Put Title Here

Put Content Here

MN Budget Blog Landing Page

Process & Reforms

  • Five months that changed Minnesota

    by Barb Brady | Jun 17, 2013

    January 2013: Minnesota faced a $1.1 billion budget shortfall, the state was not raising revenues needed to fund its priorities and the tax system was increasingly unfair.

    May 2013: Policymakers agreed to a budget that will eliminate the budget shortfall, make the tax system fairer and once again invest in Minnesota's economic success.

    Our latest issue brief examines how that turnaround happened.

    Budget Choices in the 2013 Legislative Session Take Minnesota in a Better Direction credits budget decisions made in the 2013 Legislative Session with putting the state back on track.

    According to our analysis, the state budget that goes into effect July 1 raises adequate revenues to address the deficit without deep cuts to services; makes the tax system fairer; and invests in schools, affordable college education, health care, workforce development and other public services that are crucial for a strong future.

    By increasing the use of an income tax based on the ability to pay and reducing what low- and middle-income Minnesotans pay in property taxes, the budget makes significant progress toward tax fairness.

    Our analysis examines details of those decisions, focusing on new investments and changes that affect low-income and vulnerable Minnesotans.

Projections & Trends

  • Minnesota’s November budget forecast shows deficits amid high uncertainty

    by Clark Goldenrod and Nan Madden | Dec 05, 2017

    Predicting the future is a tricky business, especially in uncertain times. But nonetheless today’s state budget and economic forecast is important because it marks the first comprehensive look at Minnesota’s budget landscape that incorporates the budget passed in the 2017 Legislative Session. State policymakers used almost the entire projected $1.7 billion surplus when putting together the FY 2018-19 budget. The largest piece of the surplus went to the $648 million tax bill, followed by additional investments in K-12 education, transportation, and higher education. Using nearly all of the projected surplus left our state much more vulnerable to even slight changes in budget or economic projections, as these forecast figures bear out.

    The November Budget and Economic Forecast released by Minnesota Management and Budget compares what the state would be expected to spend on schools, roads, and other public services under existing laws and current projections for economic growth, how much revenue the state would expect to bring in, and whether those numbers line up. The forecast does not include the likely economic or state budget impact of broad policy changes being considered in Washington, including the proposed tax and health legislation or likely future cuts to federal funding.

    Here are our top takeaways after a quick review of the forecast:

    1. The forecast projects a $188 million deficit for FY 2018-19. That’s less than 1 percent of the total two-year budget, which runs through June 30, 2019. Assuming that the Legislature’s funding is restored would add another $114 million for a total deficit of $302 million.
    2. The November forecast also projects future deficits. Today’s report shows a $586 million negative balance for the upcoming FY 2020-21 biennium.
    3. The future balances do not take into account what it takes to maintain current levels of services. Keeping up with inflationary costs on our current commitments would cost another $1.3 billion in FY 2020-21. In other words, these projections are built on the assumption of flat funding for many areas of the budget.
    4. The forecast expects weaker economic growth than projected in the February 2017 forecast. The national economy is still expected to grow over the next several years, and as a result boost wages and salaries. But in today’s forecast, national GDP growth is expected to be slower: 2.2 percent for 2017 rather than the 2.3 percent expected in February, and 0.1 to 0.2 percentage points less each year in 2018, 2019, and 2021. That results in lower projected state revenues.
    5. There’s more uncertainty than usual. Because of the high level of uncertainty about federal tax and budget decisions – and because of the above-average length of the current economic recovery – this forecast has more uncertainty than usual. IHS Markit, Minnesota’s economic consultants, assigns a 65 percent probability to their baseline economic forecast, a 20 percent probability to a more pessimistic scenario, and a 15 percent probability to a more optimistic scenario.

    There are always some unknowns in any forecast, but given the high number of them this year, Governor Mark Dayton said he will wait to produce his supplemental budget proposal until after the February 2018 Forecast.

    The state’s budget picture could improve – for example, if federal policymakers finally reauthorize funding for the Children’s Health Insurance Program (CHIP). But we can’t take our eyes off the serious threats posed by federal proposals to fundamentally weaken the federal-state partnership and step back from commitments to the safety net. These would result in a large loss of funding to the state and to essential federal services that Minnesotans count on.

    Some noted today that tapping into the state’s budget reserve would be one way to address any minor shortfalls. We shouldn’t be too quick to go there. This shortfall is nothing compared to the multi-billion dollar deficits the state has faced during economic downturns. Given the length of the current economic recovery, it’s likely that the next recession isn’t too far away.

    State policymakers may not be able to control the decisions that come out of Washington or the course of the national economy. But their priority should be to put the state in a strong position to respond to federal changes and to support Minnesotans most likely to struggle in an economic slowdown.

    Getting ready for what’s ahead is more important than ever to make Minnesota a state where everyone can thrive.

    -Clark Goldenrod and Nan Madden

     
  • October Economic Update shows state revenues and expected economic growth down

    by Clark Goldenrod | Oct 12, 2017

    This week’s October Revenue and Economic Update gave us somewhat unwelcome news about the state’s economic and budget landscape. The quarterly report from Minnesota Management and Budget (MMB) showed that recent state revenues have come in below projections, and national economic growth is expected to be slightly lower for the next few years than previously projected.

    Some of the top takeaways from the Update include:

    1. State revenues are coming in below projections. The state’s revenues for the first quarter of FY 2018 (July to September 2017) came in $66 million below projections; that’s 1.4 percent less than projected in the state’s February 2017 Economic Forecast. This is primarily due to lower income taxes received. One spot of good news is the state’s FY 2017 revenues. While preliminary estimates showed revenues coming in 0.5 percent below expectations, the final revenue numbers for FY 2017 are in and were right on target.

    2. Slightly lower national economic growth projected over next few years. The national economic forecasters predict 2.2 percent national economic growth for 2017. Despite recent natural disasters, which have delayed economic growth, this is only slightly below the projection from the February forecast. Also, the state’s economic forecasters have changed their assumptions about federal policy action. Previously, the forecasters assumed that federal policymakers would enact tax reductions and increase infrastructure spending, which would boost growth in 2018. They have now removed those assumptions from the model they use to predict how the national economy will fare, bringing down expected growth in 2018 from 2.7 percent to 2.4 percent.

    Graph US Real GDP annual percent change 

    3. Unemployment nationally expected to remain low. Nationally, unemployment in September declined to 4.2 percent. The annual unemployment rate for 2017 is expected to be 4.4 percent, which is expected to improve slightly to 4.3 percent until 2020.

    4. Despite uncertainty around federal policy changes, forecasters are fairly confident in their projectionsThe forecasters assign a 65 percent chance to their baseline forecast. They also give a 20 percent chance for a more pessimistic scenario and assign a 15 percent probability to a more optimistic scenario.

    This week’s Update brings us reason for caution. At the federal level, policymakers are proposing serious funding cuts that will make it more difficult for Minnesota to continue to make the investments that strengthen our state and build shared prosperity. President Donald Trump, and the U.S. House and Senate have all put federal budget plans on the table that:

    • Significantly cut into annual non-defense appropriations, a substantial portion of which go to state and local governments;
    • Include massive cuts to health care funding, again much of which goes to states to fund Medicaid, which helps Minnesotans of all ages access the health care they need; and
    • Make deep cuts in assistance to low-income and middle class families through the entitlement portion of the budget, which includes SNAP food assistance, Supplemental Security Income for seniors and people living with disabilities, unemployment insurance, Pell grants and student loans. Again, some of these cuts would push funding responsibility to the states, and others would increase hardship among Minnesota residents and pressure for the state to respond.

    This week’s update should give Minnesota’s policymakers pause. The budget that they passed in the 2017 Legislative Session left very little of the projected surpluses, even though there were warning signs that the job of meeting the needs of Minnesotans is likely to get a lot harder.

    The next look at the state’s fiscal and economic health will come in early December with the release of the November Budget and Economic Forecast, which will give us a full picture of state revenues, expenditures and economic projections.

    -Clark Goldenrod

  • Minnesota's July Economic Update shows slightly lower revenues, economic growth on track

    by Clark Biegler | Jul 12, 2017
    This week’s July Revenue and Economic Update gave us mixed news about the state’s economic and budget landscape. The quarterly report from Minnesota Management and Budget (MMB) showed that state revenues have come in slightly below projections but national economic growth is expected to be on track with earlier projections for the next few years.

    Some of the top takeaways from the Update include:

    1. FY 2017 revenues just below projections. The state's 2017 fiscal year ended on June 30, and revenues for the year came in $104 million below projections; that’s 0.5 percent less than projected in the state's February 2017 Economic Forecast. This is due primarily to lower than expected income tax receipts and higher than expected income tax refunds. These are only preliminary numbers, and the final FY 2017 revenues will be included in the October economic update. However, the lower income tax revenues are consistent with other data that suggest that wage and salary income is growing more slowly than earlier projections. Another factor that could be influencing the lower income tax payments noted in the Update is that some taxpayers may have held off on realizing capital gains in 2016, anticipating potential federal tax cuts.

    2. Continued national economic growth projected for 2017 and onward. The national economic forecasters continue to predict 2.3 percent national economic growth for 2017 and for growth to jump to 2.7 percent in 2018; these are the same economic predictions as in the February forecast. However, the state's economic forecasters note that this projected growth is based on the assumption that federal policymakers will enact tax reductions and increase infrastructure spending. Without these federal policy changes, growth in 2018 is expected to be around 2.3 percent.

    3. The national unemployment rate is expected to fall further. Despite a slight recent uptick in the national unemployment rate, it has decreased by 0.4 percentage points this year to date. The national unemployment rate is expected to fall to 3.9 percent by 2019.

    4. Despite uncertainty around federal policy changes, forecasters are fairly confident in their projections. The forecasters assign a 60 percent chance to their baseline forecast. They also give a 25 percent chance for a more pessimistic scenario and assign a 15 percent probability to a more optimistic scenario.

    This week's Update brings us relatively good news on the national economy, but reason for caution. These numbers don't measure the impact on Minnesota of potential serious federal funding cuts. President Donald Trump has proposed, and the U.S. House and Senate have considered, deep cuts to federal funding to the states. For example, the Senate's health care bill would cut health care funding to Minnesota by about $2 billion over 18 months, and threaten the health care of about 1 million Minnesotans. In addition, Trump's budget proposes about $18 billion in cuts to grants to states and local governments that support critical services, such as housing and poverty-reduction efforts.

    The budget that Minnesota policymakers passed in the the 2017 Legislative Session left very little of the projected surpluses on the bottom line. As a result, the responsibility of meeting the needs of Minnesotans in the face of uncertainty has gotten tougher.

    -Clark Biegler
  • Minnesota's April Economic Update shows higher revenues, economic growth on track

    by Clark Biegler | Apr 13, 2017
    This week’s April Revenue and Economic Update gave us some good news about the state’s economic and budget landscape. The quarterly report from Minnesota Management and Budget (MMB) showed that state revenues have come in above projections and national economic growth is expected to be on track with earlier projections for the next few years.

    1. Recent revenues are above projections. February and March 2017 revenues came in $23 million above projections; that’s 0.9 percent more than projected in the February 2017 Economic Forecast. This is due primarily to higher than expected income tax receipts, which the Update notes could be a timing issue that evens out as the filing season progresses.

    2. Continued national economic growth projected for 2017 and onward. In 2017, the U.S. economy is growing about as predicted in the February forecast, at 2.4 percent. The Update expects 2.6 percent growth in 2018, then settle to a little over 2.0 percent yearly growth from 2019 to 2021.

    Graph US Real GDP

    3. The national economy is improving. The latest jobs numbers show that the U.S. labor market continues to improve, and nationally, unemployment is expected to drop to 4.0 percent by 2019.

    4. Significant areas of uncertainty remain. The Update notes there is not enough information to incorporate the potential impact of federal policy changes to health care, immigration, trade, and business investment incentives into their economic model. These caveats aside, the forecasters assign a 60 percent chance to their baseline forecast. They also give a 25 percent chance for a more pessimistic scenario where the U.S. sees a brief recession in 2018 as trade relations worsen and businesses delay investment. They assign a 15 percent probability to a more optimistic scenario where economic growth is strengthened due to business investment in productivity.

    5. Policymakers should be cautious. This week's Update continues the trend of good budget news for Minnesota. But policymakers should practice great caution as they make budget decisions in the closing weeks of the Legislative Session, as there is considerable uncertainty around policy changes at the federal level. And given the relatively unprecedented length of the current economic recovery, it’s likely that the next recession is not too far away. President Donald Trump has proposed and the U.S. House has considered deep cuts to the safety net and to state funding. For example, for the upcoming federal fiscal year Trump proposes about $18 billion in cuts to grants to states and local governments that support critical services, such as housing and poverty-reduction efforts. Minnesota policymakers should prepare for an uncertain future by not making large and unsustainable tax cuts or weakening the state's budget reserve.

    -Clark Biegler
  • February Economic Forecast shows surpluses, but forecasters cite federal uncertainty and need for caution

    by Clark Biegler | Feb 28, 2017

    The state’s Minnesota Management and Budget released the February Budget and Economic Forecast today. Here are our top takeaways:

    1. The state’s budget situation is better than in the last forecast. The positive balances in each of the three budget cycles described in the forecast are higher than projected in November.
    2. A $743 million positive balance is projected for FY 2016-17. This figure is for the budget cycle that ends on June 30.
    3. Positive balances are also projected for the future. Today’s report shows a $1.7 billion positive balance available for the upcoming FY 2018-19 biennium. This figure includes the balance for FY 2016-17. This forecast also projects a $2.1 billion structural positive balance for FY 2020-21.
    4. But the future balances do not take into account what it takes to maintain current levels of service.When the impact of inflation on spending is included, the surplus figures morph into a much smaller $540 million surplus in FY 2018-19 and a $959 million deficit in FY 2020-21. This means that to the extent the surplus is used for additional spending or tax cuts, this will come at the expense of keeping up with current commitments.
    5. The forecast expects higher economic growth than projected earlier. The national economy is now expected to grow at a higher 2.3 percent rate in 2017 and between 2.1 and 2.7 percent yearly growth from 2018 through 2021. 

    6. Graph Real gross domestic product annual percent change
    7. For the most part, the forecast does not reflect the impact of likely federal policy changes. The economic forecast incorporates the projected effects on the national economy of likely reductions in individual and corporate taxes and increased spending on infrastructure. However, citing “considerable uncertainty,” the forecasters did not include any economic impact of federal decisions on trade, immigration or health care. And the projected state budget figures do not anticipate the impact of potential federal cuts to state funding, although major changes are being considered.
    8. The forecasters are moderately confident in these projections, but there’s more uncertainty than usual. IHS Markit, Minnesota’s economic consulting firm, assigns a 60 percent probability to their baseline economic forecast, and a 25 percent probability to their more pessimistic scenario in which there’s a short recession next year caused by “strained trade relations” and postponed investment by businesses. The forecasters assign a 15 percent probability to a more optimistic scenario.

    The February forecast sets the stage for making budget and tax decisions for the upcoming FY 2018-19 budget cycle. Last month, Governor Mark Dayton kicked off the budget process with his budget proposal, which he will update the week of March 13. Now, legislators will use this forecast to construct their tax and budget proposals.

    The positive forecast numbers create the opportunity to make targeted investments so that more Minnesotans can participate in the state’s economic growth, such as through expanding affordable health care, child care and targeted tax credits like the Working Family Credit for Minnesotans who are working hard but struggling to pay the bills.

    But policymakers should also be cautious, because the landscape is likely to change significantly as federal policymakers are expected to enact large-scale changes over the next year. As required by law, the February forecast’s budgetary projections are based on current state and federal laws – they don’t anticipate likely federal changes.

    Federal funding is a significant part of the state’s budget, and every area of the federal budget that touches the state is under consideration for sweeping changes or funding cuts. For example, President Donald Trump plans to cut non-defense discretionary spending – about a third of which goes to states and local governments to fund key priorities like education, affordable housing, and training and employment services – in order to increase defense spending by $54 billion in 2018.

    One prominent theme to watch for is federal action to cut funding in areas of shared federal-state responsibility and shift more responsibility to the states, such as through substantial cuts to Medical Assistance that would grow over time as a result of turning Medicaid into a block grant or otherwise capping funding at inadequate levels.

    This would come on top of the harm done through changes to the Affordable Care Act (ACA). While the details are still murky, analysis of past proposals to repeal the ACA predicts that the number of Minnesotans without health insurance would more than double, and Minnesota could lose more than $16 billion in federal funding over 10 years. Just cutting the enhanced federal matching rates for the ACA’s Medicaid expansion population, means the state would need to commit an additional $815 million in 2019 alone to continue this health coverage.

    In addition, major restructuring of other federal safety net programs could increase pressure on the state to respond to the needs of Minnesota residents. At the same time, federal tax changes could erode the state’s ability to raise revenues.

    With these large and as-yet undefined federal changes on the horizon, Minnesota policymakers should make their tax and budget decisions this year with an eye to maximizing the state’s ability to respond. They should particularly avoid making large tax cuts and especially tax cuts that grow over time, which would greatly compromise the state’s ability to provide health care and essential public services after significant reductions in federal funding. The state should also maintain a robust budget reserve to be sure we’re equipped to respond to future economic downturns, given that the kinds of support that the federal government has provided in past downturns may be less likely.

    -Clark Biegler

  • January Economic Update shows lower revenues, higher economic projections

    by Clark Biegler | Jan 17, 2017

    Last week’s January Revenue and Economic Update gave us some mixed news about the state’s economic and budget landscape. The quarterly report from Minnesota Management and Budget (MMB) showed that while state revenues for the end of 2016 came in below projections, national economic growth is now expected to be stronger for the next few years.

    1. End of year 2016 revenues are below projections. November and December 2016 revenues came in $29 million below projections; that’s 0.8 percent less than projected in the November 2016 Economic Forecast. This is due primarily to lower than expected income tax receipts.

    2.  Higher national economic growth projected for 2016 and onward. U.S. economic growth for 2016 was higher than expected, due to growth in consumer and business spending. The new economic growth projections through 2019 consistently surpass the projections from the November forecast. However, the update notes that considerable policy uncertainty remains a risk to the economy and the accuracy of these projections.

    Graph US real GDP annual percent change

    3. The national economy is improving. The latest jobs numbers show that the U.S. labor market is getting close to full employment and recent wage gains are strong. Nationally, unemployment is expected to drop in 2018 and 2019.

    4. Despite policy uncertainty, forecasters remain confident in projected economic growth. The forecasters assign a 65 percent chance to their baseline forecast. They also give a 20 percent chance for a more pessimistic scenario where the U.S. sees a recession in early 2018, in which various trade relations are compromised and global economies worsen. They assign a 15 percent probability to a more optimistic scenario where productivity growth improves due to business investment encouraged by policy changes and new technologies.

    5. We’ll receive updated forecast numbers next monthThe November forecast projected surpluses of $678 million for the remainder of the FY 2016-17 budget cycle and $1.4 billion for FY 2018-19. This week’s update suggests that we are likely to see surpluses again in the February forecast. Some data in the update point to the potential for a larger surplus, and some point to a smaller one. We’ll have to wait to see next month which trends have a larger influence on the overall numbers, as well as how expenditures come into play.

    -Clark Biegler

  • Five takeaways from the November Economic Forecast

    by Clark Biegler | Dec 02, 2016

    The Minnesota Budget Project staff is currently at a conference in Washington, D.C., but given our wonky personalities we just had to take a quick look at today’s state Budget and Economic Forecast. Here are our top five takeaways:

    1. The forecast projects a $678 million positive balance for FY 2016-17. This figure is for the remainder of the current budget cycle, which ends on June 30. And it is after one-third of the positive balance is transferred to strengthen the state’s budget reserve.
    2. The November forecast also projects positive balances in the future. Today’s report shows a $1.4 billion positive balance available for the upcoming FY 2018-19 biennium. This figure assumes that the balance for the current biennium will remain for use in FY 2018-19. This forecast also gives us our first glance at the FY 2020-21 biennium, in which the state has a projected $1.5 billion positive balance.
    3. But the future balances do not take into account what it takes to maintain current levels of service.When the impact of inflation on spending is included, the surplus morphs into a much smaller $73 million in FY 2018-19 and into a $1.7 billion deficit in FY 2020-21. This means that to the extent the surplus is used for additional spending or tax cuts, this will come at the expense of keeping up with current commitments.
    4. The forecast expects weaker economic growth than projected earlier this year. The national economy is still expected to grow over the next several years, but now at a slower 1.5 percent in 2016 and hovering just above 2 percent yearly growth from 2017 through 2021.
      Graph Real gross domestic product annual percent change

    5. The forecasters are moderately confident in these projections, but there’s more uncertainty than usual. IHS Markit, Minnesota’s economic consulting firm, assigns a 65 percent probability to their baseline economic forecast, and a 20 percent probability to their more pessimistic scenario where political uncertainty both in the U.S. and abroad weakens the economy and leads to a short recession starting late next year. The forecasters assign a 15 percent probability to a more optimistic scenario where incomes, housing and consumer spending are boosted by higher productivity, which increases national economic growth next year.

    In the upcoming 2017 Legislative Session, policymakers will put together a budget for the upcoming biennium. The November Economic Forecast gives Governor Mark Dayton the baseline information he needs to put together his proposed budget for the FY 2018-19 biennium that he will release in January.

    As they make tax and budget decisions this session, policymakers should focus on state investments that expand economic security and enable our families, children and seniors to thrive. This includes affordable health care and child care, and targeted tax credits so that Minnesota workers can better support themselves and their families.

    Now is not the time to turn our backs on the progress we’ve made for a more sustainable tax system that allows us to invest in our communities. Large and poorly targeted tax cuts don’t spur economic growth – that hasn’t worked out for states like Kansas.

    We’ve long called on policymakers to make responsible tax decisions. Caution is more important than ever, given today’s modest long-term revenue numbers. Making large tax cuts now would make it harder to effectively respond to what’s ahead, including an uncertain economy and potential large-scale federal changes to tax policy and funding for states. Our own state history has shown that when taxes are cut too much in surplus years, it makes it more difficult for the state to respond to the needs of our residents in the next economic downturn. Instead, we should invest in a more durable prosperity that reaches all Minnesotans.

    -Clark Biegler

  • Four takeaways from the October Economic Update

    by Clark Biegler | Oct 13, 2016

    Monday’s October Revenue and Economic Update gave us some unwelcome news. The quarterly report from Minnesota Management and Budget (MMB) showed that while revenues for FY 2016 came in above projections, state revenues are starting to come in lower than expected, and forecasters have once again lowered their projections for national economic growth.

    1. FY 2016 ends above projections, FY 2017 begins behind projections. FY 2016 ended on June 30, 2016, with revenues $220 million above projections; that’s $10 million less than reported in the July update. State revenues from the first quarter of FY 2017 were $97 million, or 2.1 percent, lower than projected in the February 2016 Economic Forecast adjusted for legislative changes.

    2. Lower national economic growth projected for 2016 and onward. Expected U.S. economic growth for 2016 has been lowered to 1.4 percent. Real GDP growth is then expected to be above 2.2 percent each year from 2017 to 2019; these are lower rates of growth than prior projections. These new growth projections are associated with uncertainty around the outcome of the presidential election, whether the Federal Reserve will raise interest rates, and around OPEC’s oil production and pricing decisions. The impact of Hurricane Matthew is another source of uncertainty.

    Graph US real GDP annual percent change 

    3. Unemployment remains low. Despite the slower economic growth projections, the economy is expected to continue to see low unemployment of 4.9 percent, a level that traditionally has been characterized as “full employment.”

    4. This is the last update before the November Economic Forecast. The quarterly economic updates are helpful in giving us an idea of how revenues and the national economy stack up to previous projections. However, for a fuller picture, we look to the more comprehensive November and February economic forecasts, which project both state revenues and expenditures. The November Economic Forecast will give Governor Mark Dayton the baseline information he needs to put together his proposed budget for the FY 2018-19 biennium that he will release in January.

    -Clark Biegler

  • Five takeaways from state’s July Economic Update

    by Clark Biegler | Jul 13, 2016

    The state received a note of caution – with revenues on track but lower projected national economic growth – in the recent July Revenue and Economic Update from Minnesota Management & Budget (MMB). Here are our top takeaways:

    1. FY 2016 ended with revenues slightly ahead of projections. State revenues in FY 2016 were $230 million, or 1.1 percent, higher than projected in the February 2016 Economic Forecast. The largest portion of these higher than expected revenues are from the corporate franchise tax, due to both higher payments and lower than projected refunds.

    2. Lower national economic growth projected for 2016 and onward. Economic growth is now expected to slow to 1.9 percent, with slightly higher growth in 2017 to 2019. The start of 2016 showed some of the weakest economic growth in the past few years, due to several factors, including a struggling manufacturing sector and weak global economic growth.

    Graph US Real GDP
     

    3. It’s not all doom and gloom. Despite the lower projections, the U.S. economy is showing some positive signs, like higher consumer spending and greater housing activity. And despite last month’s vote by the United Kingdom to leave the European Union (often referred to as Brexit), national economic projections for the U.S. are still solid.

    4. Economic forecasters are confident in their projections of economic growth. They only give a 20 percent chance for a more pessimistic scenario where a short recession is spawned by slower productivity and a deep decline in consumer and business confidence. They also assign a 15 percent probability to a more optimistic scenario where higher productivity and foreign growth boost the national economy.

    5. The economic update is an important reminder that economic projections can swing. While they are only one factor in the state’s budget outlook, the weaker economic growth projections in the July update hint at smaller state budget surpluses.

    -Clark Biegler

  • April Economic Update: Slight dip in revenues and economic growth, otherwise on track

    by Clark Biegler | Apr 11, 2016

    The state’s latest economic figures show little change from what was measured in the February forecast. The state of Minnesota collected slightly lower than expected revenues, and the U.S. economy is expected to grow at a lower rate in 2016, according to a quarterly report from Minnesota Management & Budget (MMB).

    MMB’s April Revenue and Economic Update finds that state revenues during February and March were $11 million, or 0.5 percent, lower than projected in the recent February forecast. The largest portion of these lower than expected revenues are due to lower income tax receipts. MMB notes though that this is likely more a matter of timing, not an indication of a broader reduction in revenues.

    The U.S. economy is showing some positive signs, like lower unemployment and higher labor force participation. However, several factors, including weak global economic growth and a struggling manufacturing sector, are contributing to lower projected national economic growth this year. That contributes to an expectation of slightly lower economic growth in the short term, but then economic growth is back on track with earlier projections in 2017 and beyond.  

    Graph Real gross domestic product annual percentage change

    The economic forecasters are fairly confident in their projections, and assign a 65 percent probability to their baseline economic forecast. They give a 20 percent chance for a more pessimistic scenario in which a slow global economy and very low business and consumer confidence trigger a short recession; and a 15 percent chance that the economy will be stronger than the baseline prediction, due to better than anticipated productivity, household formation and foreign growth early this year.

    The February forecast brought good news for Minnesota, projecting a $900 million positive balance for the remainder of FY 2016-17 and a $1.2 billion surplus for FY 2018-19. As policymakers make tax and budget choices this session, the projected surpluses provide the opportunity to make investments so that more Minnesotans can participate in the state’s economic growth.

    But today’s economic update also serves as an important reminder that economic projections fluctuate. Lawmakers should make sure their choices this year are sustainable – which rules out passing phased in tax cuts whose cost grows over time.

  • February Forecast shows surplus, but need for caution

    by Clark Biegler | Feb 26, 2016

    The new state budget figures released today reflect the overall strength of Minnesota’s economy and demonstrate that some resources are available for policymakers to invest in a more durable, shared prosperity. In this uneven economic recovery, it is all the more important to focus on supporting the work of everyday Minnesotans through fair and sustainable tax and budget choices.

    Today’s February 2016 Budget and Economic Forecast provides the official numbers that policymakers will use to guide their tax and budget decisions in the 2016 Legislative Session. The forecast projects a $900 million positive budget balance for the current FY 2016-17 biennium, and $1.2 billion in the next budget cycle, FY 2018-19. The state continues to be in good economic health, but today’s numbers are lower than the November forecast’s projections.

    As always, the figures for future budget cycles should be approached with caution. The FY 2018-19 projection assumes that funding for most services will not increase to keep up with inflation. Taking into account the impact of inflation changes the FY 2018-19 surplus figure into a $558 million deficit.

    Compared to the November figures, the February Forecast expects slightly slower national economic growth, which plays a clear role in the lower surplus numbers measured today. The forecast shows that the national economy grew 2.4 percent in 2015, and now projects annual growth rates between 2.4 percent and 2.8 percent through 2019. The U.S. economy continues to see falling unemployment for workers across age, gender, education level and racial groups.

    The state continues to have adequate resources to fund our commitments, but there have been some changes since November:

    • Slower expected economic growth means revenues are still growing, but will come in lower than projected this November.
    • Spending is lower than expected, primarily from lower health care costs. This is due to higher federal funding for the Children’s Health Insurance Program (CHIP) in Medical Assistance. The forecast also projects slightly higher spending in E-12 education due to higher special education costs.

    Minnesota’s economy continues to perform better than the national economy in terms of lower unemployment. But the state’s future economic strength depends on more Minnesotans succeeding in the workforce. Policy choices that enable working people to better make ends meet are more crucial than ever, like expanding access to earned sick and safe time. And tax and budget choices should include targeted, strategic investments in a broader, more durable prosperity, including expanding the Working Family Tax Credit and making child care more affordable. In contrast, using the surplus for large, poorly targeted tax cuts would take us in the wrong direction.

    The forecasters are fairly confident in their projections. Global Insight assigns a 65 percent probability to their baseline economic forecast. They assign a 20 percent probability to their more pessimistic scenario in which a short recession is triggered by weaker international markets and the U.S. construction sector, and a 15 percent probability to an optimistic scenario in which higher productivity, foreign growth and household formation strengthen the U.S. economy.

    Legislators will go into session on March 8 to start their work, and Governor Mark Dayton will release his FY 2016-17 supplemental budget on March 15. They should prioritize working Minnesota families, by making targeted investments in broader prosperity and refraining from large, permanent tax cuts that threaten the state’s economic future.

    -Clark Biegler

  • January Economic Update shows Minnesota on track

    by Clark Biegler | Jan 13, 2016

    Minnesota collected slightly more than expected revenues, and the U.S. economy is expected to continue to grow, according to a quarterly report from Minnesota Management & Budget (MMB).

    MMB’s January Revenue and Economic Update finds that state revenues during November and December were $43 million, or 1.2 percent, higher than projected in the November forecast. The largest portion of these better than expected revenues are due to lower income tax refunds, but state economists project that this positive balance may disappear as the processing of tax year 2014 returns is completed.

    The national economy continues to improve, with strong employment gains and a national unemployment rate of 5.0 percent in December. The Federal Reserve has noted these economic improvements and in mid-December raised short-term interest rates for the first time in almost 10 years.

    National economic growth for 2016 is expected to be 2.7 percent, which is lower than projected in November. Looking further ahead, the economy is expected to grow more strongly in 2017 than projected in the November forecast, and then slightly slower in 2018 and 2019 than the November projections.

    Graph Real gross domestic product annual percent change

    The economic forecasters are fairly confident in their projections, and assign a 65 percent probability to their baseline economic forecast. They give a 20 percent chance for a more pessimistic scenario in which international markets contract and a weak U.S. construction sector triggers a short recession; and a 15 percent chance that the economy will be stronger than the baseline prediction, due to better than anticipated productivity, household formation and foreign growth early this year.

    The November forecast brought good news for Minnesota, projecting a $1.2 billion positive balance in FY 2016-17. This week’s economic update suggests that Minnesota policymakers can continue to expect a strong positive balance in the February forecast. When they convene for the 2016 Legislative Session in March, policymakers will use the numbers in the February forecast to inform their tax and budget choices.

    The forecast also made clear that its projection for economic growth in Minnesota hinges on broader participation in the workforce. Policymakers should use this opportunity to focus on strategies that support workers, such as making child care more affordable so parents can go to work, and expanding access to earned sick and safe time so workers don’t lose their jobs when they need to stay home to care for themselves or a sick family member.

    -Clark Biegler

  • Positive budget forecast offers chance for broader prosperity, greater fairness in tax system

    by Clark BIegler | Dec 03, 2015

    Today’s Minnesota November 2015 Budget and Economic Forecast shows positive news for two budget cycles, and shows once again that Minnesota has turned the corner after a decade of frequent deficits and cuts to public services.

    Policymakers should focus on investing in shared prosperity and making our tax system fairer and more sustainable as they put together the supplemental budget for FY 2016-17.

    The forecast projects a $1.2 billion positive balance for the current FY 2016-17 biennium. That’s after $594 million is transferred to the state’s budget reserve as well as a small repayment to state environmental funds.

    The forecast also gives us a look into the upcoming FY 2018-19 biennium, where there is another positive balance projected of $2.0 billion. Taking into account the impact of inflation reduces this figure to $352 million.

    The positive balance in today’s forecast is due to lower than anticipated spending paired with higher than expected revenues:

    • Most of the lower spending is due to reduced costs in Medical Assistance, from lower cost of care and savings from the state’s competitive bidding process. The lower spending in Health and Human Services more than offsets some higher expenses in E-12 Education, due partially to student enrollment growth.
    • Higher than expected revenues are due to higher sales and corporate tax collections that offset slightly lower than expected income tax collections.

    The forecast shows that the national economy grew more slowly in FY 2015 than was anticipated in the February Forecast, with annual growth rates between 2.6 percent and 2.9 percent expected through FY 2019. The U.S. economy has seen falling unemployment for workers across age, gender, education level and racial groups. However the rate of people working part time for economic reasons is high, which means that some workers are not able to find the full-time jobs or hours they need.

    Minnesota’s economy continues to perform better than the national economy, with low unemployment and a tightening labor market. But too many Minnesotans are being left behind, and the state’s future economic success depends on broader participation in the workforce. Our tax and budget choices should prioritize strategies that expand economic opportunity for working Minnesotans across the state and allow them to find the jobs they need.

    Minnesota can’t afford to have any workers on the sidelines. Making affordable child care available to more Minnesota families will allow parents to work and employers to get the employees they need, while children can thrive in stable environments. Increasing funding for Basic Sliding Fee Child Care Assistance and expanding the Child and Dependent Care Tax Credit are two important ways to address Minnesota’s child care challenges.

    Supporting Minnesotans’ work efforts should also be a priority in our tax policy. Improving the state’s Working Family Credit would help people working at lower wages to support their families, and such tax credits are shown to get children off to a stronger start in life. It also would make more progress so that low- and moderate-income Minnesotans don’t pay more than their fair share in taxes.

    Another way to improve the number of Minnesota workers with good jobs is to expand access to earned sick and safe time, so that 1.1 million Minnesotans won’t continue to lose wages or even their jobs when they need to stay home to care for themselves or a family member.

    What we don’t need are large tax cuts. Minnesota’s own history shows that when we cut taxes too far in good times, it makes things worse in the next economic downturn. And we can look to other states, like Kansas, to see that large tax cuts don’t work as an economic development strategy.

    The forecasters are confident in their projections. Global Insight, Minnesota’s economic consulting firm, assigns a 65 percent probability to their baseline economic forecast. They assign a 20 percent probability to their more pessimistic scenario where global markets are not stabilized resulting in weaker economic growth, and a 15 percent probability to an optimistic scenario where better than expected household formation and productivity strengthen the U.S. economy.

    The next look at budget numbers that policymakers will use to form the supplemental budget for FY 2016-17 will be released in the February forecast.

    -Clark Biegler

  • Minnesota starts budget year with good news

    by Clark Biegler | Oct 13, 2015

    Minnesota is starting the current budget year stronger than expected, according to Minnesota Management & Budget (MMB).

    MMB’s October Revenue and Economic Update finds that state revenues have come in above expectations. The state’s 2016 fiscal year began on July 1, and revenues from July to September came in $136 million, or 3.2 percent, higher than projected in the February Forecast. About 20 percent of these better than expected revenues are likely due to timing of income tax payments rather than an improved economy, so we shouldn’t expect revenues to consistently exceed projections by this wide margin.

    The national economy continues to improve, but the Update highlights concerns. The good news is that unemployment continues to decline, and low gas prices are giving people extra spending money. However, wage growth has remained low, several factors have had a negative effect on U.S. manufacturing this summer, and U.S. job growth has unexpectedly declined in the past two months. National economic growth for 2015 is expected to be 2.5 percent, which is lower than projected in February. But looking ahead to 2016 and 2017, the economy is expected to pick up, growing annually by 2.9 and 3.0 percent, respectively.

    The economic forecasters are fairly confident in their projections, and assign a 65 percent probability to their baseline economic forecast. They give a 20 percent chance for a more pessimistic scenario in which global markets decline; and a 15 percent chance that the economy will be stronger than the baseline prediction, due to better than anticipated productivity, household formation and foreign growth early next year.

    The 2015 Legislative Session ended in June with $865 million of the state’s projected $1.9 billion FY 2016-17 surplus unspent. The next update on that available balance, taking into account both revenues and expenditures, will come out in the state’s November economic forecast. The current trend of higher than expected revenues indicates that the available balance will likely grow. However, predictions of slower economic growth could dampen the projected balance.

    Up to one-third of any positive balance for FY 2016-17 measured in the November Forecast will go into the state’s budget reserve, further building up the state’s “rainy day fund” so that the state will be better prepared to meet the needs of Minnesotans during the next economic downturn.

    Due to the late start to the 2016 Legislative Session, policymakers will also have the numbers from the February 2016 Forecast when they convene. At this point, it looks like policymakers will have a surplus to work with, and 2016 will present another opportunity to invest in the strong workforce and ladders into the middle class that are essential for more Minnesotans to participate in the economic recovery.

    -Clark Biegler

  • Minnesota’s revenues beat expectations

    by Clark Biegler | Jul 10, 2015

    Minnesota ended the recent budget year much stronger than expected, according to preliminary analysis from Minnesota Management & Budget (MMB).

    MMB’s July Revenue and Economic Update finds that state revenues have come in above expectations. The state’s 2015 fiscal year ended on June 30, and revenues for the year came in $555 million, or 2.8 percent, higher than projected in the February Forecast. This is mostly due to higher income tax collections from capital gains and other non-wage income. The Update notes that these are preliminary figures that could change when they are finalized in August.

    While the revenue picture in Minnesota shows good news, the story for the national economy is a little different. Economic growth got off to a slow start this year, due to several temporary factors including harsh winter weather. Now, the national economy is picking up as indicated by a tightening labor market and higher consumer confidence, but overall growth for 2015 is now expected to be lower than projected in the February Forecast. Looking to 2016 and 2017, the economy is expected to pick up, growing annually by 3.1 and 2.7 percent, respectively.

    The economic forecasters are fairly confident in their projections, and assign a 70 percent probability to their baseline economic forecast. They give a 15 percent chance for a more pessimistic scenario in which economic growth stalls; and a 15 percent chance that the economy will be even stronger than the baseline predictions, due to better than anticipated productivity and foreign growth later this year.

    The forecast also notes the effect of global prices and the rising value of the U.S. dollar on Minnesota’s Iron Range. A strong dollar makes foreign steel less expensive, which has encouraged imports. As a result, there has been a slowdown in Minnesota’s taconite mining industry, affecting more than 1,000 workers directly in recent months, or about a quarter of the state’s mining jobs. It also affects jobs in many supporting industries.

    The 2015 Legislative Session recently ended with $865 million of the state’s projected $1.9 billion FY 2016-17 surplus unspent. We’ll get an update on that available balance, taking into account both state revenues and expenditures, when the state’s November economic forecast comes out. If the current trend of higher than expected revenues continues, that available balance would likely grow. However, the predictions of slower economic growth could exert some downward pressure. One-third of any positive balance for FY 2016-17 measured in the November Forecast will go into the state’s budget reserve, further building up this important resource so that the state will be able to meet the needs of Minnesotans during the next economic downturn.

    Today’s good budget news indicates that the next legislative session will likely provide another opportunity to ensure more Minnesotans benefit from the improving economy.

    -Clark Biegler

  • Latest state economic update shows higher revenues but slower economic growth

    by Clark Biegler | Apr 14, 2015

    Minnesota’s spring is arriving with mixed economic news. State revenues have come in higher than expected, but the U.S. economy is not expected to grow as quickly as earlier predicted. That’s according to the April Economic Update from Minnesota Management and Budget.

    State revenues in February and March came in $100 million, or 4.6 percent, higher than expected. Most of this is due to higher corporate income tax revenues. However, Minnesota Management and Budget assumes that part of this amount is a one-time occurrence that will not contribute to increased revenues in the future.

    The update shows that the U.S. economic outlook for 2015 is weaker than projected in the February forecast. The U.S. economy is now expected to grow at 2.8 percent in 2015 while the February forecast predicted 3.0 percent. The lower growth is due to short-term factors like slower economic activity in early 2015; forecasters continue to expect strong growth this summer. The economy is still expected to grow at 2.7 percent in 2016, but growth in 2017 and beyond is expected to be slightly lower than projected in February.

    Graph Real gross domestic product 

    Forecasters continue to assign a 70 percent probability to their baseline economic scenario, with a 15 percent chance for more optimistic or pessimistic scenarios. In the pessimistic scenario, lower consumer spending and a weaker housing market put a damper on the economy, and in the optimistic scenario, improvements in jobs and incomes spur the stronger economic growth.

    The April Economic Update shows the state is on track for revenues. But this update is also a good reminder that forecasts are projections, not guarantees. The February forecast projects a $1.9 billion surplus for the FY 2016-17 biennium, which has yet to begin. The state’s economic picture could swing in a positive or negative direction in the next two years.

    That’s a good reason for policymakers to be cautious as they put together the budget this session. Both the House and Senate budget targets put money into the state’s rainy day funds – that’s a smart move. Policymakers also should not pass proposals whose costs grow significantly in future years and may not be sustainable. Unfortunately, several tax proposals under consideration do just that, phasing in tax cuts over many years, which disguises their full cost and divorces decisions made today from the consequences of doing so.

    -Clark Biegler

  • February forecast’s strong surplus creates opportunity to invest

    by Clark Biegler | Feb 27, 2015

    The state’s February 2015 Economic Forecast released today shows good news for three budget cycles. After years of deficits and cuts in services, these positive projections offer lawmakers an opportunity to invest in broader economic security for all Minnesotans.

    First, here’s a look at the numbers. The forecast projects a $478 million positive balance for the remainder of the current budget cycle, the FY 2014-15 biennium, which ends on June 30.

    Policymakers are getting ready to set the budget for the upcoming FY 2016-17 biennium, for which the forecast projects a $1.9 billion positive balance. Taking into account the cost for current services to keep up with inflation reduces this figure to $976 million.

    The forecast also gives us another glimpse into the FY 2018-19 biennium, where a $3.2 billion positive balance is projected. This becomes a slight deficit of $95 million when the impact of inflation is taken into account.

    The February forecast projects larger surpluses than predicted in the November forecast. The strong balances in the forecast are due to a few factors. Revenues are projected to come in higher than expected. The strongest driver here is higher income tax collections, due to expected rising incomes.

    The forecast also shows lower projected expenditures. In the 2014-15 biennium, this is due in part to lower Medical Assistance spending. In the 2016-17 biennium, lower projected spending in E-12 education contributes to the positive projected balance. The lower projected E-12 spending is a result of declines in three areas: student enrollment, growth of poverty concentration (which is used to calculate compensatory aid for schools), and special education spending.

    Today’s forecast shows a stronger outlook for the U.S. economy, projecting national GDP growth of 3.0 percent in 2015, up from the 2.6 percent projected in November. Growth in 2016 and 2017 is expected to be 2.7 and 2.8 percent respectively, slightly lower than the November projections.

    Minnesota’s economy continues to do well. The state’s 3.6 percent unemployment rate in December remains the fifth lowest in the nation and the lowest rate since 2001. Wage growth is projected to be higher than expected in the November forecast, contributing to higher anticipated revenues. In 2015, wages are expected to grow by 5.4 percent, and they are projected to grow close to 5.0 percent each year in 2016 and 2017.

    Minnesota has turned the corner after a decade of deficits, and is on firmer footing to make investments in a stronger future. However, even as the state’s economy has improved, many Minnesotans still struggle to make ends meet. As policymakers put together the budget for the upcoming biennium, they should continue to focus on expanding economic opportunity to all Minnesotans.

    We’ve been highlighting the importance of affordable child care for Minnesota families. Child care can be one of the largest items in a family’s budget. When families have access to affordable child care, children are nurtured in stable environments and parents can succeed on the job. But for too many families, affordable child care is out of reach; for example, over 6,000 Minnesota families are on waiting lists for Basic Sliding Fee Child Care Assistance.

    Governor Dayton has shown his commitment to making child care more affordable for more Minnesota families by proposing to increase funding for Basic Sliding Fee and expand the Child and Dependent Care Credit in his budget. Legislators from both parties have gone a step better by proposing bills with larger funding increases to Basic Sliding Fee that would reach more families, including all of the current waiting list, and protect parent choice by increasing reimbursement rates for child care providers. These bills represent a smart investment in our current and future workforce, and should be a priority for policymakers this session.

    The tax policy choices made in the past two years made important progress making our tax system more fair. Minnesota has shrunk the gap between what most Minnesotans pay in state and local taxes (measured as a share of their incomes) and the smaller percentage that those with the highest incomes pay. However, too many of the tax bills proposed this session so far would re-open that gap through tax cuts that would go primarily to those with the highest incomes.

    Policymakers should resist the urge to make deep cuts to taxes. History shows that when taxes are cut too much in good times, it makes it more difficult for the state to respond in the next economic downturn. Any tax cuts that are made should be sustainable, well-targeted and have tax fairness as a primary goal.

    The forecasters are fairly confident in today’s projections. Global Insight, Minnesota’s economic consulting firm, assigns a 70 percent probability to their baseline economic forecast, and a 15 percent probability to their more pessimistic and optimistic scenarios. In the pessimistic scenario, the economy sees a weaker housing market and weaker foreign growth. In the optimistic scenario, oil prices drop more than expected and there is stronger foreign growth.

    Policymakers will be using the numbers in today’s forecast to set their budget proposals. Stay tuned to the Minnesota Budget Project to keep you updated as the state’s budget is put together.

    -Clark Biegler

     
  • Minnesota’s January Economic Update brings good news for right now

    by Clark Biegler | Jan 14, 2015

    Minnesota ended the 2014 calendar year on a high note. State revenues came in higher than expected for November and December, and the U.S.’s near-term economic outlook has improved, according to the January Economic Update from Minnesota Management and Budget.

    For the last two months of 2014, revenues came in $212 million, or 6.4 percent, higher than projected in the state’s recent November forecast. Most of this difference came from higher income tax collections. However, MMB warns that this is likely due to early payments, rather than additional improvement in incomes.

    News on the economic front shows some improvement from the November forecast. The nation’s GDP grew faster than expected during 2014, and growth was over 4 percent for two quarters in a row for the first time since 2003. Looking forward, the economy is expected to grow faster in 2015 than predicted in the November forecast. This is due in part to lower gas prices, which have freed up more income for other household needs.

    Looking further out, predicted economic growth is slightly lower than expected in the November forecast. In 2016, projected growth is very similar to earlier projections, and in 2017 and 2018, while projections are lower, the economy is still expected to grow at 2.7 and 2.4 percent, respectively.
    Graph Real gross domestic product
    Forecasters continue to assign a 70 percent probability to their baseline forecast, with a 15 percent chance for more optimistic and pessimistic scenarios. In the pessimistic scenario, a weaker housing market is a drag on economic growth, and in the optimistic scenario, oil prices drop even more than expected and the U.S. economy receives a boost.

    Our next look at state revenues and the economy will come in the February forecast. This is the information that legislators will use as their baseline as they set the upcoming budget in the 2015 Legislative Session. This update indicates that we might have a brighter situation in 2015, but this will unlikely significantly impact the state’s projected positive balance in the two upcoming biennia.

    -Clark Biegler

  • Budget surplus should be used to keep Minnesota moving forward

    by Clark Biegler Goldenrod | Dec 04, 2014

    The state’s November 2014 Economic Forecast released today has positive news over three budget cycles.

    The forecast projects a $556 million positive balance for the remainder of the FY 2014-15 biennium. Because of a policy change passed last year, up to one-third of a positive balance in the November Forecast goes to strengthen the state’s budget reserve. In this case, that means $183 million has been added to the reserve, bringing total general fund reserves up to $1.3 billion.

    In the 2015 Legislative Session, policymakers will need to pass the budget for the upcoming FY 2016-17 biennium. The forecast measures a $1.0 billion positive balance for FY 2016-17 biennium. Taking into account the impact of inflation reduces this figure to $121 million.

    This forecast also gives us a first glimpse at the FY 2018-19 biennium. A $2.8 billion positive balance is projected. When the impact of inflation is taken into account, this becomes a slight deficit of $143 million.

    The positive balance in today’s forecast is due to a few factors. Revenues in FY 2014-15 have come in higher than previous projections, primarily in the income tax.

    There is also a reduction in spending, with the largest driver being a drop in Medical Assistance spending resulting from changes in the projected caseload. Overall enrollment is expected to stay the same, but with a different mix. Fewer children, families, elderly people and people with disabilities are expected to participate in Medical Assistance, which results in a cost savings. More childless adults are enrolling in Medical Assistance, but this has no additional cost to the state, as the federal government fully funds health care for this population until 2017, and covers most of the cost after that.

    The forecast shows that Minnesota’s economy has continued to improve. This fall, Minnesota had the fifth lowest jobless rate in the nation at 3.9 percent. Importantly, this economic improvement has been broad: unemployment has fallen for workers across races, genders and ages. However, even though the U.S. economy continues to improve, growth is projected to be slower than in the February Forecast. This contributes to slightly lower revenue projections for FY 2016-17 than those from February.

    Minnesota has been on the right path for the past several years, making public investments in shared prosperity and making our tax system fairer and more sustainable. However, too many Minnesotans still find financial security is out of reach. Minnesota should continue to make smart investments that help Minnesotans get ahead. In the upcoming legislative session, policymakers should increase funding for Basic Sliding Fee child care assistance and expand the dependent care tax credit so that more Minnesota parents can find affordable child care that meets their needs.

    While this forecast shows some good news for the state, policymakers need to make sure their choices are sustainable. For example, history shows that when we cut taxes too far in good times, it makes things worse in the next downturn. Any tax cuts passed in 2015 should be limited in size and focused on making our tax system more fair.

    The forecasters are confident in their projections. Global Insight, Minnesota’s economic consulting firm, assigns a 70 percent probability to their baseline economic forecast, and a 15 percent probability to their more pessimistic and optimistic scenarios. In the pessimistic scenario, the U.S. just avoids a recession due to a weaker housing market. In the optimistic scenario, oil prices drop more than expected and foreign growth is higher than anticipated.

    Governor Dayton will use the numbers in this forecast to form his budget, which is expected by late January.

    -Clark Biegler

  • October Economic Update brings mixed news for the state budget

    by Clark Biegler | Oct 17, 2014

    Minnesota’s most recent revenue collections are about 1 percent below projections, but the overall picture isn’t so bad, according to information in the Minnesota Management and Budget’s October Economic Update.

    The economic update looks at state revenues for July to September 2014, which make up the first quarter of Fiscal Year 2015, and compares them to what was projected in the February Forecast, adjusted for actions taken in the 2014 Legislative Session. It finds that state revenues came in $46 million lower than earlier projections. This was mostly due to lower income tax and cigarette and tobacco tax collections and the timing of a health care surcharge. The health care surcharge accounted for a $31 million shortfall, which is expected to be reversed in the future. Corporate tax collections came in higher than projections.

    While revenues for the first quarter of Fiscal Year 2015 are down, Minnesota finished the prior budget year even better than originally reported. State revenues for the 2014 fiscal year came in $186 million higher than previously projected. And that’s even an improvement from what was originally reported in the July Economic Update.

    While there’s mixed news for state revenues, the national economy shows signs for “solid growth in the second half of 2014,” and this growth is expected to continue until at least next year. While this is good news, current projections for economic growth are lower than projected in the February forecast. The current outlook for the economy is dependent on several factors, including improving labor force growth and smooth policy changes by the Federal Reserve.

    The economic forecasters are relatively confident in their projections, and they assign a 70 percent probability to their baseline economic forecast. They give a 15 percent chance for a more pessimistic scenario in which the national economy stalls and the U.S. barely avoids a recession, and a 15 percent chance that the economy will be stronger than the baseline prediction.

    This update reminds us that the economy can take unexpected turns. It’s important for the state to prepare for the inevitable ups and downs, and the increase to the budget reserve made in the 2014 Legislative Session is an example of the kind of sound planning that policymakers can undertake so that Minnesota can best meet the needs of its residents in good times and in bad.

    These quarterly economic updates are helpful in tracking our state’s revenues, but they give only part of the story. For the full picture, we’ll have to wait for the November Economic Forecast to be released on December 4, which will include estimates for both state revenues and spending. We will see then how the combination of higher than expected revenues in FY 2014 and slower economic growth projections may affect the state’s forecasted surplus for the coming biennium. Those November forecast figures will be the baseline against which the Governor will create his recommendations for the next two-year budget.

    -Clark Biegler

Proposals & Outcomes

  • Real people, real communities: Why maintaining the provider tax is so important

    by Betsy Hammer | May 06, 2019

    It’s hard to avoid news about the health care provider tax if you follow politics in Minnesota. Our state’s provider tax raises about $680 million each year for affordable health care and healthy communities from International Falls to Itasca to Inver Grove Heights. But policymakers must take action this session because this important revenue is slated to expire at the end of this year.

    The legislative session is scheduled to end on May 20. That’s just a few short weeks away. Failure to act would have disastrous consequences for our Minnesota neighbors and communities around the state. Here’s what’s at stake:

    Affordable health care for more than one million Minnesotans

    Over one million Minnesotans – or, nearly 20 percent of us – have affordable health care funded in part by the provider tax. These include Minnesotans who access care through Medicaid and MinnesotaCare, and include seniors, people living with disabilities, and families earning lower wages. Kids make up 45 percent of all Medical Assistance enrollees.

    Revenue from the provider tax goes into the Health Care Access Fund (HCAF). In FY 2019, the HCAF provided $439 million for Medical Assistance.

    Healthy communities in every county

    Minnesotans in rural communities can face more hurdles in getting affordable health care. The provider tax funds essential services to connect rural Minnesotans to health care and contributes to the health of their communities.

    Rural Minnesota counties tend to have a greater portion of their residents who get health care through Medicaid or MinnesotaCare compared to urban areas. And, 46 percent of all Minnesotans who get their health coverage through Medicaid live in Greater Minnesota.

    The importance of the provider tax to rural communities has been highlighted by the Minnesota Hospitals Association, which has stated it “supports the elimination of the sunset, given that the provider tax is a dedicated, sustainable funding source for insurance coverage for low-income, working families.” The Minnesota Hospital Association’s Vice President of Government Relations Mary Krinkie said that “over the past two decades, hospitals have come to appreciate the many good things that have been accomplished because of having the provider tax in place.”

    The provider tax helps fund other efforts to address the health challenges of Greater Minnesota, whether that is the higher prevalence of child poverty or the lower ratio of primary care physicians to people. For example, the provider tax supports University of Minnesota initiatives focused on primary care, and the Statewide Health Improvement Partnership (SHIP) supports for community solutions for healthy lifestyles to reduce future health care costs.

    Policymakers must act to extend the provider tax

    As the end of session and the provider tax cliff loom large, policymakers must take action to extend the provider tax. The provider tax funds essential health care coverage for one in five Minnesotans and makes important investments in healthy communities across the state. Lack of reliable funding to support these activities would threaten the health of our Minnesota colleagues, neighbors, and friends.

    -Betsy Hammer

  • Provider tax: Why now is the time to repeal the sunset

    by Betsy Hammer | May 06, 2019

    Minnesota’s health care provider tax raises nearly $680 million annually for affordable health care and investments in healthy communities across the state. This essential funding source will expire at the end of this year unless policymakers take action during this legislative session. The urgency is real: without an extension of this vital funding, the state’s Health Care Access Fund will quickly run out of money – threatening the future of essential health care services in Minnesota.

    The provider tax is a major funding source for health care initiatives that reach more than one million Minnesotans. It was instituted in 1992 to expand access to affordable health care. The dollars raised go to the Health Care Access Fund (HCAF), which funds health care through Medicaid and MinnesotaCare for lower-income Minnesotans and investments in healthy communities. Though there are other revenues that feed into the HCAF, the provider tax produces about 80 percent of the HCAF’s revenue.

    As part of a deal to end the 2011 state government shutdown, policymakers added a 2019 “sunset” to the provider tax law. As Mary Krinkie, Vice President of Government Relations for the Minnesota Hospital Association, put it: “there’s always a tendency to kick the can down the road, and at that time 2019 seemed a long way away.”

    If the provider tax sunsets, revenues will disappear but needs will persist. A look at the projected balance of the HCAF, assuming the provider tax does sunset, shows that the HACF quickly runs out of money needed to fund essential health services.

    Projected HCAF Balance (numbers in 000s)
    FY 19 FY 20 FY 21 FY 22 FY 23
    Balance $670,233 $602,218 $61,213 ($416,149) ($918,959)

    Some might be tempted to kick the can down the road again, but Minnesotans’ access to affordable health care is too important to risk, especially as we grapple with challenges like shortages of providers in rural areas, persistent racial inequality in access to health care and health outcomes, and uncertain federal funding. Introducing risk and uncertainty to Minnesotans counting on Medicaid and MinnesotaCare is an unacceptable burden to place on our neighbors. Policymakers must act to extend the provider tax and ensure affordable health care will continue to be available without disruption.

    We shouldn’t wait until we get into trouble before finding a solution: we need to repeal the sunset this year, before it expires. There would be substantial administrative hurdles involved if we turned the tax “off,” even for a short period of time, and then tried to go back to it later when alternatives don’t pan out. Allowing the provider tax to continue will ensure a smooth experience for both the providers who remit the tax and the Minnesotans who rely on the services it funds.

    The future of affordable health care for one million Minnesotans is at stake. Policymakers must act now to repeal the sunset, and ensure stable and adequate funding to support affordable, equitable health care for Minnesota.

    -Betsy Hammer

  • A tale of two HHS omnibus bills: House and Senate offer dramatically different visions

    by Betsy Hammer | Apr 29, 2019

    The Minnesota House and Senate have wrapped up committee work on their omnibus budget bills. They present starkly opposed visions for Minnesota – and this is reflected in two very different health and human services (HHS) budget targets and bills.

    In the House, Representative Tina Liebling’s omnibus HHS bill includes important investments in healthy people and thriving communities, and is balanced with sustainable revenue sources. The Senate’s goals are focused on limiting spending, and their health and human budget slashes services, such as child care assistance and some health care coverage, and would result in significant harm to Minnesotans.

    Provider tax

    Minnesota’s provider tax is a proven and time-tested way to ensure Minnesotans have affordable health care. This crucial source of revenue raises about $700 million per year for affordable health care and healthy communities across Minnesota. However, the provider tax will sunset this year unless policymakers take action. The House HHS bill includes a repeal of the provider tax sunset, whereas the Senate HHS bill allows the sunset to go forward, putting the future of affordable health care for Minnesotans at risk.

    Affordable child care

    Minnesota’s Child Care Assistance Program (CCAP) puts affordable child care in reach for about 30,000 Minnesota kids. Safe and affordable child care allows parents to work while kids are in a supportive environment, and helps employers to find and keep the workers they need. The House bill includes funding to reduce the waiting list ($26 million for FY 2020-21), implement family-friendly provisions ($8.2 million for FY 2020-21), and update provider rates ($11 million for FY 2020-21). The House also includes program integrity provisions to make sure that CCAP dollars go to help families and kids.

    In contrast, the Senate bill eliminates CCAP, putting the well-being of 30,000 Minnesota kids at risk. Under this proposal, the Department of Human Services would propose a new child care assistance system by January 2020. After legislative approval, the newly designed program could operate, but the Senate only provides one-time funding – creating real questions about how families’ child care needs would be met.

    Minnesota Family Investment Program (MFIP)

    The House budget proposal includes $45 million for a $100 per month increase for families participating in Minnesota’s welfare-to-work program. The basic cash grant amount has not changed since 1986, and the long-overdue increase will allow Minnesota’s most struggling families to live with greater dignity as they work towards economic security. The Senate does not include an increase in cash assistance.

    Health care

    The House includes Governor Tim Walz’s OneCare plan, a set of proposals to ensure that more Minnesotans have access to affordable health insurance at a coverage level that works for them. In contrast, the Senate does not include any of the OneCare provisions, and it eliminates dental and vision coverage for people who have affordable health care through MinnesotaCare and Medical Assistance while also increasing the out of pocket costs for Minnesotans with coverage through Medicaid.

    The Senate also proposes limiting projected growth for some health care costs. While this reduces projected spending on the budget tracking spreadsheets, it fails to recognize the true cost of providing existing services and is unlikely to be approved by the federal government.

    Long-term care and vulnerable adults

    Both bills respond to concerns about caring for elderly and vulnerable Minnesotans. Some of the few budget increases in the Senate are for electronic monitoring in long-term care facilities. The House includes funding for the Ombudsperson for Long-Term Care as well as to support civil and criminal coordination for the protection of vulnerable adults, an assisted living report card, and increased protections for vulnerable adults.

    Workforce

    The House includes $34 million to increase pay for workers who care for people living with disabilities, and Senator Jim Abeler’s bill includes $40 million for this purpose. The House also includes $37 million for approval of the self-directed worker union contract to support personal care attendants (PCAs). The Senate does not include the increase for these workers, and actually reduces spending on PCAs by limiting the number of people and conditions that would qualify for PCA help.

    Transfers

    The House bill transfers unused dollars from health care reinsurance back to their original funds. This results in nearly $400 million reverting back to the Health Care Access Fund (HCAF) and $142 million back to the general fund. The Senate bill does not include these provisions. However, by shifting over $73 million in spending from the HCAF to the general fund and juggling other transfers, the Senate bill is able to keep the HCAF solvent for a few years after the scheduled expiration of the provider tax. Without the sustainable revenue from the provider tax, the long-term result will be a shortage of health care funding.

    Other issues of concern

    The House bill includes funding to expand community behavioral health clinics, mental health standards, children’s intensive services reform, school-linked mental health, improvements to substance abuse treatment, and a reform of behavioral health financing. Of these, the Senate includes only timely access to substance abuse treatment and the reform of behavioral health financing. Additionally, the governor, House, and Senate all include a proposal for substance abuse disorder treatment waivers to improve services.

    Liebling’s bill includes funding for a child welfare training academy, tribal child welfare initiatives, and additional protections for kids in foster care, including background studies and affordable health care. The Senate proposal does not include these provisions.

    The Senate proposal includes a 9.8 percent reduction (about $20 million per year) for the Department of Human Services and a 15 percent reduction (about $1.5 million per year) for the Minnesota Department of Health. These cuts are undefined and would be up to the departments to implement.

    Looking forward

    The House and Senate bills present dramatically different visions. With the House and governor investing in healthy people and thriving communities, the Senate’s insistence on limiting spending fails to meet the needs of many Minnesota neighbors, colleagues, and friends. An additional wonky point of concern: the Senate HHS proposal uses shifts and savings that are unlikely to materialize in order to balance their bill.

    As legislators and the governor work to create a budget for the upcoming biennium, we urge a focus on expanding access to affordable health care, child care, and other services that make Minnesota a place where all can thrive.

    -Betsy Hammer

     
  • Governor Walz’s FY 2020-21 budget proposals in E-12 education and higher ed invest more in Minnesota’s students

    by Clark Goldenrod | Apr 16, 2019

    Governor Tim Walz’s FY 2020-21 budget proposal includes provisions that support students across the state, as well as more targeted funding intended to narrow the opportunity gaps that students of color face in particular. Overall, Walz’s budget proposes $718 million in additional general fund resources for E-12 education and $165 million for higher education.

    An educated Minnesota is critical for the state’s economic success. The state plays an important role in the funding of Minnesota’s schools, and local property taxes often factor heavily into whether the schools have the resources that they need to support children’s learning. Districts with less property wealth often aren’t able to raise the additional funds needed to support their students. A long history of discriminatory housing policies in the United States has limited the ability of people of color to build wealth through homeownership. And for those who do own homes – their homes are often assessed at lower values than homes of their white peers, affecting the district’s tax base.

    Minnesota has taken some important steps to help equalize the funding that districts receive, but it is still the case that districts with a high concentration of students of color living in poverty receive less money per pupil than districts with a high concentration of white students living in poverty.

    E-12 Education

    The governor proposes $718 million in additional funding for E-12 education. He proposes increasing funding for school districts through the basic student formula by 3.0 percent in FY 2020 and another 2.0 percent in FY 2021. That’s an increase of $189 per student the first year and another $130 the second year.

    The governor stresses the importance of early learning programs to address gaps in educational achievement and opportunity so that all children can thrive in school. Walz also recommends $47 million in FY 2020-21 to restore the number of slots available for voluntary pre-kindergarten. Without action, a cap currently in place would cut the number of pre-schoolers who can participate in FY 2020 and beyond by more than half. Walz’s funding would lift this cap and make it possible for 7,160 students, or about one-eighth of eligible 4-year-olds, to participate in pre-kindergarten and school readiness programs.

    The governor also proposes to increase funding for special education by $91 million. Walz’s proposal would increase student subsidies through the special education formula to create more stable funding for schools to provide services and help reduce the portion of unfunded costs that schools have to address.

    Walz proposes $18 million in FY 2020-21 for school districts and charter schools to be used for school safety, including security improvements and counselors. For this funding increase, the governor cites the increase in school shootings and violence in the U.S., and the need to protect students in Minnesota.

    The E-12 budget proposal also includes a number of targeted initiatives to make sure that all students, including students of color and students in rural areas, have a high quality education:

    • Levy equalization to better fund schools serving communities with low tax bases to meet the needs of their students;
    • Full service community schools that provide wraparound services that serve primarily low-income and rural communities;
    • A multi-pronged approach to support and recruit teachers of color and American Indian teachers in the classroom; and
    • Funding for tribal contract schools. Currently state per pupil aid for tribal schools is set to decrease by about 50 percent; the governor’s budget would prevent this decline and instead maintain the current formula funding.

    Higher Education

    In higher education, Walz proposes to make college more affordable through an additional $43 million in FY 2020-21 for financial aid through the State Grant Program. His financial aid proposal contains several components, including:

    • Increasing the annual living allowance for students, equal to about $300 per year for full-time students.
    • Reducing the family contribution in order to make college more affordable for lower-income families. This would effectively increase state grants by about $100 per student.
    • Better integrating child care so that students who have children can receive the supports they need while they complete their education.
    • Adjusting the State Grant amount for students who aren’t eligible for federal aid. Minnesota Dreamers – young people who came to the country as children and do not have legal status – are ineligible to receive federal Pell Grants. However, the State Grant formula currently calculates financial aid assuming that students receive this federal grant, meaning that Dreamers receive much less aid than they need to afford college. The proposal would increase the grant award for these students, making college education more in reach for all of Minnesota’s young people.

    The governor also proposes investments that go directly to colleges and universities to improve higher education for students. Over the FY 2020-21 biennium, the University of Minnesota and Minnesota State would receive $51 million and $65 million respectively. These funding increases are expected to help these institutions keep up with the costs involved with educating their students. In return, the University of Minnesota and Minnesota State are expected to maintain the quality of education they provide while minimizing any increases in tuition.

    Stay tuned for more analysis as the final FY 2020-21 budget comes together.

    -Clark Goldenrod

     
  • Governor Walz’s FY 2020-21 transportation proposal increases gas tax and other revenues to pay for Minnesota’s roads and transit

    by Clark Goldenrod | Apr 09, 2019

    Governor Tim Walz’s FY 2020-21 budget proposal includes a substantial transportation component. Minnesotans count on their roadways to get to work, school, or community events, and no matter how they get there – whether by bus, car, or bike – having roads in good condition make that trip quicker and safer. His recently released supplemental budget makes some small changes to his original proposal but largely follows the same policies and principles.

    Through the governor’s budget proposal, he expects to:

    • Modernize the state’s roads and bridge system;
    • Make investments in programs like MnPASS; and
    • Improve travel on “key corridors” throughout the state and within our state’s cities and towns.

    The Department will also use the funding to address snow and ice maintenance on the roads, repair potholes, inspect and maintain bridges, and build a safer transportation system. Transit investments include funding for Metro Mobility, which serves Minnesotans living with disabilities. The funding would also help improve bus service and build out rapid transit lines.

    The Minnesota Statewide Highway Investment Plan found that Minnesota needs an additional $6 billion over the next 10 years for the state’s roads. In response, Walz proposes a few funding mechanisms to meet this need. The centerpiece is increasing the gas tax, which has lost about one-third of its buying power since 2000. Walz proposes raising the tax by 20 cents in steps over two years, and then indexing it to inflation starting FY 2023 so that it can keep up with the state’s transportation needs.

    In addition, the governor proposes:

    • Increasing the vehicle registration tax;
    • Increasing the motor vehicle sales tax rate from 6.5 to 6.875 percent;
    • Authorizing new trunk highway bonds totaling $2 billion over eight years; and
    • Enacting a 1/8 cent sales tax in the seven-county metro area for transit.

    In addition to increasing investment in transportation and transit, the increases in dedicated transportation funding allow the governor to end the recent practice of diverting certain sales tax revenues from the general fund to transportation. This would put about $460 million back in the general fund in FY 2020-21, where it funds investments including in education and community vitality.

    -Clark Goldenrod

  • Walz tax plan expands Working Family Credit, funds investments in schools and communities

    by Nan Madden | Apr 08, 2019

    Narrowly defined, the primary responsibility for policymakers this legislative session is to pass the state’s next two-year budget. But more broadly, their focus should be to ensure that our state lives up to its promises, and becomes one where everyone can thrive, regardless of their zip code. To do that, policymakers need to take on some of the things impeding our path to that future. For one, the state’s budget surpluses aren’t expected to last beyond the next couple of years, and funding sources specifically for transportation and health care need to be shored up. And lack of investment in some of our communities means too many of our neighbors have a particularly steep hill to climb to reach economic security.

    Governor Tim Walz’s budget takes aim at some of those barriers through investments in schools, health care, and communities. His tax plan raises revenues needed to fund our current commitments as well as the new investments. In this blog, we take a closer look at some of the details including how those revenues would be raised.

    Put everyday people first and invest in communities

    Walz’s proposal would expand the Working Family Tax Credit, a tax credit for workers and working families that we’ve long championed because of how it boosts incomes, gets children off to a stronger start, and contributes to a fairer tax system. Walz would expand the credit by just over $50 million a year through two policy changes:

    • Providing an expanded tax credit for families with three or more children, making a long overdue update to match the structure of the federal tax credit that the Working Family Credit is based on; and
    • Adding an additional $100 to the Working Family Credit for single or head-of-household filers and $200 for married couples. This increase is meant to offset the impact on these Minnesotans from the governor’s proposed gas tax increase.

    The tax plan would also treat homeowners equitably by allowing immigrants who own their homes to gain homestead status. Currently, some Minnesota homeowners pay higher property taxes simply because they use an Individual Taxpayer Identification Number, or ITIN, when they file their taxes rather than a Social Security Number.

    In addition, the Walz tax plan would increase funding for state aids to cities and counties by about $60 million per year; this helps fund public services in communities across the state and reduces reliance on local property taxes.

    Tax conformity

    A major component of tax proposals this year is “tax conformity”, or updating the state’s tax code in response to federal tax changes, primarily the 2017 federal tax bill. Minnesota’s income and corporate tax systems use many federal tax law definitions as their starting point, so when there are federal changes, Minnesota policymakers have to decide whether or not to mirror those changes in our tax code.

    Since the federal tax law passed, we’ve argued that Minnesota should not repeat that bill’s flaws. The federal bill provided large permanent tax cuts for corporations, including a 40 percent cut in the federal corporate tax rate. In contrast, tax cuts for individuals and families are temporary, and the largest tax cuts go to high-income households. And overall, the federal bill harms the nation’s ability to fund essential services.

    Minnesota instead should put everyday people first in its approach to conformity. For individuals and families, Walz’s income tax conformity proposal would maintain many of the deductions, exemptions, and other state-level tax benefits that would be lost if the state simply conformed to the federal bill.

    Given the sizeable federal tax cuts for corporations and businesses, it makes sense for the state to recapture a portion of that tax benefit to fund needed investments in our schools, communities, and other building blocks of broader prosperity in Minnesota. Walz’s tax conformity proposal would raise $899 million in the FY 2020-21 two-year budget cycle and $819 million in FY 2022-23 from corporations and businesses. While the federal tax bill deeply cut the corporate tax rate, it also “broadened the base” or expanded the share of business profits that are taxable. The governor’s tax plan raises revenues by adopting many of these base broadeners, as well as some changes that reduce taxes (such as federal rules for accounting for purchases of new equipment).

    Reverse past tax cuts that have proven to be unsustainable and unaffordable

    Another way that the governor’s tax plan would stabilize state revenues is by reversing or freezing three tax cuts passed in 2017 that are growing in cost in each year. His proposal would reinstate inflationary adjustments on tobacco taxes and the statewide property tax paid by businesses, and freeze the exemption amount in the estate tax at current levels (rather than allowing it to rise further). These provisions would raise $76 million in FY 2020-21 and $231 million in FY 2022-23.

    Shore up dedicated funding sources for transportation and health care

    In addition to the tax provisions described above, which largely impact the state’s general fund and are contained in House File 2125, Walz takes other measures to maintain and strengthen funding sources that go to specific areas of the budget.

    • He would maintain the health care provider tax, rather than allow it to expire. This would prevent the loss of about $700 million a year in dedicated health care spending. His health care proposal would also create a state tax credit to put a cap on how much Minnesotans can pay for premiums if they buy insurance in the individual market.
    • Walz’s transportation proposal would raise the gas tax in multiple steps, ultimately increasing it by 20 cents a gallon, as well as increase other funding sources dedicated to transportation. Not only would this help the gas tax regain its buying power and fund needed transportation improvements, but it also would allow the governor to end the recent practice of using general fund dollars to fund transportation investments, leaving less available for schools, human services, and the many other state services that vie for funding in the general fund.

    The governor’s tax bill is a strong foundation to start from as the state’s tax debate moves into the next phase. We’ve encouraged policymakers to add additional progressive tax components as they develop their tax plans, and the House’s proposal to strengthen the Renters’ Credit for lower-income Minnesotans is one good example of how to do so.

    -Nan Madden

     
  • Senate budget targets call for few investments, mostly flat funding

    by Clark Goldenrod | Apr 04, 2019
    The Minnesota Senate's budget targets, released last week, give a high level picture of their budget outline. The Senate's "Advancing Minnesota" budget makes new investments primarily in education and health and human services, leaving most of the budget areas with the same amount of funding as projected in the February Forecast.

    The targets are an important milestone in the budgeting process. They set the size of the Senate's omnibus budget, tax, and bonding bills. Each legislative body sets their own targets, and the House released their targets last week. Proposed targets describe the net changes to state general fund spending in each area, and could also reflect revenue increases or transfers between funds.

    Senate General Fund Targets (net changes) FY 2020-21
    E-12 Education $206 million
    Health and Human Services $147 million
    Higher Education $100 million
    Agriculture, Rural Development, Housing $30 million
    Judiciary and Public Safety $25 million
    Energy and Utilities $0
    Commerce and Consumer Protections $0
    Veterans and Military Affairs $0
    Transportation $0
    Jobs and Economic Growth $0
    Capital Investment, Debt Service $0
    State Government and Elections -$16 million
    Environment and Natural Resources -$57 million
    Taxes $0
    Other Bills -$18 million
    Total $417 million

    The largest proposed target is in E-12 education. Senate leadership has indicated that some of this target will go to school safety. In addition, the Senate lists mental health, elder care, and child care as priorities. They also indicated that their budget will not maintain the provider tax, a major funding source for health care for about 1 in 5 Minnesotans.

    Many of the Senate's targets are $0, meaning that they include no additional spending over the FY 2020-21 baseline. Unlike the governor and House - who commit to raising additional dedicated funding for transportation and reducing general fund spending in that area - the Senate leaders say their transportation plan will solely rely on existing funding.

    The targets leave some important questions unanswered. The total changes add up to $417 million, substantially less than the $1.1 billion surplus projected for FY 2020-21. It's unclear whether the remainder would be left unspent "on the bottom line," or used in some other way. Another key question is what the Senate has planned regarding revenues. The Senate's budget plan includes a target of $0 for their tax bill, which they describe as a tax conformity bill. However, their targets also indicate that their FY 2020-21 budget will bring in $557 million less in general fund revenues. It's unclear how this would be achieved.

    Stay tuned for more analysis of how the pieces of the budget bills come together.

    -Clark Goldenrod
  • Provider tax: The proven way to fund affordable health care for Minnesotans

    by Betsy Hammer | Apr 03, 2019

    Minnesota’s health care provider tax generates about $700 million each year to support affordable health care and investments in healthy people and communities. Under current law, the provider tax is set to expire in December of this year. The Minnesota Budget Project strongly supports maintaining the provider tax to make sure that our Minnesota neighbors and colleagues can continue to have affordable health care when they need it most.

    Minnesota’s provider tax is a proven and time-tested way to ensure Minnesotans have affordable health care. In contrast, the state of Michigan experimented with a few types of health-related taxes, and discovered various problems with these alternative sources – including insufficient revenues and problems with federal regulations.

    Michigan’s experience with a claims tax illustrates the risks and challenges with that type of funding mechanism, primarily related to failing to raise adequate revenues. In 2011, Michigan created the Health Insurance Claims Act (HICA): a 1 percent tax on all health insurance claims paid in the state. The state projected the HICA would raise between $375 million and $400 million to support the state’s Medicaid services; however, actual revenues were much lower and left a large gap in state funding for Medicaid, putting health care for those most in need at risk. The state continued to tinker with the tax rates and explored other revenue options, but problems persisted: Michigan’s HICA never managed to raise the projected amount needed. Minnesota’s provider tax has decades of history, which supports solid, reliable projections for accurate budgeting and planning to make sure Minnesota’s investments in healthy people and communities stay on track.

    Michigan also experimented with a tax on Medicaid managed care organizations, which was flagged as problematic by the federal Centers for Medicare & Medicaid Services (CMS). Alternative types of revenue raisers can spell potential litigation and challenges with federal guidelines. Federal law allows provider taxes to fund Medicaid, and 49 states have some type of provider tax in place. However, there are restrictions: the taxes “must be broad-based, uniformly imposed, and cannot hold providers harmless from the burden of the tax.” ERISA, the Employee Retirement Income Security Act of 1974, also adds complexity in the case law regarding what types of taxes can and cannot be imposed. Minnesota’s provider tax has been in place for decades and has held up to legal scrutiny – other types of revenue raisers have not been tested in this way.

    Minnesota has an infrastructure in place when it comes to provider tax implementation and collection. During the 27 years that the provider tax has existed, the Minnesota Department of Revenue and health care providers have developed systems and procedures to remit and collect the taxes. Starting from scratch with a different type of tax would be a bureaucratic challenge. While sometimes it makes sense to start fresh in order to implement a new, better, or more effective idea, in this case, shifting away from the provider tax to an untested alternative would result in a great deal of administrative work and costs for a change that is simply not needed.

    Minnesota policymakers must act this session to extend the health care provider tax, or we will experience a serious blow to our ability to put affordable health care in reach for all communities. And while the provider tax is critical for Minnesotans’ health, if it is eliminated the consequences could be much broader. A budget hole of $700 million if the state fails to extend the health care provider tax – or if an alternative revenue source fails to live up to projections – would create stress on other important Minnesota priorities like K-12 education, roads and transit, and public safety. Protecting the tried and true health care provider tax will help ensure investment in Minnesotans’ health and in our state’s thriving communities. Minnesota is a leader in health care, and the well-being of our families and neighbors is too important to risk.

    -Betsy Hammer, with thanks to our colleagues at the Michigan League for Public Policy

  • Governor Walz's revised budget raises additional revenues, adjusts spending to build shared prosperity

    by Clark Goldenrod and Nan Madden | Mar 28, 2019

    Last Friday, Governor Tim Walz released an updated budget proposal that responds to the less rosy state economic forecast released in late February. The revised budget retains the Walz/Flanagan administration's "One Minnesota" priorities, and augments the surplus by maintaining and raising revenues to invest in health care, education, broader economic opportunity, and transportation.

    The original budget anticipated that the surplus would shrink by the time the February Forecast came around, and left $789 million unspent, or "on the bottom line", which created a cushion that absorbed much of the reduction in the surplus. In addition, Walz's revised budget adapts to the new forecast figures by:

    • Reducing its new general fund investments by $131 million through a combination of scaling back some original proposals and using other funding sources, such as federal or dedicated funds, to fund certain initiatives;
    • Raising $65 million more in general fund revenues than in the original tax proposal; and
    • Transferring $142 million of unspent health care reinsurance funding back into the general fund.

    The revised budget also includes $37 million in new investments that were not in the original budget proposal, the largest of which go to higher education.

    Here's a look at some of the more specific revisions to the Governor's budget proposal.

    New investments

    While many budget areas saw only slight adjustments, one area of substantial change was higher ed. The University of Minnesota and Minnesota State systems would receive additional dollars to support their students under the governor's latest proposal. Over the FY 2020-21 biennium, the University of Minnesota and Minnesota State would receive an additional $51 million and $65 million respectively, an increase of $25 million from the original budget. These funding increases are expected to help these institutions keep up with the costs involved with educating their students. In return, the University of Minnesota and Minnesota State are expected to minimize any increases in tuition.

    Health and human services

    Walz’s revised budget includes changes in the realm of health and human services. Fortunately, many of our priorities in this budget area, including the repeal of the provider tax sunset and the $100 per month increase to the MFIP welfare cash grant, are retained in the revised budget.

    Child care assistance (CCAP) would see several major changes compared to the governor’s original proposal. While it would still receive a funding bump to take 1,000 families off the waiting list, other provisions changed significantly. For example, child care providers would see one near-term increase in their reimbursement rates under the updated proposal, but future rates would not be automatically updated every three years (as was the case in Walz’s original proposal). This change reduces the amount going to increasing provider rates by $46 million in FY 2022-23. This is an issue policymakers will need to revisit, as reasonable reimbursement rates for providers is an important factor in ensuring parents have options. The governor’s revised proposal also includes over $2 million in FY 2020-21 in new spending on oversight and integrity of CCAP, including 10 additional staff members to analyze data and conduct inspections. 

    Finally, more money will be returned to the state’s general fund and health care access fund (HCAF) due to updated projections for the Minnesota Premium Security Plan (also known as reinsurance). Reinsurance provided payments to health insurance companies to reduce costs in the individual health insurance market, and the program is set to end in 2019. The updated numbers show $142 million transferring back to the general fund, and $394 million transferring back to the HCAF. Final numbers will be available later this year.

    Taxes

    The revised budget retains the original focus on raising the revenues needed to fund health care, transportation, and other services Minnesotans count on to thrive. It proposes raising an additional $65 million in general fund revenues FY 2020-21 through a set of four measures they identify as addressing corporate loopholes, and by changing the timing of two existing tax proposals.

    One challenge facing the state outlined in the February Forecast is that Minnesota has a forecasted surplus in the near term (the FY 2020-21 biennium) but falls just short of having enough revenues coming in to cover anticipated spending in the next budget cycle (FY 2022-23). Walz's budget proposal balances in each of the two budget cycles, in part by carrying forward positive balances at the end of FY 2020-21 to cover expenses in FY 2022-23. Walz's budget makes needed investments in our future prosperity and proposes raising additional revenues fund those investments; there will still be more for policymakers to do reach sustainability past the four-year budgeting window.

    What's next

    The House released their budget targets earlier week, and the Senate released their targets today. These targets set the stage for both legislative bodies to start putting together their FY 2020-21 budgets. Stay tuned to stay up to date on how the state's budget comes together!

  • House budget targets call for revenue raising, investments in education

    by Clark Goldenrod | Mar 27, 2019
    The Minnesota House's budget targets, released this week, tell us how lawmakers propose to allocate the state’s projected $1.1 billion surplus for FY 2020-21. The House's "Minnesota Values Budget" makes substantial investments in education, as well as other budget areas, and includes a $1.5 bonding bill. The House targets also would raise additional revenues to support new investments, given the short-term nature of the projected surplus.

    The targets are an important milestone in the budgeting process. They set the size of the House’s omnibus budget, tax, and bonding bills. Each legislative body sets their own targets, and the Senate is expected to announce their targets Thursday.

    House General Fund Targets (net changes) FY 2020-21
    Education $900 million
    Higher Education $305 million
    Capital Investment (debt service) $142 million
    Health and Human Services $129 million
    Public Safety $121 million
    State Government $103 million
    Greater Minnesota Economic Development $100 million
    Judiciary $91 million
    Jobs and Economic Development $84 million
    Environment and Natural Resources $33 million
    Housing $26 million
    Agriculture $7.6 million
    Veterans and Military Affairs $4.3 million
    Energy and Climate $2 million
    Other Bills $15 million
    Transportation -$425 million
    Taxes and Local Aids $1.2 billion

    The largest proposed targets are in E-12 Education and Higher Education. House leadership indicated that this money would support all Minnesota students and freeze tuition at public higher education institutions. While the House targets are broadly similar to the priorities laid out in Governor Tim Walz's budget proposal, this is one area where they go further.

    The proposed targets describe the net changes to state general fund spending in each area, and could also reflect revenue increases or transfers between funds. For example, the -$425 million general fund target for Transportation should not be interpreted as calling for a $425 million cut in transportation funding. It likely reflects reducing the amount of general fund dollars going toward transportation and instead using the more traditional dedicated transportation funding sources. House Democrats announced that their Transportation target accounts for a phased-in 20-cent increase to the gas tax, similar to the governor's proposal.

    This budget plan raises general fund revenues as well. When House leadership announced their targets, they emphasized the need for sustainable funding to support quality schools, affordable health care, and economic security. While the details will be released in the next few weeks, they emphasized their tax bill would prioritize seniors, working families, and farmers - in contrast to the 2017 federal tax bill, which provided large, permanent tax cuts for corporations.

    Stay tuned for more analysis of how the pieces of the budget bills come together.

    -Clark Goldenrod
  • Governor’s budget proposal makes major investments in housing, workforce, local communities

    by Betsy Hammer | Mar 13, 2019

    Governor Tim Walz’s budget makes significant investments in housing, workforce development, economic development, and local communities. These proposed changes would mean thousands of Minnesotans across the state would have access to expanded housing opportunities, workplace protections, and economic opportunity for all.

    Housing
    The governor’s budget proposal for the FY 2020-21 biennium includes nearly $132 million in additional general fund housing investments. These dollars would go to expand housing options for families with kids, low- and moderate-income homeowners and home buyers, and people with mental illness. The proposal includes a focus on helping Minnesotans find and keep stable and safe housing, as well as increasing housing opportunities in regions where there isn’t enough housing for a growing workforce.

    Families and financial health
    Minnesota workers of color and low-income workers experience significant disparities in paid leave benefits. About three-fourths of Minnesotans on family or medical leave received some type of wage; however, among low-wage workers, that percentage drops to only 46 percent, and among African American workers only 42 percent of family or medical leaves included pay. Walz proposes a new system for offering paid family and medical leave insurance. While the proposal is a placeholder and leaves the precise details to be developed through the legislative process, data supports the need.

    The governor’s budget also proposes investments for financial fraud awareness and prevention, particularly for seniors. The proposed budget also includes an investment of nearly $2 million per year to enhance state action on wage theft to ensure that workers are paid what they are owed for work completed. This work would also bring in about $172,000 per year in additional penalty revenues for the state. Wage theft disproportionately impacts low-wage workers, women, and workers of color. Additional funding in this area would help the Department of Labor and Industry deploy more resources and more aggressively safeguard Minnesota workers.

    Workforce development
    Walz’s plan includes a “Close the Opportunity Gap” effort with nearly $25 million focused on supporting economic success for Minnesotans of color in the workforce and entrepreneurship realm. The proposal also calls for an additional $8 million per biennium for vocational rehabilitation programs that help people with disabilities find and keep jobs in integrated settings, $1.2 million per biennium for youth skills training focused on experiential learning opportunities, and $1 million for the biennium in one-time funding to support child care providers with business start-up and expansion efforts.

    Local communities
    The proposal includes $70 million for broadband development to improve access in underserved areas, funding for grants to help schools install solar panels, and $2 million in prosperity grants for local governments. These grants would go to support business development, entrepreneur support, and workforce development.

    Overall
    The governor’s proposed housing and economic development budget includes meaningful investments for families, workers, local communities, and businesses across Minnesota. By supporting safe housing, fair workplaces, and vibrant local communities, we can work to ensure economic security for Minnesota families.

    -Betsy Hammer

     
  • Walz-Flanagan human services budget proposal focuses on people

    by Betsy Hammer | Mar 11, 2019

    Governor Tim Walz’s budget proposes over $300 million in new health and human services investments to help Minnesotans stay healthy and safe, and to live in dignity.

    Health care:
    The health care provider tax provides about $700 million each year to provide affordable health care for about one million Minnesotans and other investments in healthy people and communities. Under current law, the provider tax is set to sunset in December 2019. Walz’s budget proposal repeals that end date, ensuring that Minnesotans continue to have access to the care they need to stay healthy.

    Health insurance affordability:
    Minnesotans who use MNsure to get health insurance in the individual market would be able to tap additional affordability tools under Walz’s plan that would roll out over several years. The governor’s budget proposal includes a direct subsidy to reduce monthly premiums by 20 percent, which is estimated to provide relief to about 80,000 Minnesotans. The plan also includes a state premium tax credit, which would help ensure Minnesotans do not have to pay more than 10 percent of their income for health insurance.

    ONEcare MN:
    The governor proposes a major package, called ONEcare MN, aimed at expanding access to high-quality health insurance in the individual market. This proposal would roll out over several years and includes:

    • A high-quality “platinum-level” health insurance plan that offers coverage similar to MinnesotaCare. Currently, this type of comprehensive plan is not available on MNsure.
    • Ensuring that “gold” and “silver” level health insurance plans are available in every region of the state. The state would monitor and analyze the markets, and take action to provide plans when needed to ensure availability.
    • Aligning prescription drug benefit administration across public health care programs to leverage purchasing power and make medicine more affordable.
    • Improving access to affordable dental care for people throughout the state.

    Child care:
    Minnesota’s Child Care Assistance Program (CCAP) brings down the cost of care for about 15,000 Minnesota families. Safe and affordable child care supports families by allowing parents to work while kids are in a supportive environment, and helps employers to find and keep the workers they need.

    The governor’s proposal includes an additional $26 million for child care assistance in the FY 2020-21 biennium, which would serve about 1,000 additional families and cut the current waiting list in half. The proposal also includes increased reimbursements for child care providers, with an additional $9.4 million in the upcoming biennium and $90.6 million in FY 2022-23 to cover this bump. This is an important first step in making sure that providers are adequately reimbursed, which helps ensure families have choices for child care.

    Walz’s proposal also includes $1 million for grants in FY 2020-21 to expand the availability of quality child care in underserved areas. These grants, administered by DEED, would target regions with documented child care and workforce shortages. Funding would help child care providers get up to speed on licensing, regulations, training, facilities, and other business-related issues.

    Cash assistance:
    Walz’s budget includes an important and long overdue step to support Minnesota’s most struggling families on the path to economic security. Families receiving cash grants from the Minnesota Family Investment Program (MFIP) and the Diversionary Work Program (DWP) would see an additional $100 per month – the first increase in 32 years. The governor’s proposal includes $43 million in FY 2020-21 and $62 million in FY 2022-23 to cover the increase.

    Opioid epidemic:
    The governor’s budget contains a multipronged method to address the opioid epidemic, including culturally competent services, Naloxone supplies and training, local community engagement, and improved access to treatment and services. This approach would be headed by a stewardship advisory council and funded by a fee on opioid manufacturers and distributors. These fees are projected to raise $18 million per year.

    Protection for vulnerable adults:
    The proposed budget includes nearly $4 million in grants to safeguard vulnerable adults and make enhancements to the Minnesota Adult Abuse Reporting Center. It also includes expansions for the Ombudsman for Long-Term Care, regulatory reforms for assisted living facilities, adult day center oversight, and more.

    Mental health:
    A focus on mental health is very present in the proposal. Walz’s budget would increase school-based mental health grants to serve 7,000 more students, and would expand and improve children’s intensive in-patient services. Also, the plan includes investments in community behavioral health clinics, rural counseling services, and improvements to better align mental health and substance abuse disorder treatment.

    Disability services:
    Walz’s proposed budget includes pay increases for people who care for people living with disabilities. Under the plan, formulas used to calculate wages for people who provide home and community-based services would include a “competitive workforce factor.” This adjustment is intended to make wages more aligned with competing jobs, and clocks in at nearly $18 million for the biennium. Additionally, Personal Care Attendants, who provide support to ensure Minnesotans can live in home or in their communities based on their individual preferences, would also see an increase in minimum pay, holidays, and basic time off.

    Child welfare:
    The governor’s proposed budget includes investments in child welfare statewide, including regional development hubs, a training academy, prevention grants, and a fix to address health care coverage gaps for kids in foster care. The plan also includes $8.2 million in FY 2020-21 and $19 million in FY 2022-23 to expand the American Indian Child Welfare Initiative, which supports tribal delivery of child welfare and child abuse prevention for American Indian kids and families.

    Reinsurance remainder:
    The proposed budget also includes the technical transfer of funds leftover after the conclusion of the Minnesota Premium Security Plan, also known as reinsurance, which provided payments to health insurance companies to offset costs in the individual health insurance market. This program is set to end in 2019, resulting in final payments to insurers in August 2020. The remainder, estimated at $281.4 million, would be transferred to the Health Care Access Fund. There, it would support health care access and public health activities.

    Overall:
    The Minnesota Budget Project is pleased that some of our policy priorities, like maintaining the provider tax and investments in affordable health care, child care, and family economic stability, are included in the governor’s proposed budget. While the proposal is just the first stage in the lengthy process of creating the state budget, it’s a meaningful statement and contains important elements for Minnesota’s kids, families, and workers.

    -Betsy Hammer

     
  • Governor Walz’s FY 2020-21 budget proposal makes important investments to build prosperity in Minnesota

    by Clark Goldenrod, Betsy Hammer, Nan Madden | Feb 19, 2019

    In his release of his FY 2020-21 budget proposal today, Governor Tim Walz outlined his priorities for “One Minnesota” that would raise funds to invest in health care, child care, education, and transportation to build broader prosperity that reaches every community.

    Walz proposes $2 billion in net additional general fund spending and $1.3 billion in net revenue increases in FY 2020-21. This leaves $789 million of the projected surplus unspent, or “on the bottom line.”

    Governor Walz FY 2020-21 Budget Proposal – Net General Fund Impact
    E-12 Education $733 million
    Health and Human Services $284 million
    Public Safety and Judiciary $233 million
    Jobs, Economic Development, Housing, Commerce $213 million
    Higher Education $158 million
    State Government and Veterans $112 million
    Property Tax Aids and Credits $77 million
    Transportation $77 million
    Environment $38 million
    Agriculture $8.9 million
    Debt Service, Capitol Projects, Other $85 million
    New Revenues $1.3 billion

     

    The state’s budget can be a powerful tool to advance racial equity and make opportunities available to every Minnesotan, regardless of who they are or where they live. Not everyone in Minnesota is succeeding in today’s economy. In particular, we know that communities of color often face barriers to economic security, from the lack of public investment in schools or transportation options in their communities, to discrimination in the labor market.

    We’ll be looking more closely at the governor’s budget proposal in the coming days, but today touch on some of the pieces that most caught our attention, including initiatives that we think help make Minnesota a place where everyone can thrive.

    Taxes

    The governor’s tax plan seeks to raise the sustainable revenues needed to build broader prosperity and make tax policy choices that strengthen families and communities.

    One of the important tasks for Minnesota policymakers this year is to update Minnesota’s tax code in the wake of the 2017 federal tax bill, which unfortunately provided the largest tax cuts to profitable corporations and high-income people. Walz’s tax conformity proposal takes another approach. For individuals and families, his proposal would update Minnesota’s tax code in ways that maintain many of the deductions and exemptions that were available before the federal tax law’s changes. It also conforms to most federal changes for corporations and businesses. Some of these provisions raise taxes and some cut taxes; in total, tax conformity for businesses raises state revenues.

    Walz’s tax proposal also prioritizes working people and their families by expanding the state’s Working Family Credit, a state tax credit that boosts incomes and gets children off to a stronger start. The governor makes the case that an additional reason to expand the Working Family Credit this year is to offset the impact of the gas tax increase on these Minnesotans. The budget would expand the Working Family Credit by about $50 million a year through two policy changes:

    • Providing an expanded tax credit for families with three or more children; 46,700 families would benefit by an average of $227; and
    • Increasing the Working Family Credit by $100 for households headed by a single person and $200 for households headed by a married couple.

    Walz’s budget plan also would reverse three tax cuts passed in 2017 that over time have taken a bigger and bigger bite out of state revenues. His proposal would reinstate inflation adjustments for tobacco taxes and the statewide property tax paid by businesses, and freeze the exemption amount for the estate tax at current levels (rather than allowing it to rise further.)

    The proposal would increase state aids to cities and counties by about $60 million a year; this would support services in local communities and reduce reliance on local property taxes.

    And Walz’s plan would treat homeowners equitably by allowing immigrants who own their homes to gain homestead status. Currently, some Minnesota homeowners pay higher property taxes simply because they file their taxes with an Individual Taxpayer Identification Number (ITIN) instead of a Social Security number.

    Health care

    The governor’s proposed budget includes many important investments to help Minnesotans stay healthy and afford quality health care.

    The health care provider tax is an important source of funding for affordable health care for over one million Minnesotans. However, the provider tax is set to sunset later this year. The governor’s budget proposal repeals the sunset, ensuring that the Minnesotans receiving coverage through Medicaid and MinnesotaCare will have the care they need to stay healthy.

    Minnesotans who get health insurance through MNsure would have additional assistance to make health care affordable. Walz’s proposed budget includes premium assistance to bring down the costs for Minnesotans who buy insurance in the individual marketplace, and a state premium tax credit. The governor’s proposal projects that by 2023, over 34,000 Minnesotans currently using MNsure would be able to tap the tax credits, and an additional 13,000 Minnesotans would likely enroll in health insurance using MNsure as a result.

    The governor also proposed a major package, called ONEcare MN, aimed at expanding access to high-quality health care on the individual market. This proposal would roll out over several years and includes:

    • A high-quality “platinum-level” plan that offers coverage similar to MinnesotaCare.
    • Ensuring that “gold” and “silver” level health insurance plans are available in every region of the state.
    • Aligning prescription drug benefits to leverage purchasing power and make medicine more affordable.
    • Improving access to affordable dental care for people throughout the state.

    Child care

    In his budget, Walz proposes major investments in affordable child care that will help families afford care for their kids while parents work. Under this proposal:

    • 1,000 additional Minnesota families would receive child care assistance (CCAP), which would make a significant dent in the current waiting list.
    • Child care provider rates would better reflect market rates. Adequate provider reimbursements are key to ensuring families have choices when selecting a child care provider, and this is an important step in that direction.

    Transportation

    The governor’s proposal includes a substantial transportation component. Through this budget, the Department of Transportation expects to address snow and ice maintenance on the roads, repair potholes, inspect and maintain our state’s bridges, and build a safer transportation system. Transit investments include funding for Metro Mobility services, which serve elderly Minnesotans and Minnesotans living with disabilities, as well as for increasing bus rapid transit lines.

    Walz proposes a few funding mechanisms for his proposal, the largest of which is increasing the gas tax. Walz proposes raising the tax by 20 cents, and then indexing it to inflation so that it can keep up with the state’s transportation needs. This tax increase also makes it possible for the governor to return certain funding sources that are currently being diverted to transportation back into the General Fund, where they can be used for investments like quality education and health care.

    Education

    The governor proposes $733 million in additional funding for education. He proposes increasing funding for school districts through the basic student formula by 3.0 percent in FY 2020 and 2.0 percent in FY 2021. That’s an increase of $189 per student the first year and another $130 the second year.

    In higher education, he proposes to make college more affordable through an additional $54 million in FY 2020-21 for financial aid through the State Grant Program. As part of this, he includes an important improvement to financial aid. Minnesota Dreamers – young people who came to the country as children and do not have legal status – are ineligible to receive federal Pell Grants. However, the State Grant formula currently calculates financial aid assuming students receive this federal grant, meaning that Dreamers receive much less aid than they need to afford college. The proposal would increase the grant award for these students, making college education more in reach for all of Minnesota’s young people.

    The big takeaways

    The positive balances projected in the state’s recent forecast present some opportunity for policymakers to build toward shared prosperity. But it’s also clear that the smaller future projected surpluses aren’t enough to make the investments Minnesota needs in its people and communities. Walz’s budget proposes responsible policies to both build prosperity for Minnesotans today and provide stability for Minnesotans in the future.

    Stay tuned for our upcoming in-depth dives into some of the governor’s proposals. In the meantime, you can download the governor’s budget materials at Minnesota Management and Budget’s website.

    -Clark Goldenrod, Betsy Hammer, Nan Madden

  • Investments in healthy people, healthy communities at stake this session with fate of provider tax

    by Clark Goldenrod | Jan 09, 2019

    Funding for affordable health care for one million Minnesotans is at risk in the 2019 Legislative Session because the health care provider tax is set to expire on January 1, 2020. Provider tax revenues are the primary source of funding for the Health Care Access Fund (HCAF), which goes toward investments in Minnesotans’ health and well-being.

    The Minnesota Legislature created the provider tax in 1992 to fund a bipartisan health care reform package aimed at more Minnesotans getting health care coverage. The provider tax primarily supports affordable health care through MinnesotaCare and Medicaid, and other public health priorities. But due to a deal struck in 2011 to pass the state budget and end a 19-day state government shutdown, the provider tax will sunset at the end of this year unless policymakers act to maintain it. Allowing the provider tax to expire would result in about a $700 million annual loss in dedicated funding for health care in Minnesota.

    Policymakers can’t afford to hit the snooze button this session on extending the provider tax:

    1. One in five Minnesotans have better access to a doctor when they’re sick thanks to Medicaid and MinnesotaCare, which are funded in part by the provider tax. These include working Minnesotans who don’t have affordable insurance through their employers, seniors, and Minnesotans living with disabilities.
    2. The positive balance in the Health Care Access Fund won’t last long without the provider tax. While it’s true that the HCAF currently has a projected surplus of $591 million for FY 2020, that’s largely due to positive balances carried over from previous years. And that balance is being spent down each year as it is used to help fund Minnesotans’ health care needs. The November forecast shows that by FY 2023, the Health Care Access Fund will have a deficit of almost $1 billion if the provider tax is allowed to expire.
    3. Allowing the provider tax to expire would put pressure on the state’s general fund, and this could have serious consequences for other public services that Minnesotans value. Losing close to $700 million annually in funding for the health of Minnesotans could constrain other investments in areas like K-12 education, financial aid for college students, and statewide access to broadband.

    In the 2019 Legislative Session, Minnesota policymakers must act to extend the provider tax in order to preserve health care for over one million Minnesotans and keep moving us forward toward becoming a state where good health is available to all.

    To learn more about why the provider tax is so important, check out our new analysis.

  • Good session to you! Let’s make racial equity a key focus this year

    by Clark Goldenrod | Jan 07, 2019

    It’s that time of year again. The 2019 Legislative Session is beginning, so the Minnesota Budget Project team is getting out our calculators to crunch all the numbers, and our magnifying glasses to read those huge budget spreadsheets in size 8 font.

    This year will be a budget year – meaning that policymakers’ primary task will be to craft the state’s next two-year budget. And as they do so, we urge them to make advancing racial equity a primary goal in their decision-making. This will mean deliberately addressing the structural barriers that block Black, Indigenous, and people of color (BIPOC) from thriving in today’s economy.

    (Primarily white) Minnesotans often brag about Minnesota’s overall economic success, as demonstrated by the state’s low unemployment rate, high median income, and high rates of health coverage. And we’ve done it too. But these statistics often ignore that many Minnesotans of color face systemic barriers that make it harder to get ahead. And a legacy of discriminatory policies in housing, education, and elsewhere mean that people of color in this state face gaps in opportunity.

    For example, due to discriminatory housing policies that were put in place over the past century, BIPOC communities are far more likely to live in areas of concentrated poverty where access to building blocks of opportunity, such as good schools and jobs, are limited. This means that BIPOC Minnesotans are more likely than their white counterparts to earn lower incomes, face poor health outcomes, or be subject to over-policing.

    Policymakers should commit this session to make serious advances toward racial equity in our state and close these gaps in opportunity, in areas such as:

    • Economic equity. All Minnesotans should have the opportunity to succeed. This could involve investments in public transportation and allowing access to driver’s licenses regardless of immigration status, so that working people can get to their jobs safely and reliably. It could also include improving the state’s Working Family Tax Credit to boost working people’s wages and get children off to a stronger start.
    • Criminal justice. Minnesota needs a more just and equitable system. This could mean restoring voting rights for individuals who were formerly incarcerated, and addressing the debt trap that some face when they’re subjected to fees and fines from things like traffic tickets.
    • Health equity. There’s a lot of work to do to make progress in this area, but it will also be important to make sure that policymakers don’t take a step backward as well. The provider tax, which primarily funds affordable health care through Medicaid and MinnesotaCare, is set to expire at the end of this year. Policymakers will need to take action to maintain the provider tax so that our state continues to support access to health care for over one million Minnesotans.
    • Structural racism. Minnesota needs to address policies, formal practices, and other barriers that continue racial inequities. This could include formalizing practices that require policymakers to consider the impacts on racial equity during the policymaking process.

    In 2016, policymakers dedicated $70 million over three years towards a number of policies that would promote racial equity, and Governor Mark Dayton started including equity and inclusion impacts on many items in his budget proposals. But much more work is needed. The time is now to advance racial equity in Minnesota. You can count on us to keep you informed on what progress policymakers are making at the Capitol.

    -Clark Goldenrod

  • 2018 Legislative Session: What was accomplished, and what’s left for next year

    by Clark Goldenrod and Nan Madden | Jul 11, 2018

    The 2018 Legislative Session opened with some major tasks on policymakers’ to-do lists. By tradition, this was a year when policymakers normally put together a capital investment package, commonly called the “bonding bill”, that invests in infrastructure projects across the state. More unexpectedly, the December 2017 passage of the federal tax overhaul raised substantial questions on how to update the state’s tax code in accordance with Minnesota values of fairness and fiscal responsibility. And a projected $329 million surplus created opportunity to make state investments this year, in addition to those made in the two-year state budget passed last year.

    However, when the three months of the legislative session came to an end, the Legislature and Governor Mark Dayton reached agreement on only one of the three major items. A bonding bill was passed, authorizing $1.6 billion in projects including transportation, higher education infrastructure, water quality, and affordable housing. But intense disagreement in priorities between Dayton and the Legislature resulted in no final agreement on either budget or tax issues.

    The contrasting priorities between policymakers are seen in how they would use the projected budget surplus. The Legislature allocated more than half of the surplus to tax cuts and additional transportation spending, while the governor proposed putting the largest portion of the surplus to education. The Legislature’s final offers to Dayton were contained in a nearly 1,000-page supplemental budget bill and in a tax bill, both of which the governor vetoed.

    We often look at state policy decisions through the lens of whether they build broader prosperity and improve the lives of Minnesotans across the state. By this measure, the outcomes of the 2018 Legislative Session are a mixed bag. Important opportunities to support Minnesotans striving toward economic security were lost. At the same time, harmful proposals that would have put up new roadblocks were stopped. Below are some examples that represent both the opportunities lost and harm prevented to Minnesotans’ ability to get by and get ahead.

    Health care: Among the harmful proposals stopped was one to erect new reporting requirements, which would likely result in more than 20,000 Minnesotans who participate in Medicaid losing their health care. But a major lost opportunity was that the Legislature failed to take action to maintain the provider tax, an important funding source for affordable health care for about 90,000 Minnesotans that otherwise will expire in 2020. With this deadline looming, this will be a critical issue for policymakers to address next year. (Additional coverage of health and human services issues are covered in another blog post.)

    Family economic security: A disappointing lost opportunity was that family-friendly improvements to the state’s Child Care Assistance Program supported by both the Legislature and Dayton will not be implemented this year. These proposals would have helped families maintain their child care even as they faced various changes and challenges, and would have increased funding for child care providers. This is another issue the state will need to pick up next year: Minnesota is out of compliance with federal standards and may face a financial penalty. Another harmful proposal prevented by the governor’s veto was a redundant verification system that would have erected new barriers to struggling Minnesotans accessing health care, child care, or food assistance.

    Wage standards: A positive for working people is that a proposal to penalize certain tipped workers by freezing their minimum wages, which had been included in earlier bills, was not included in the final supplemental budget that the Legislature sent to the governor.

    Transportation: There is broad agreement on the need to invest in the state’s transportation system, but fierce disagreement about which modes of transportation and how to fund them. Road and bridge projects make up a significant part of the bonding bill, but those Minnesotans who rely on transit to get around were largely left out. The Legislature’s proposed constitutional amendment to increase funding for transportation passed the House but did not make it through the Senate. This amendment, if approved by the voters, would have diverted funding that currently is available for other priorities like education, higher education, and economic development.

    Education: While legislators proposed additional funding for Minnesota’s schools, their overall education investments were far below what the governor proposed. Dayton proposed investing $169 million in K-12 Education, including $138 million in one-time emergency funding to fill budget deficits for schools throughout the state through an increase to the basic student formula, as well as funding for pre-kindergarten and special education. The Legislature proposed $28 million in their education budget, primarily for school safety, and $50 million in one-time school funding in their final tax bill. Because of the lack of a final agreement on the budget or tax bills, the only additional education funding enacted this year was some school safety funding in the bonding bill.

    Taxes: If the state acted to simply conform to federal tax changes, Minnesotans – including families with childrenseniors, and people with disabilities – could have seen tax increases. By the end of session, it appeared policymakers had agreed on an approach to updating the income tax for individuals and families that would have prevented these increases. But there was strong disagreement about what kinds of tax cuts to enact and who would benefit from them. The Legislature’s tax bill would have raised taxes on the most struggling Minnesotans over time, which would help pay for tax cuts that benefit others who were better off. Dayton’s tax plan made working people and their families the priority for tax cuts, for example, through a proposed expansion of the Working Family Credit. Updating the tax code will be another issue policymakers will need to tackle next year. In the meantime, many Minnesota individuals and families will see the amount of income taxes they pay basically unchanged, but the process for filing will be more complicated. But by vetoing the Legislature’s tax bill, Dayton prevented changes that would have made the tax system less fair and would have undermined funding that supports our schools, nursing homes, public safety, and other essential community services.

    Infrastructure: The bonding bill invests in things like transportation, higher education infrastructure, and water quality. Importantly, it includes $90 million in bonds for affordable housing, and a vital $28 million for mental health crisis centers, which provide emergency shelter for people with behavioral health needs. The bonding bill also includes $25 million for school safety; unfortunately, some of those dollars come out of the state’s budget reserve, weakening the state’s “rainy day fund” that Minnesotans count on during economic downturns or other budget shocks.

    Policymakers will have the opportunity once again next year to invest in Minnesotans as they put together the state’s next two year budget, and another crack at many of the issues they wrestled with this session. Under current economic and budget projections, Minnesota will have roughly about a $300 million projected surplus at the start of the next biennium. We’ll be advocating for wise investments in a broader prosperity that reaches all Minnesotans.

    -Clark Goldenrod and Nan Madden

  • Health and Human Services changes in vetoed Supplemental Budget Bill were a mixed bag

    by Sarah Orange | Jun 11, 2018

    May 20th marked the closing of the 2018 Legislative Session, which was capped off with Governor Mark Dayton vetoing the Supplemental Budget Omnibus Bill (Senate File 3656) just three days later. This veto means that important changes to support affordable child care will not become law; however, it also means that harmful provisions to add more barriers to affordable health care, child care, and food assistance will also remain on the cutting room floor.

    Policymakers set the state’s two-year budget in 2017. This year, lawmakers had the ability to adjust that budget and determine what to do with a modest surplus. Ultimately, the Legislature passed a wide-ranging budget and policy package that spanned more than 980 pages, and addressed issues from traffic violations to health care requirements.

    Positive provisions in the Supplemental Budget Omnibus Bill included important family-friendly changes to Minnesota’s Child Care Assistance Program. These changes would have been paid for by new federal funding, and supported families experiencing homelessness; allowed families to retain their child care assistance as they made the transition off Minnesota’s welfare-to-work program; helped families who move between counties keep their child care assistance; and increased the reimbursement rate child care providers receive for their important services.

    The bill also included provisions that addressed a pending 7 percent rate cut for some providers who care for people with disabilities; some investments to address the opioid crisis; an increase in chemical dependency provider rates intended to expand access to substance abuse treatment; and some language seeking to address abuse against vulnerable adults living in long-term care settings.

    However, the bill also contained language that would have added unnecessary barriers to health care, child care, and food assistance. This bill would have required the Department of Human Services to hire a third-party vendor to double-check the eligibility of Minnesotans who have already been determined to be eligible by the state. People seeking these basic supports often experience unstable housing, juggle multiple jobs, or have unreliable transportation — all things that make it harder for vendors to get in touch with them to confirm, for the second time, that they are eligible for these essential supports.

    The bill failed to repeal the sunset of the provider tax, putting health care for about 89,000 Minnesotans at risk because the state will lose more than $900 million in the FY 2020-21 biennium. The provider tax amounts to more than half of the Health Care Access Fund’s revenue, which supports affordable health care.

    The governor cited both process and policy objections to the Supplemental Budget Omnibus Bill in his veto letter. According to the Dayton, these objections, including the failure to meaningfully address the abuse of vulnerable adults and the opioid epidemic, outweighed the bill’s positive provisions on issues such as school safety and child care.

    Another positive outcome of the session is that the state did not enact new documentation requirements that likely would have resulted in taking health care away from over 20,000 Minnesotans. At the beginning of session, the House and Senate quickly moved proposals to require people who use Medical Assistance, Minnesota’s version of Medicaid, to submit paperwork showing how much they work, or documentation from a doctor on why they can’t work, in order to continue to receive health care. Sorting through the piles of paperwork that would have been required by this proposal was estimated to cost Minnesota counties more than $160 million every year once fully implemented.

    Policymakers will have a second bite at the apple on these issues. The 2019 Legislative Session will be focused on setting the next two-year budget. Be on the lookout for continuing conversations to either create new barriers aimed at limiting essential supports, or to invest in strategies that expand Minnesota’s economic opportunities.

    -Sarah Orange

  • Supplemental budget proposals on the table, but very different priorities

    by Clark Goldenrod | May 18, 2018

    As we finish up the last week of the state’s legislative session, the Legislature has passed their initial budget and tax bills, and now need to reach compromise agreements with Governor Mark Dayton.

    In February, the state’s economic forecast projected a positive balance of $329 million for the current FY 2018-19 biennium. That provides some opportunity to make additions to the two-year state budget passed last year. In addition, a major pressing issue for policymakers this session is how to respond to the federal tax bill.

    As policymakers move into final negotiations, they have taken different approaches. The governor allocates about half of the surplus to education, while the House and Senate make taxes their biggest priority.

    Proposed General Fund Changes (FY 2018-19)
    Governor Senate House Conference
    Education $164 million $20 million $30 million $28 million
    Higher Education $30 million $1 million $5 million $3 million
    Health and Human Services -$40 million $23 million $10 million $18 million
    Environment $3 million $0 $750,000 $0
    Agriculture $200,000 $0 $250,000 $0
    Public Safety $23 million $8 million $7 million $10 million
    Transportation $36 million $14 million $101 million $58 million
    Jobs and Energy $34 million $15 million $15 million $15 million
    State Government $34 million -$17,000 -$7 million $0
    Capital Investment $27 million $0 $14 million
    Taxes -$12 million $171 million $107 million $140 million
    Other Bills $27 million $28 million $46 million $27 million
    Net Changes $327 million $280 million $329 million
    *A conference target for Capital Investment has not been released.

     

    The governor introduced his proposed budget in March, in which his largest new investments were focused on education. He includes funding for safe schools and special education, as well as expanded access to pre-kindergarten. He more recently proposed emergency funding for schools through an increase the basic student formula. Dayton’s budget also includes investments in health and human services, including provisions to protect families from disruption in their child care, and maintains an essential funding source for affordable health care – the provider tax. Dayton also includes investments in other areas of the budget, like additional funding to expand access to broadband for thousands of Minnesotans.

    The Legislature’s tax plan shares some important components with Governor Dayton’s tax plan – both would maintain parts of the tax code that protect families with children, seniors, and people with disabilities from state tax increases as a result of conformity. But they have important differences in how additional tax cuts are distributed. The Legislature proposes income tax cuts that leave out an estimated 1 in 5 Minnesotans, and provide the largest tax cuts to those with higher incomes. Dayton’s tax plan takes a more across-the-board approach, through a $60 per person tax credit and expanding the Working Family Credit, so families struggling to get by are included.The 2017 federal tax bill creates complexity and challenges for states, and a top issue in this session has been how to respond. While the federal legislation provides the largest tax cuts to profitable corporations and high-income individuals while adding to the nation’s debt, Minnesota can instead put everyday Minnesota families first while protecting the resources needed to fund essential services.

    The Legislative tax plan is $140 million in the current biennium – over 40 percent of the projected FY 2018-19 surplus. Also concerning is that it contains cuts in income and corporate taxes that grow over time, but relies on some temporary funding sources to pay for these ongoing tax cuts.

    The House also includes a large general fund target for Transportation, three-fourths of the proposed $101 million would be transferred to a fund that supports the state’s highways. The conference agreement of $58 million follows this value and overwhelmingly goes to roads and bridges and the state’s computer system for vehicle license plates (MNLARS).

    Both the House and Senate make some investments like funding for safer schools and increased access to broadband in Greater Minnesota, but their investments often don’t go far enough to meet the needs of Minnesotans. For example, as we discuss in another blog, the House and Senate budgets make some important policy changes to make child care more accessible, but additional investment is needed to fully address the fact that 2,000 families are on a waiting list for child care.

    Legislators and the governor are now in negotiations to reach agreement on tax and budget decisions for this session. We continue to urge policymakers to include a tax response that prioritizes those Minnesotans who were left behind in the federal tax bill and make targeted investments to support Minnesota families and communities.

    -Clark Goldenrod

  • Documentation requirements didn’t work in food assistance; let’s not make the same mistake twice

    by Sarah Orange | May 17, 2018

    Minnesota has the opportunity to learn from its mistakes. Currently, Minnesota’s Legislature is considering new documentation requirements in Medical Assistance, Minnesota’s Medicaid program. The reality is we know how this turns out: many Minnesotans will likely lose health care and struggle to stay healthy enough to work.

    This isn’t the first time Minnesota has required extra documentation to receive basic supports. In 2013, Minnesota implemented a documentation requirement rule in its Supplemental Nutrition Assistance Program (SNAP), commonly known as food stamps. This rule required that single adults without dependents demonstrate they work 20 hours each week, participate in job training, or work at an unpaid job for the government in order to receive assistance to buy nutritious food through SNAP. The SNAP rule has exemptions for people with a serious illness or disability.

    Unfortunately, nearly 47,000 Minnesotans lost their food assistance within one year of starting the SNAP reporting requirements. In 2017, only 6,000 adults without children were able to buy nutritious food through SNAP under this rule, likely because so many people faced significant barriers to work or paperwork glitches that prevented them from using SNAP.

    The people who are denied assistance to put healthy food on their table because of this rule face many barriers to getting and keeping a job. They include Minnesotans experiencing homelessness, struggling with addictions, dealing with the aftermath of intense trauma and PTSD; experiencing  literacy challenges; or lacking reliable transportation. All of the people who lost food stamps made less than $19,000 a year, and half of them had no income at all because of the significant barriers to employment they experience.

    Minnesotans also lost food assistance because of problematic paperwork glitches. Some Minnesotans who should have been exempted still lost food assistance because counties were unable to process exemptions due to a lack of resources. Counties had thousands of mailed notices returned to them, meaning many Minnesotans lost assistance because they never even knew there was more paperwork to complete.

    The reporting requirement proposal in Medical Assistance has a complex exemption system that Minnesota’s 87 counties would have to implement at great expense. In fact, a recent analysis by Minnesota Management and Budget indicates that counties will have to spend $284 million just in the first two years of implementation in order to handle the volume of new paperwork this rule would require. Failure to adequately fund these costs will likely result in people needlessly losing their health care. There is also no funding for employment and training services.

    We can expect similar results from the proposed changes in Medical Assistance: fewer Minnesotans able to get basic necessities for survival. Last time it was food; this time it’s the ability to see a doctor or fill a prescription. Creating more barriers to health care is the wrong choice for Minnesota.

    -Sarah Orange with special thanks to Jessica Webster from Mid-Minnesota Legal Aid Legal Services Advocacy Project for compiling the data and tirelessly advocating for Minnesotans who buy nutritious food through SNAP

  • Legislative tax bill needs improvement; is there enough time left to make the grade?

    by Nan Madden | May 17, 2018

    I’ll admit it – I was hoping for a relatively quiet 2018 Legislative Session in terms of tax policy. Then in December 2017, the federal government passed a wide-ranging tax bill that included large, permanent tax reductions for corporations, and a complex set of changes in the individual income tax. Because of the many ways that Minnesota’s tax laws connect with federal law, that put a big job in front of state policymakers.

    The federal bill gave the largest benefits to profitable corporations and the highest-income households while adding on to the national debt. We’ve made the case that Minnesota should not mirror those mistakes, and instead Minnesota’s response to it should be grounded in Minnesota values of fairness and sustainability.

    Federal conformity done poorly could raise state taxes on families with children in order to pay for tax cuts for others – that’s how it turned out in states such as Idaho and Utah. We’ve called for fiscal responsibility – recognizing that some of the potential additional revenues from conformity are temporary, and that it would be unwise to substantially undermine the state’s ability to raise revenues for education, health care, safe and thriving communities, and other public investments that Minnesotans expect. Minnesota is going to need those revenues if federal policymakers follow through with their proposals to dramatically reduce funding to the states, and whenever the next economic downturn inevitably arrives.

    The Legislature’s tax bill (House File 4385) makes some important progress in meeting these goals, but falls seriously short in other respects. In particular, its tax cuts are unsustainable and leave out too many ordinary Minnesotans. These are some of the reasons that Governor Mark Dayton vetoed the bill this morning.

    Some of our priorities for conformity are to protect families with children from state income tax increases and prevent cuts in Property Tax Refunds for seniors, people with disabilities, and families – both of which are potential consequences of the federal tax bill’s elimination of personal and dependent exemptions.

    Fortunately, both the legislative tax plan and the governor’s proposal would maintain the value of these exemptions and refunds, at least initially. There’s also agreement to maintain the standard deduction, and allow Minnesotans to continue to take most itemized deductions that were available to them before the federal law’s changes.

    All this adds up to most Minnesotans having about the same amount of income subject to state income taxes as they had before the federal law passed, instead of a patchwork of some paying more and some paying less.

    However, the Legislature’s tax plan only temporarily protects Minnesotans from conformity-related tax increases. The Legislature would adopt a slower-growing measure called “chained CPI” to adjust the tax code for inflation. Deductions and exemptions, as well as the Working Family Credit, the Child and Dependent Care Credit, and other tax benefits, would be worth less compared to current law. The Department of Revenue estimates this change would raise Minnesotans’ taxes by $60 million in the next two-year budget cycle. Modest-income Minnesotans would pay more to help pay for tax cuts that provide little to no benefit to them.

    One of the biggest points of contrast between the Legislature’s and the governor’s plans is how and to whom they would provide additional tax cuts.

    In terms of individuals and families, the Legislature’s tax bill leaves out many Minnesotans and provides larger tax cuts to those with higher incomes. It would cut income tax rates in a couple of steps, ultimately lowering the tax rate by 0.1 percentage points in the first bracket, and by 0.2 percentage points in the second bracket. But an estimated 1 in 5 Minnesota taxpayers don’t have enough taxable income – after subtracting their deductions and exemptions – to see any benefit from these rate cuts. In contrast, a family of four earning about $180,000 or more would get the maximum tax cut – that’s an income that puts them in the highest-earning 10 percent of Minnesota households.

    Dayton’s proposal provides its tax cuts more evenly. It would create a new $60 per person Personal and Dependent Tax Credit for individuals with incomes up to $140,000, and married filers with incomes up to $280,000. Unlike the Legislature, he ensures that Minnesota’s most struggling workers and their families are included in the tax cuts by expanding the Working Family Credit. The governor’s Working Family Credit expansion would benefit 329,000 Minnesota workers and families, who would see an average $160 tax benefit.

    The legislative tax plan also cuts Minnesota’s corporate tax rate, on top of the 40 percent rate cut corporations received in the federal tax bill. It would cut the corporate tax rate by 0.7 percentage points by year 2020, and eliminate the corporate AMT, as well as reduce business taxes through other provisions. In the near term, these tax cuts are paid for through conformity provisions that raise business taxes. But these cuts are unsustainable, as they grow larger over time, and rely on temporary revenues to pay for permanent tax cuts.

    The Department of Revenue calculates the cost of the income and corporate tax rate reductions to reach $570 million in FY 2022-23.

    Other issues that are sure to be part of the negotiations between the Legislature and governor include Dayton’s proposal to reverse three tax cuts in the 2017 tax bill that grow over time (regarding the estate tax, tobacco taxes, and the statewide property tax paid by businesses) and provisions in the Legislature’s tax bill that preempt local governments’ decision-making authority.

    There are only five days left in the legislative session. That’s not much time to reach agreement, but it is possible to put together a fair and sustainable tax plan that updates the tax code in ways reflecting Minnesota values, if there is the will to do so.

    -Nan Madden