-sense proposition?  Rep. Ernie Leidiger of Mayer, that’s who.  Leidiger was one of only 16 representatives to vote no on the bonding bill.  Most Republicans, including Chaska’s Rep. Joe Hoppe and Chanhassen’s Sen. Julianne Ortman, recognized the value of this bill and voted in favor of it.

Undoubtedly, Leidiger will cite the issuance of more debt as his rationale for opposing the bill.  But Leidiger — on the same day — voted for over $1.3 billion in debt that is really harmful to Minnesota’s economy.  Leidiger voted for a $700 million shift in K-12 education payments that puts the state IOU to its schools at $2 billion.  Leidiger also voted to issue bonds against future tobacco settlement revenues.  To raise $640 billion in revenue for this biennium, the state is going to have to spend between $800 and $900 million dollars.   These moves are debt of the worst kind — they hurt our schools and create holes in the state budget in future years without providing any of the long-term benefit of the infrastructure projects.

Leidiger’s “no” vote on the bonding bill is a vote against moving Minnesota forward, and is yet another demonstration of his willingness to blindly vote ideology over the real world needs of his constituents.

Comparisons of the first five budget bills

Details of the first five budget bills for the special session have been released.  These are the bills for Higher Education, Environment, Commerce & Energy, Jobs & Economic Development, Public Safety, and Transportation.  Combined, these areas only make up about 1/7 of the state’s General Fund spending.  What we see in these five bills is total spending levels split about halfway between Gov. Dayton’s March proposal and the bills passed by the GOP majority in May.

Higher education is still taking a pounding even with the budget compromise.  Current funding is $2.811 billion, meaning that there’s about $245 million in spending reductions — all coming directly out of the University of Minnesota ($126 million cut) and MnSCU ($129 million cut).  The only saving grace for higher ed funding is that financial aid programs for students are protected.  Other things of note include Twin Cities transit funding — the GOP had wanted that line item slashed by nearly $100 million to $20 million while Governor Mark Dayton had budgeted $129 million.  The two sides agreed to a figure of $78 million for the next biennium.

One graph that explains it all

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.

Nohealthcareville and other “highlights” of the 2011 legislative session

Well, that was fun, wasn’t it?  We’re a couple of days downstream from the end of the official 2011 legislative session, and it’s a marvel to look back at the last four months and see everything that didn’t get done. 

Republican majorities in the House and Senate offered no meaningful compromise from their pre-session position, while Governor Dayton changed the substance of his proposal significantly.

Let’s look back at some of the budget bills that were passed (and vetoed) and some of key provisions.  All of these were voted for by the Carver County legislative contingent of Sen. Julianne Ortman, Rep. Ernie Leidiger, and Rep. Joe Hoppe.

These sorts of budget provisions are not in character with what has made Minnesota great place to live for decades.  The Republican majorities are undercutting the things that have given Minnesota a competitive advantage — well-educated people, well-maintained infrastructure, and a safety net that protects the most vulnerable in our society.  You can’t out-Mississippi Mississippi, and we shouldn’t even try.

It wasn’t just the budget that made news during the session, though.  Despite their alleged focus on jobs and the budget, Republicans used their majorities to jam through numerous bills on divisive social issues.

And, of course, no recap of the session would be complete without a reminder of Leidiger’s Bradlee Dean fiasco last week.

These are not the values that Carver County residents believe in.  We don’t believe in dividing.  We don’t believe in focusing on the sideshow while critical problems go unaddressed.  Let’s hope that cooler heads will prevail over the next month and both sides can agree to a sensible, balanced solution to our budget crisis.

(Cartoon from the StarTribune via about.com.)

Legislative Watch: Spin and Facts

The frenetic pacing of the GOP budget resolutions the last two weeks has made it hard to keep up with what is going on in St. Paul.  The reality of the disastrous budget plans supported by Senator Julianne Ortman, Representative Joe Hoppe and Representative Ernie Leidiger hasn’t been fully explained.  Let’s summarize the GOP spin versus what is really happening here: 

SPIN:  GOP budget bills result in “no new taxes”. 

FACTS:  While state taxes don’t increase, severe funding cuts to local government aid will cause statewide increases in property taxes, and the bottom 40% of income earners will see their tax burdens increase.

Analysis by the State Department of Revenue projects that local government aid reductions will cause $859 million in property tax increases over the next three years.  That represents a 4.3% increase statewide.  All types of property will see their property taxes go up — even with the GOP’s proposed cut to the tax rate for business property, increases at the city and county level will still result in Minnesota businesses paying $63 million per year more in property taxes. 

SPIN:  GOP income tax cuts to the lower and middle brackets are progressive and will provide substantial help to those taxpayers. 

FACTS:  The Department of Revenue analysis concludes that 47% of the tax relief in the GOP budget goes to the top 20% of income earners, who will get an average benefit of $391.  The bottom 10% of earners will get an average benefit of 87 cents from the GOP budget bill.  

The GOP budget proposals also slash the renters’ property tax credit to 12%.  This provision will result in 38,000 renters losing their credit altogether and the remaining renters will see their benefit slashed by an average of $300. This is a clearly regressive tax change that will hit lower- and middle-class taxpayers the hardest. 

SPIN:  Severe cuts to higher education funding won’t impact students because of tuition hike limits.

FACTS:  The budget bills passed by the Legislature cut funding for the University of Minnesota and Minnesota State colleges and Universities (MnSCU) by 13-19%, reducing funding to the same levels as in the late 1990s. 

The problem, of course, is that our public colleges and universities serve 52,000 more students today than they did a decade ago, and the cost of goods and services have been inflated over that time.  The result of these cuts is going to be lost jobs and lost futures.  

For many of Minnesota’s community colleges, personnel costs represent over half of the budget, so any cuts result in professors and support staff out of work.  Class sizes will increase, and availability of libraries and laboratories will be reduced

MnSCU has already indicated that if these cuts are signed into law that they will have to look into closing campuses to save money.  That will be a real hit to rural areas of the state, as closures will make it difficult for students to commute to and from school.

SPIN:  Everyone is sacrificing as part of the GOP budget plan. 

FACTS:  The latest Tax Incidence Study released by the Department of Revenue shows that the wealthiest taxpayers in the state – the top 10% — pay an average of 10.3% of their income in state and local taxes.  That’s 1.2% lower than the statewide average of 11.5%.  The top 1% of earners pay only 9.7% of their income in state and local taxes, nearly two full percentage points below the state average.  This has been a consistent trend since the tax cuts that were passed during the Ventura administration. 

The DoR analysis of the GOP budget plan shows that these trends would continue to get worse if it becomes law.  The total tax burden of the lowest 40% of income earners would increase under the plan, while the upper 50% would see their tax burden decline. 

The GOP claims that reducing the tax burden on the wealthiest and business is necessary to create jobs.  Well, we’ve been following those policies for the last decade, and what has it gotten us?  State tax rates have remained constant since the cuts in the Ventura administration and the federal government has passed five rounds of tax cuts since 2000. 

Yet, Minnesota ranks 39th in job creation and has posted below national average performance in wage and wealth growth since 2002.  It’s clear the GOP approach doesn’t work. 

Minnesota deserves a balanced approach to our budget problems, one that shares the sacrifice equally and doesn’t destroy the foundation for our future growth.  Let’s demand that our elected representatives support a budget that enables us all to thrive, not just a select few.

Carver County legislators vote to slash higher education funding

The Minnesota House and Senate passed their versions of the higher education omnibus spending bills yesterday.  Carver County’s legislators, Senator Julianne Ortman and Representatives Joe Hoppe and Ernie Leidiger voted in favor of the bills.

You can sum up the bills in one sentence: 

If you’re going to attend a public college or university in this state, prepare for the worst.

The Senate bill would cut funding to the University of Minnesota by 19%, or $243 million, while the Minnesota State Colleges and Universities System (MnSCU) would take a 13% ($167 million) cut.  The House bill would cut 13% from both the U of M and MnSCU.

Included in the bills was a cap on tuition increases.  MnSCU, for instance, is capped to a 2% tuition increase at colleges and 4% at universities.  Do the math — that means about 10% in spending cuts is going to be required.  That means you’re going to see significant cutbacks across campuses — things like libraries, computer equipment, lab equipment, support staff are all going to be cut to the bone.  Optional fees for use of university equipment or facilities will skyrocket.

The University of Minnesota alone has an $8.6 billion economic impact on the state, and it is estimated that investments in public education return $13 in benefit for every $1 of investment.  Deep, dramatic cuts along these lines are extremely hazardous to Minnesota’s long-term economic well-being.

Once again, Republicans are demonstrating their priorities:  balancing the budget on the backs of the lower- and middle-classes while leaving the wealthiest Minnesotans and corporations essentially unscathed.

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