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Process & Reforms

Projections & Trends

  • Minnesota ends budget year on a high note

    by Clark Biegler | Jul 14, 2014

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

    Their July Economic Update finds that state revenues have come in above expectations. The state’s 2014 fiscal year ended on June 30. State revenues came in $168 million, or 0.9 percent, higher than projected in the February Forecast. This is mostly due to higher income tax and sales tax collections. The Update cautions that timing issues could be at play with these preliminary figures, and these numbers could change as they are finalized in August.

    While the news for state revenue was welcome, the national economy is a different story. The July Update’s outlook for U.S. 2014 GDP growth is a full percentage point lower than in the February Forecast. This is due to a much weaker start to 2014 than expected, with factors including the harsh winter taking their toll. But the economy is already rebounding from this temporary setback. Higher consumer confidence, faster employment growth, and improved factory production are all expected to contribute to strong growth for the rest of 2014 and into 2015.

    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 the U.S. barely avoids a recession; and a 15 percent chance that the economy will be even stronger than the baseline predictions, due to better than anticipated foreign growth and related depreciation of the U.S. dollar.

    This update brings the state good news. It also reminds us that the economy can take unexpected turns. It’s important for the state to prepare for the unexpected, 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.

    -Clark Biegler

  • April Economic Update provides a note of caution

    by Clark Biegler | Apr 11, 2014

    The state’s April Economic Update finds that the outlook for the economy is still one of growth, but slower than previously projected, and that recent state revenues have come in a bit below expectations.

    Neither of these are cause for alarm, but they do sound a note of caution that the $1.2 billion positive balance predicted in the February Forecast is a projection, not all money in the bank.

    State revenues for February and March 2014 came in $67 million, or 2.5 percent, lower than projected in the February Forecast. While income taxes came in higher than anticipated, sales and corporate taxes fell slightly short. Most of the difference came from reductions in other revenues like cigarette and tobacco taxes and the health care surcharge. This is mostly due to timing issues, which should be resolved by the end of this fiscal year.

    The April Update’s outlook for U.S. GDP growth is lower than in the February Forecast. This is due to some temporary factors, like the harsh winter weather. The housing recovery has also not been as strong as expected. The U.S. economy is still expected to grow this year, which should lower the national unemployment rate to about 6 percent by the end of 2015.

    Graph Real gross domestic product

    Forecasters continue to assign a 60 percent probability to this baseline economic forecast, and a 20 percent probability to more pessimistic and optimistic scenarios. In the pessimistic scenario, the U.S. barely avoids a recession; and in the optimistic one, increases in jobs and earnings lead to a stronger recovery.

    This update reminds us of the uncertainty inherent in economic projections and the importance of preparing for the unexpected. The increase to the budget reserve passed earlier this session is a good step in this direction. We also encourage policymakers in the remainder of the session to make sustainable tax and budget decisions that focus on creating a fairer tax system, expanding opportunity and building ladders into the middle class.

    -Clark Biegler

  • Bill to boost budget reserve passes Senate committee

    by Clark Biegler | Mar 14, 2014

    As Minnesota enjoys a projected surplus after more than a decade of frequent budget deficits, policymakers are considering steps for a more robust “rainy day” fund to help the state better respond to the next economic downturn.

    Yesterday the Senate Finance Committee passed a bill authored by Senator Rod Skoe that would increase the state’s budget reserves (Senate File 2250) and set a mechanism to add funds to the reserves in future years.

    Minnesota Management and Budget currently recommends reserves of $1.9 billion, so that the state is well prepared for the next economic downturn. However, current budget reserves of $661 million and a cash flow account of $350 million only amount to half of this figure.

    Senator Skoe’s bill would make several changes to state laws regarding the budget reserve. It would:

    • Allocate $150 million of the positive balance from this year’s February Forecast to the reserve.
    • Automatically transfer up to a third of any future positive budget balances into the reserve account until it reaches a certain level.
    • Recalculate the target amount needed in the reserve account each year, so that the budget reserve target represents a percent of the state budget (instead of a fixed dollar amount as it does now).

    Current law requires that any positive balances go toward the budget reserve until it is filled to $653 million.

    Policymakers should strengthen our budget reserves to prepare for the next downturn in the business cycle. Adequate reserves soften the shock of future budget shortfalls and enable the state to better meet the needs of Minnesotans during tough times. The current level is not enough to protect us against the next recession. We are glad to see that the Senate is making the budget reserves a priority.

    Senate File 2250 will next be heard in the Senate Tax Committee.

    -Clark Biegler

  • Inside the February Forecast

    by Barb Brady | Mar 10, 2014

    Minnesota’s projected $1.2 billion positive budget balance creates opportunities to keep our state moving in the right direction, according to our analysis of the February 2014 Economic Forecast.

    Economic Recovery Creates Opportunities: Inside the February 2014 Forecast points out that Minnesota’s strong economic growth is leading to higher revenues and lower spending, resulting in a surplus.

    Our analysis urges policymakers to use caution when deciding how to deal with that positive budget balance.

    We recommend Minnesota continue to make fairness a priority in tax decisions, build the budget reserves, and target spending to areas that support Minnesotans left out of the economic recovery.

    Check out our analysis for more information about the forecast and the best ways to invest in our future.

  • February Forecast has good news for the state, but proceed with caution

    by Clark Biegler | Feb 28, 2014

    The state’s February 2014 Economic Forecast released today brought good news for Minnesota. The state projects a $1.2 billion positive balance for the current budget cycle, the FY 2014-15 biennium, which is $408 million higher than the November Forecast projected.

    How did this happen? Minnesota’s economy is faring much better than U.S. economy. The state had one of the six fastest-growing economies in 2012, and the good news continues. At the end of 2013, unemployment in Minnesota was at the lowest level since just before the recession, and was two percentage points below the U.S. rate. Minnesota had stronger job growth than the rest of the nation in 2013, and job numbers have climbed above pre-recession levels.

    This strong economic growth means the February forecast projects lower state spending and higher revenue collections than in the November forecast, giving the $1.2 billion positive balance in FY 2014-15. The forecast also shows a $2.6 billion positive balance in the next budget cycle (FY 2016-17), which decreases to $1.5 billion after taking into account the impact of inflation on expenditures.

    This is welcome news, but policymakers should act cautiously. The 2013 tax bill put our state on more stable financial ground. We should continue to make progress on making our tax system more fair, including updating the state’s Working Family Credit to include recent federal improvements. Policymakers should not make excessive tax cuts that would put at risk the state’s ability to sustainably fund quality education, make college more affordable, and otherwise invest in our future economic growth. Too much tax cutting would also harm the state’s ability to weather the next economic downturn.

    This positive balance is a sign that our state has more funds than expected, not necessarily more than it needs. Policymakers should use some of the surplus to invest in a future of opportunity for all Minnesotans, including those left out of the economic recovery.

    While the state has filled its budget reserves to the level required by law, we should prepare for the next economic downturn by building them up further. The state’s Council of Economic Advisors has long recommended reserves equal to 5 percent of the state’s general fund biennial budget, which is $2.0 billion for the current budget cycle. Our current budget reserves of $661 million and cash flow account of $350 million only amount to half of this figure.

    The forecast documents and related materials are on the Minnesota Management and Budget website.

    -Clark Biegler

  • National experts warn: Caution is the right approach to state ‘surpluses’

    by Nan Madden | Jan 28, 2014

    When the November forecast brought news of a projected surplus, we welcomed that good news. But we encouraged policymakers to act cautiously, to keep revenues strong, continue efforts for a fair tax system, and strengthen state budget reserves to make sure Minnesota stays on a solid track.

    In a recent blog, Michael Leachman of the Center on Budget and Policy Priorities similarly notes that Caution is the Right Approach to State “Surpluses.” He reminds us that states frequently have surpluses when coming out of a recession, and makes the point that:

    • A surplus means the state has more money than it expected, not necessarily more money than it needs.
    • Recovery from the Great Recession remains fragile.
    • Tax cuts are a lousy way to grow a state’s economy.

    It’s great that Minnesota’s economy is growing, and that stronger economic growth is reflected in a projected surplus. But it’s an initial step as Minnesota gets back on its feet.

    We’ve already taken some steps to put Minnesota in a stronger, more stable financial situation, such as using recent surpluses to reverse past budget gimmicks. But we can do more.

    We should build up our reserves so we’re better prepared for the inevitable ‘rainy days’ to come.

    We should use some of the surplus to strengthen our economy and make the state a better place to live. The fact that there are more than 7,000 Minnesota families on waiting lists for child care assistance, for example, is a clear indication that there’s more to do to support our workforce as we come out of the recession.

    And we shouldn’t pass large tax cuts that risk the state’s ability to fund our priorities. I’ve been doing tax and budget work since the mid-1990s, so I’ve seen what happens when we get too anxious as a state to start cutting taxes. It makes the next economic downturn harder. It makes the state consider cuts to services that help meet people’s most basic needs, such as Meals on Wheels.

    We don’t need to stand still on tax policy this year, but we should concentrate on making our system fairer and work better. Updating the Working Family Credit to match federal improvements fits both those criteria. Doing so would address marriage penalties faced by some working Minnesotans and make the tax system simpler. And it does so at a very modest cost.

    The positive budget situation creates the opportunity in the 2014 Legislative Session to build on last year’s progress. But policymakers should be cautious, and make budget decisions that will make us stronger down the road.

    -Nan Madden

  • January Economic Update has good news for revenues and economic outlook

    by Clark Biegler | Jan 13, 2014

    The January Economic Update from Minnesota Management and Budget shows state revenues are coming in above expectations and the outlook for the economy is looking up.

    State revenues for November and December 2013 came in $172 million higher than projected by the recent November Forecast. This came mostly from higher income tax collections. The state also had higher-than-expected sales tax collections due to increased economic activity. Additionally, these sales tax collections only include the beginning of the Christmas shopping season, so we might continue to see increased sales revenues.

    The update cautions that the increased income tax collections might be due to some individuals paying taxes early, so overall collections may not be improved, so much as coming in early.

    Graph Real gross domestic product

     

    The U.S. economic outlook is now improved over the November Forecast. The recent federal budget deal eliminates the risk of another government shutdown and lessens some of sequestration’s effects. The national economy also grew faster in the third quarter of 2013 than the November Forecast predicted – 4.1 percent growth in GDP, which is the fastest rate since 2011. Economic growth is expected to continue through 2014, which will reduce the national unemployment rate to near 6 percent by the end of the year.

    Forecasters continue to assign a 60 percent probability to this baseline economic forecast, and a 20 percent probability to more pessimistic and optimistic scenarios.

    The pessimistic scenario would occur with “unwarranted fiscal tightening” in Washington and a worsening global economic crisis. The more optimistic scenario includes a stronger housing recovery and employment growth, which would help the recovery.

    Our next look at the state’s revenues and spending will come next month with the February Forecast, which is what policymakers will use as the baseline for any tax and budget decisions in the 2014 Legislative Session. Stay tuned!

    -Clark Biegler

  • November forecast brings good news for Minnesota - but proceed with caution

    by Christina Wessel | Dec 05, 2013
    Minnesota has a $1.086 billion positive balance projected for the FY 2014-15 biennium. This good news in the 2013 November Economic Forecast released today means Minnesota will finish repaying past debts - including $246 million to fully reverse the school funding shift and $15 million to refill the state airports fund.

    That will leave $825 million on the bottom line as we head into the 2014 Legislative Session.

    Why are the numbers looking so good? Minnesota's economy is faring far better than U.S. economy, and was one of the six fastest growing state economies in the nation in 2012. The indicators continue to improve in 2013, with Minnesota's employment back to pre-recession levels, unemployment continuing to fall, and wage and salary growth exceeding expectations.

    The result is that projected revenue collections for the FY 2014-15 biennium are up by $787 million over end-of-session estimates and state spending is down by $247 million.

    These numbers can give Minnesotans hope: we have turned a corner and are getting back on our past track of growth and prosperity. The actions in the 2013 Legislative Session to rebalance our tax system and make critical investments are building a strong foundation for our future.

    But we should proceed with caution. Minnesota's economy is still very vulnerable to decisions made at the federal level. Federal policymakers have focused too much on deficit reduction too soon in the recovery, creating a drag on growth. It could get worse. Global Insight, Minnesota's economic consulting firm, assigns a 20 percent probability to a more pessimistic scenario where there is "unwarranted fiscal tightening" in Washington and a worsening global economic crisis. There is also a 20 percent probability of a better outcome, if federal policymakers enact a "credible long term deficit reduction plan" instead of the automatic spending cuts.

    It's definitely too soon to talk about repealing components of the 2013 tax bill - doing so would put at risk our ability to fund quality education, making college more affordable, and other investments that will sustain future economic growth.

    Minnesota made progress in the 2013 budget to fund our state's priorities without gimmicks, make the tax system more fair, and invest in opportunity and prosperity. A positive balance in 2014 creates the opportunity to take additional steps forward. For example, many low-income Minnesotans still pay a higher share of their incomes in state and local taxes than the highest income Minnesotans. Updating the state's Working Family Credit to reflect recent federal improvements would make the tax system more fair and boost consumer demand. And, although we made gigantic strides in improving access to affordable health insurance, there are vulnerable Minnesotans who were left out by reform and will continue to struggle to get health care they need.

    Governor Dayton will release his budget proposal after the state's next economic forecast is released in late February. That's a wise decision - by that point, we'll have updated data for predicting Minnesota's revenue collections and more clarity on federal fiscal decisions so we can be more confident that our budget choices are sustainable.

    The forecast documents are available on the Minnesota Management and Budget website.

    -Christina Wessel
  • October Economic Update shows revenues on track, but unsettling news for economy

    by Clark Biegler | Oct 11, 2013

    The October 2013 Economic Update from Minnesota Management and Budget shows state revenues are on track, but a worrisome outlook for the economy.

    The October Update is our first look at revenues since some of the provisions of the 2013 tax bill went into effect. Revenues are pretty much on target for the first quarter of FY 2014. Income and sales taxes came in higher than expected, balanced by cigarette and tobacco tax revenues falling short.

    Another bit of good news in the Update is that an additional $636 million has gone toward reversing the education shifts. That’s because Minnesota closed FY 2013 with revenues $489 million higher than what was originally projected in the February Forecast, and lower spending. The state has $238 million to go to fully reverse the shifts.

    Now to the economy. During the summer, the U.S. economy continued to grow despite the drag caused by sequestration and the inability of federal policymakers to approve 2014 appropriations. But job growth has slowed over the last three months. And while the government shutdown has had serious consequences for many, the debate over raising the debt ceiling is far more worrisome for the U.S. economy. If Congress fails to lift the debt ceiling and meet the nation’s financial obligations, it could cause global financial turmoil.

    IHS Global Insight, the state’s macroeconomic consultant, assumes that Congress will raise the debt ceiling. However, Global Insight assigns a 20 percent probability to a pessimistic scenario in which the debt ceiling is raised but “excessive fiscal restraint” coupled with a “worse global outlook” brings the U.S. close to a recession.

    Minnesota is reversing its funding shifts and revenues are on track. However, uncertainty at the federal level is jeopardizing our success. As we mentioned earlier this week, federal policymakers need to end the shutdown and raise the debt ceiling, and then pass a budget that meets four critical priorities:

    • Strengthens the economic recovery;
    • Avoids increasing poverty and hardship;
    • Invests in the building blocks of economic growth;
    • Takes a balanced approach that includes budget cuts and revenue increases.

    -Clark Biegler

  • Minnesota revenues are about average

    by Clark Biegler | Jul 26, 2013

    New data for FY 2011 from the U.S. Census Bureau show that Minnesota is about average in government revenues.

    We rank 27th among the 50 states in total revenues as a share of personal income. This comprehensive measure of state and local government revenues includes a broad range of revenue sources, including taxes, federal funds and public university revenues. Measuring revenues as a share of personal income allows us to compare states in a way that takes into account the size of the state’s economy.

    The state’s federal funding for public services is below the national average, and Minnesota ranks 38th for federal funding received as a share of personal income. The fact that Minnesota gets less funding from the federal government is partially a reflection of the state’s economic success, as federal funding formulas frequently send more dollars to states with higher levels of poverty. This also means that Minnesota needs to raise more funds itself to provide public services like health care and education.

    Minnesota is above average for a measure called “own source general revenue” as a share of personal income, a measure that includes state taxes, fees, tuition, etc., but takes out certain state revenues that can only be used in very limited ways. Since no federal revenue is included, we would expect Minnesota to be above average on this measure. This measure is similar to Minnesota’s Price of Government, which measures state and local revenues as a percent of personal income. The Price of Government is significantly lower than it was in the 1990s, as state and local government has become a smaller share of Minnesota’s economy.

    State rankings may be popular because they simplify a complex number of decisions on how to fund roads, health care, libraries and schools into a single number. By themselves they cannot tell us whether we are making the right decisions for our state’s future.

    -Clark Biegler

  • July Economic Update brings good news for education, mixed news for the economy

    by Clark Goldenrod | Jul 15, 2013

    The July 2013 Economic Update from Minnesota Management and Budget provides good news on the state's ability to pay back the education funding shifts, but mixed news for the economy.

    At the end of the 2013 fiscal year, state revenues were $463 million higher than expected. This was primarily due to an increase in income and corporate tax collections. The update credits some of this activity to economic growth, but most comes from high-income taxpayers shifting income in anticipation of federal tax changes. Because of actions taken during the 2013 Legislative Session, by September the entire positive balance will go toward repaying the remaining $874 million in school funding shifts.

    Now to the economy. The U.S. is still recovering from the Great Recession, but the update shows some good news. In the last quarter, job increases were strong, averaging about 200,000 per month nationally, and consumer sentiment is now back in the normal range. However, GDP growth has been slow, and is not expected to grow at a rate that can sustain the national economy long term. Decisions at the federal level, including allowing a payroll tax cut to expire in January and sequestration spending cuts, are believed to be responsible for a 1 percent reduction in GDP growth in 2013. The state's macroeconomic consultant assigns a 65 percent probability to a slow growth forecast, and a 20 percent probability to a more pessimistic scenario where the national economy narrowly avoids a recession in 2014.

    For a strong economy, both Minnesota and the federal government need investments that support our future success. Minnesota is repaying its funding shifts and made many new investments in the last legislative session. Unfortunately, the economy is also feeling the effects of poorly targeted efforts to reduce the federal budget deficit.

  • April Economic Update brings more good and not-so-good news

    by Clark Biegler | Apr 17, 2013

    State revenues continue to come in higher than expected and employment in Minnesota has returned to pre-recession levels, according to the April 2013 Economic Update from Minnesota Management and Budget. That's the good news.

    During February and March, state revenues were $145 million higher than expected. This was primarily due to an increase in income and corporate tax collections. Most of these revenues might be one-time, and not due to increased economic activity.

    Minnesota continues to do better than the national economy, and employment growth during January and February brought payroll employment in the state to 2.8 million. The state now has 8,000 more jobs than at the start of the recession in December 2007.

    Now for the not-so-good news. Economic growth at the national level this year has been much stronger than anticipated, but this will be largely offset by federal sequestration and other concerns. The state's macro-economic consultant expects that sequestration will continue until the end of the federal fiscal year (September 30), and then a "Grand Bargain" will be reached that replaces the sequester with a package of revenue increases and more targeted spending cuts that provide a short-term boost to the economy. The state's consultant assigns a 60 percent probability to this forecast and 20 percent probabilities to more optimistic and pessimistic scenarios. In the more pessimistic scenario, the consultants predict that the country will narrowly avoid another recession.

    Much is still unclear regarding the specific cuts that will take place under federal sequestration, and state agencies continue to be in contact with the federal government to ascertain exactly how Minnesota will be affected.

  • Forecast shows small improvement, but need to sustainably fund our priorities remains

    by Christina Wessel | Feb 28, 2013

    This morning's release of the February 2013 Economic Forecast means legislators can begin in earnest the challenge of setting a budget for the FY 2014-15 biennium. The good news from the forecast is that Minnesota's economy is moving in a positive direction. However, the state continues to face structural deficits, meaning we haven't found a sustainable way to meet the state's needs and make investments that are critical for our future economic success.

    More good news for the FY 2012-13 biennium. There is a $295 million positive balance for the current biennium, FY 2012-13. Of that, $290 million must be used to continue to buy back the school payment shift, bringing the total amount that has been repaid to schools to $1.9 billion, with $801 million left. The remaining $5 million of the positive balance will go into the state's budget reserve, bringing the balance to $649 million.

    Next biennium improves, but deficit remains. The November forecast predicted a $1.1 billion deficit for the FY 2014-15 biennium. Thanks to a combination of improved revenues and lower-than-anticipated spending, that deficit has been reduced to $627 million. This still leaves policymakers with the challenge of addressing the deficit without cutting vital services and undermining future economic growth.

    After considering inflation, structural deficit continues in FY 2016-17. Although the economic improvements we see in the near future are expected to carry over into FY 2016-17, the state is still anticipating a nearly $1.5 billion deficit after including the impact of inflation.

    There is always some level of uncertainty inherent in developing a forecast. In recent years, that task has become even more challenging due to unprecedented economic and political conditions. This forecast takes a cautious road, presuming that Minnesota would experience a "modest shock" from federal sequestration, but expecting Congress to eventually agree to a more targeted deficit-reduction plan. There is a 20 percent chance of sequestration cuts continuing the whole year and slowing economic growth, but still no strong risk of a recession.

    We can all breathe a little sigh of relief that Minnesota's economy is looking better, leading to an overall improvement in the state's fiscal picture. But this is an important moment for policymakers. As we recognized yesterday, the Governor's budget focuses on the goals of raising revenues fairly - ending the cycle of deficits, gimmicks and deep cuts - and recognizes the importance of securing future economic growth by investing in stronger, healthier and more educated communities. The Legislature should also pursue these goals as they begin to assemble their budget proposals.

    During a press conference, Governor Dayton announced that he will release his supplemental budget during the week of March 11, which will include an increase in the property tax credit for low-income renters - a decision we strongly applaud.

  • You can't turn a ship on a dime, but you can start to get it back on course

    by Christina Wessel | Feb 27, 2013

    I sometimes think of the State of Minnesota as a ship that's been heading in the wrong direction. We've spent the last few weeks reviewing elements of Governor Dayton's proposed budget, which includes many ideas that will start to turn Minnesota around and get us back on the right course. His budget also reflects the reality that you can't turn a ship on a dime.

    Governor Dayton's budget embraces many of the goals we've championed, including a fair and adequate tax system, sustainable budget decisions that end the cycle of deficits, and investments that will prepare Minnesota's economy for the future:

    Raise revenues fairly. At the Minnesota Budget Project, we have been calling for a balanced approach to addressing the state's budget challenges for more than a decade. We are pleased that Governor Dayton has shown the leadership to take on the critical task of reforming our tax system, and that his tax package has the goals of increasing fairness in Minnesota's tax system and putting Minnesota on firmer financial footing.

    End the cycle of gimmicks. The Governor's proposal balances the state's budget without gimmicks, something we haven't seen in a long time. There are no big shifts from other accounts, no directives for agencies to find magic savings, no delaying payments (or speeding them up), no tobacco bonds, no tapping our budget reserves. And Governor Dayton's proposal balances the budget not only for FY 2014-15, but also for the FY 2016-17 biennium.

    Invest in our future economic success. A number of important investments in the Governor's budget will set up our economy for future growth where the benefits will be broadly shared. For example, his budget starts to turn the ship by investing in early childhood opportunities so children start off on the right foot, increasing funding for financial aid so more students can afford to go to college and start their careers free of crippling student loan debt, and improving access to affordable health insurance so people can get the care they need.

    There is so much more to be done. Although there were many positives in the Governor's proposal, some have noticed what is missing from the budget. After years of spending cuts, many were hoping that other critical services - like preventing homelessness, building affordable housing or helping low-income families build assets - would see investments that would help to address the very real needs Minnesota families are facing in a challenging economic time.

    We know the Governor's budget proposal is just round one in the budget discussions, and we'll start to see the Legislature's ideas emerging after the February Forecast is released. But one thing to keep in mind as the discussions go on: we must raise the amount of revenues raised in the Governor's budget, or we will turn back to the old formula of deep spending cuts and gimmicks... and Minnesota will keep moving in the wrong direction with the same unfair tax system.

  • January economic update shows good and bad news

    by Clark Biegler | Jan 24, 2013

    State revenues are coming in much higher than expected. The January 2013 Economic Update from Minnesota Management and Budget told us that bit of good news. However, there's some also not-so-good news.

    First, the up side. For November and December of 2012, revenues were $114 million higher than projected, mostly due to an unusual increase in corporate income tax collections. However, the higher-than-expected revenues are believed to be one time, rather than due to increased economic activity. So we can't read too much into these figures.

    Now to the not-so-good news: Federal lawmakers reached a deal to avoid the fiscal cliff, but they still left much to be resolved at a later date. The major issue addressed in the update was whether they will increase the debt ceiling so the United States can meets its spending commitments. The update assumes that lawmakers realize the severity of the situation and that the ceiling will be raised, an assumption validated by recent actions at the federal level to suspend enforcement of the ceiling until May.

    However, even assuming the debt ceiling is raised, the state's macroeconomic consultants predict that the U.S. economy will grow in 2013, but more slowly than it did in 2012. They still project a 20 percent probability of a recession early in 2013.  They also project a 20 percent probability that the debt ceiling deal will go very smoothly and the economy will improve above expectations.

    But that's not the end of the story. On February 28, the February 2013 Economic Forecast will be released. This forecast will give state legislators the final financial numbers they will use when they construct the state's FY 2014-15 budget. The Minnesota Budget Project will be releasing materials explaining what's in the forecast when it comes out, so stay tuned!

Proposals & Outcomes

  • Nibbling around the edges: The Legislature’s Health and Human Services proposals fail to fully address critical issues

    by Sarah Orange | May 11, 2018

    With just over a week left in the legislative session, lawmakers have finalized their supplemental proposals for the state’s health and human services budget. Both the House and Senate proposals start to address important issues, such as child care, the opioid crisis, and abuse of vulnerable adults, but miss big opportunities to protect and expand affordable health care in Minnesota.

    The supplemental budget gives lawmakers the opportunity to adjust the two-year state budget that was passed last session. The House and Senate health and human services budget proposals are comparatively small: the House bill has a net $67 million General Fund impact through 2021, and the Senate bill has a net $69 million General Fund impact.

    The legislative proposals do include some important investments. First, both the House and Senate authorize family-friendly changes in Minnesota’s Child Care Assistance Program, including expediting the application process for homeless families; allowing continuous access to child care assistance for families that move into a county with a waiting list; making it easier for families transitioning off of Minnesota’s welfare-to-work program to retain access to child care; and increasing provider reimbursement rates. However, the federal funding these state proposals rely on won’t fully fund these child care improvements in the future. Additional state investment, such as what is included in the Governor Mark Dayton’s supplemental budget proposal, is necessary to fully address the child care crisis in Minnesota.

    Additionally, both proposals include some new funding to address the ongoing opioid crisis. They also start to address the threats to vulnerable adults, though the Senate proposal is expected to move as a standalone bill.

    These Legislative proposals also do not include solutions to ensure Minnesotans have affordable health care options in 2019 and beyond. Dayton’s supplemental budget proposal includes an important step to sustainably fund affordable health care by repealing the scheduled sunset of the health care provider tax, the largest state funding source for public health and affordable health care. However, the House and Senate would allow the sunset to go forward, and fail to address the more than $600 million annual shortfall that the state’s Health Care Access Fund will face starting in 2021.

    Dayton’s MinnesotaCare buy-in option would allow people who are in the individual market the option to buy an affordable MinnesotaCare plan. This would provide more affordable health care choices for approximately 100,000 Minnesotans. This proposal is particularly timely, considering that health insurance premiums in the individual market are expected to increase in 2019. Neither legislative proposal includes the MinnesotaCare buy-in, and in the House finance proposal and the Senate tax bill would prohibit this option.

    The House bill does seek to expand affordable health care options by permitting the sale of short-term, limited-duration health insurance plans. However, these plans fall short of meeting Minnesotans’ needs. The plans are not required to cover important services such as maternity care or substance abuse treatment, and they allow discrimination against people with pre-existing conditions.

    While neither legislative proposal contains the harmful provisions heard earlier this session to take health care away from people who are unable to comply with burdensome paperwork requirements, this provision may move ahead as an individual bill before session ends on May 21. Estimates indicate that 25,400 people could be pushed off of their health care through Medical Assistance if this provision becomes law.

    However, the House proposal places more barriers to seeing doctors through Medical Assistance and MinnesotaCare, and putting healthy food on the table through SNAP. A provision included in the House proposal is designed to double-check that Minnesotans are eligible for these supports through a third-party vendor. If a person is flagged by the vendor, it puts the person at risk of losing their health care or assistance to buy nutritious food. This double-checking will likely cause eligible Minnesotans to lose access to food and health care because of data entry errors or having an old address in the system.

    Overall, the legislative supplemental health and human services budget proposals miss opportunities to help Minnesotans thrive. They fail to provide more affordable health care options, and only nibble around the edges of the opioid crisis, protecting vulnerable Minnesotans, and ensuring affordable child care is available around the state.

    -Sarah Orange

  • House budget targets devote 2/3 of surplus to taxes, transportation

    by Clark Goldenrod | Apr 27, 2018

    The Minnesota House of Representatives’ budget targets tell us how they propose to allocate the state’s projected $329 million surplus for FY 2018-19. The House targets put the bulk of the surplus toward tax reductions and transportation.

    The targets are an important milestone in the budgeting process. They set the size of the House’s omnibus budget bills. Last year, policymakers passed the state’s FY 2018-19 two-year budget, so any budget decisions this year would be adjustments to that budget.

    House General Fund Targets (net) FY 2018-19
    Tax Cuts and Aids to Local Governments $107 million
    Transportation $101 million
    Education $30 million
    Jobs and Energy $15 million
    Health and Human Services $10 million
    Capital Investment $8.9 million
    Public Safety $7.1 million
    Higher Education $5 million
    Environment and Natural Resources $750,000
    Agriculture $250,000
    State Government -$7 million
    Other Bills $51 million
    Net Changes $329 million

     

    Taxes get the largest piece of the projected surplus. The tax bill needs to respond to the federal tax bill passed in December. This was a sweeping and complicated piece of legislation, and since Minnesota’s individual income tax and corporate tax systems use federal tax law as their starting point, Minnesota policymakers have to decide how to respond to those federal changes. We have urged policymakers to honor Minnesota values, including treating taxpayers fairly, continuing to practice fiscal responsibility, and maintaining the revenues to sustainably fund the state’s priorities. Taking targeted action that prioritizes low- and middle-income taxpayers should be the goal.

    Transportation is the second largest funding priority for the surplus. Traditionally, transportation has relied more on dedicated funding sources, rather than competing with schools, health care, and other priorities for general fund dollars.

    Since the targets allocate most of the projected surplus toward taxes and transportation, they leave little room for investments in other areas of the budget. The House indicated that some investments, like those addressing the opioid crisis and funding for vulnerable adults, could be included in the “Other Bills” category.

    The House budget also would accelerate a $75 million transfer to Minnesota’s budget reserve from unused funds that had been dedicated to the Premium Subsidy Account. Every year, Minnesota Management and Budget sets a goal for the budget reserve that would get the state through most recessions. This addition would get our state a little closer to that goal.

    The Senate has not released targets, although they have been developing their supplemental budget bill. We’ll be watching closely as the House, Senate, and Governor Mark Dayton put together the final budget in these final weeks of the 2018 Legislative Session.

    -Clark Goldenrod

  • Proposed constitutional amendment would undermine general fund resources and underfund transportation

    by Clark Goldenrod | Apr 11, 2018

    Many of Minnesota’s priorities – from K-12 education, to financial aid for college students, to broadband access – are paid for through the state’s general fund. However, a bill moving through the Senate would threaten the state’s ability to meet Minnesotans’ needs now and in the future.

    Senate File 3837 proposes a constitutional amendment to permanently dedicate certain general fund revenues toward the state’s transportation fund without replacing them with additional revenues. This reduces the amount available to fund other areas of the budget. Transportation is largely funded through dedicated sources, such as the gas tax. As a result, transportation has not traditionally competed with investments like schools, nursing homes, and broadband for the same funding.

    Voters would decide during the 2018 general election whether to accept this change. This proposal is a bad idea for three big reasons:

    1. Senate File 3837 would take money out of the state’s general fund, leaving fewer resources for other priorities. The general fundis the state’s largest and most flexible fund; every two years state policymakers determine how to use it to best meet Minnesota’s current needs and invest in the future when they pass the state budget. By permanently taking away general fund dollars, this bill would make it harder to pay for other important priorities. A preliminary estimate shows that Senate File 3837 would take about $200 million annually out of the general fund starting in FY 2020. That’s roughly what it takes to cover the state’s total general fund investment in Jobs, Economic Development, Housing, and Commerce. It’s important to fund our state’s transportation needs, but permanently shifting funding away from other areas of the budget isn’t the right path.
    2. Speaking of funding state transportation needs, this bill would do little to actually fill the need for better transportation funding. In 2012, the Transportation Finance Advisory Committee determined that Minnesota needs $21 billion over 20 years just to maintain the current status of the state’s transportation system. This proposal doesn’t do that, nor does it get us close to funding a world class transportation and transit system needed for a strong economic future.
    3. Senate File 3837 locks down today’s budget choices and limits our ability to address tomorrow’s needs. By putting this language into our state’s constitution, it will tie future policymakers’ hands when they need to adapt to new funding priorities and needs. Reversing this decision and restoring these dollars to our state’s general fund would involve yet another constitutional amendment and ballot question. This bill would needlessly make it more difficult to fund Minnesotans’ priorities like education, health care, economic development, and the environment.

    -Clark Goldenrod

  • Governor Dayton’s proposed supplemental budget makes investments in education, health and human services, economic development, saves for the future

    by Clark Goldenrod, Sarah Orange, Nan Madden | Mar 26, 2018

    Governor Mark Dayton released his FY 2018-19 supplemental budget proposal today, focused on making strategic investments to support Minnesota’s economic success, prioritizing working Minnesotans in responding to the federal tax bill, and leaving some of the state’s projected surplus unspent “to cushion against risk.”

    The supplemental budget describes Dayton’s proposed changes to the two-year state budget passed last year. Dayton proposes $227 million in net additional general fund spending and $20 million in net revenue increases in FY 2018-19, leaving $206 million of the projected surplus unspent, or “on the bottom line.”

    Table Governor Dayton's FY 2018-19 supplemental budget proposal 

    Here’s our first look:

    Education

    Dayton’s largest new investments are for the education of Minnesotans at all ages. He recommends $21 million in FY 2019 for the Safe and Secure Schools Act to improve the security of students through building improvements and student supports. He also includes an additional $17 million in FY 2019 for special education. Dayton also proposes $57 million in FY 2020-21 to expand access to pre-kindergarten.

    Dayton proposes improvements for Minnesotans pursuing higher education as well. He includes $10 million each to Minnesota State and the University of Minnesota to keep the cost of tuition down. He also 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 Minnesota’s young people.

    Health and Human Services

    Governor Dayton proposes an additional $2.5 million in FY 2019 and $15 million in FY 2020-21 in child care. These investments are intended to avoid disruptions in child care for families and better prepare children for school. These improvements are essential to making sure parents can join the workforce and kids can grow in stable and nurturing environments.

    Dayton also maintains an essential funding source for affordable health care by repealing the sunset of the provider tax. The provider tax provides the majority of the revenues for the Health Care Access Fund but is currently set to expire on December 31, 2019. By ensuring this revenue continues for MinnesotaCare and Medical Assistance, Dayton is taking an important step to ensure low- and moderate-income Minnesotans can continue to get the health care they need.

    Affordable health care is also expanded through the MinnesotaCare buy-in option, which would allow Minnesotans who don’t already qualify for MinnesotaCare or Medical Assistance to purchase health insurance through MinnesotaCare. After initial set-up costs of about $171 million, individual premiums are projected to sustain the program into the future.

    Other important funding proposals include addressing opioid treatment and addiction, and strengthening consumer protections for seniors and other people living in care facilities.

    Taxes

    One the major challenges in this legislative session is responding to the recent federal tax bill. As in his past tax proposals, Governor Dayton prioritizes everyday Minnesotans and maintaining the revenues needed to fund essential services.

    Dayton’s tax plan would protect seniors, people with disabilities, and families with dependents from seeing a cut in their Property Tax Refunds, which would occur from conforming to the federal tax code.

    In addition, Governor Dayton continues his commitment to Minnesota workers and their families through an expansion of the state’s Working Family Credit, helping working families meet their basic needs and get children off to a stronger start. This proposal is similar to the expansions Dayton has proposed in the past, and would provide an average $160 tax cut for 329,000 Minnesota workers and families.

    Simply conforming to all the federal tax changes that impact the state is estimated to raise $459 million in individual and corporate taxes in FY 2019 and more in future years. Preliminary analysis by the Institute on Taxation and Economic Policy estimates that about one-third of Minnesota taxfiling households would see a tax increase if Minnesota conformed to the major income tax changes.

    Instead, Dayton proposes to keep Minnesota’s tax code as it was before the recent federal changes. It would prevent tax increases by allowing Minnesota families the same standard deductions and personal exemptions as before, and those who itemize would continue to be able to take the same deductions, such as for charitable giving and property taxes. In addition, it creates a new $60 per-person tax credit. Budget documents estimate that more than 1.9 million Minnesota families would receive an average tax cut of $117.

    In addition, Dayton’s budget plan would reverse three tax cuts enacted in last year’s tax bill: on tobacco products, the commercial/industrial state property tax, and the estate tax.

    Jobs and Economic Development

    Governor Dayton continues to prioritize expanding broadband service in underserved areas so that Minnesota’s economic success reaches into every corner of the state. He proposes adding $30 million in additional one-time funding for grants that are expected to expand access to broadband for thousands of Minnesotans.

    Preparing for Uncertain Future

    The Governor leaves a significant portion of the projected surpluses for FY 2018-19 and FY 2020-21 on the bottom line – $206 million in this biennium and $182 million in the next. The state’s current projected budget surpluses are certainly good news, but they don’t guarantee a positive economic and budget outlook into the future. Forecasters had the tough job of predicting how people and businesses would response to the sweeping federal tax bill. Additionally, our state’s projected surplus could swiftly be cancelled out if federal policymakers follow through with any of several proposals to deeply cut federal funding to the state.

    Considering increased uncertainty from federal policy changes, it is crucial for policymakers to set Minnesota up for success. Leaving a significant portion of projected surpluses on the bottom line while making targeted investments to support Minnesotans is a good way to do that.

    -Clark Goldenrod, Sarah Orange, Nan Madden

  • State budget adds to an uncertain future

    by Clark Goldenrod | Nov 27, 2017

    With the state scheduled to release its latest Economic and Budget Forecast next Tuesday, it’s a good time to look back at the state budget passed earlier this year and whether it made it easier or harder for the state to respond to economic bumps or federal tax and budget choices.

    It took five months and a short special session for Minnesota policymakers to complete the primary work of the 2017 Legislative Session: passing the budget for FY 2018-19, which started on July 1. The state had a $1.7 billion projected surplus, resources that could have been used to address two pressing issues: to expand economic opportunity to more Minnesotans, and to prepare for potential federal decisions that would have a profound impact on the state and its residents.

    While policymakers completed the task of getting the budget done, they came up short in terms of meeting those broader goals. The budget makes some important investments in building a broader prosperity, but it uses up nearly all of the surplus, leaving the state with less flexibility to respond to federal funding cuts or economic rough spots. And last month’s economic update reminded us, when state revenues came in below expectations, that a state’s budget outlook is vulnerable to changes in the economic outlook.

    Net General Fund Changes (FY 2018-19)
    Tax Cuts and Aids to Local Governments $648 million
    K-12 Education $485 million
    Transportation $301 million
    Higher Education $210 million
    Public Safety $159 million
    State Government and Veterans $46 million*
    Jobs and Energy $30 million
    Debt Service, Capital Projects $16 million
    Environment $8.1million
    Agriculture $5.7 million
    Health and Human Services -$463 million
    Other Bills (including reinsurance) $142 million
    Total $1.6 billion
    Bottom Line $50 million
    *pre-veto of Legislature’s budget
    Figures shown are changes compared to FY 2018-19 baseline.

     

    The largest portion of the surplus went toward the tax bill: $648 million in FY 2018-19 and $791 million in FY 2020-21. Provisions such as large cuts to the estate tax could reverse the state’s recent progress toward making Minnesota’s taxes more equitable across income levels, and the large and growing size of the tax cuts harms the state’s ability to fund essential services. Bright spots in the tax bill include expansions of the Working Family Credit and the Child and Dependent Care Tax Credit, which support the work efforts of lower-income Minnesotans and their families.

    The second largest use of the surplus is for E-12 Education; per-pupil funding on the basic student formula is increased by 2 percent each year of the biennium — that’s a little less than the cost of keeping up with inflation. The Education budget also expands Early Learning Scholarships so that more young children can benefit from early childhood programs.

    Despite the surplus, this budget makes large reductions in Health and Human Services, cutting its general fund dollars by $463 million in FY 2018-19 and by $273 million in FY 2020-21. The budget also nearly empties the Health Care Access Fund by FY 2021, which puts affordable health care for hundreds of thousands of Minnesotans at risk, even as substantial health care funding cuts are being considered in Washington. One positive component of the HHS budget is that Minnesota improved the Child Care Assistance Program, making it easier for families to afford consistent care for their children. Unfortunately, there are still more than 2,000 families on the waiting list.

    A $301 million general fund boost makes a down-payment on the state’s transportation needs. However, the budget puts transportation in greater competition with K-12 education, higher education and other services for general fund dollars, rather than funding these needs through dedicated transportation funding sources. It also fails to bridge the funding gap to meet the state’s infrastructure needs highlighted by the Transportation Finance Advisory Committee.

    Since it leaves just $50 million of the projected surplus remaining, the state’s biennial budget puts Minnesota in a precarious situation. Budget or economic projections changing even a little bit could mean deficits. With unprecedented uncertainty about the future of federal-state partnerships, the budget put together last session leaves Minnesotans in a vulnerable spot.

    -Clark Goldenrod

  • Legislature’s Health and Human Services bill makes drastic cuts to health care for families and children, relies on gimmicks

    by Ben Horowitz | May 18, 2017

    On May 9, the Minnesota Legislature passed a Health and Human Services (HHS) omnibus bill that reduces general fund spending on HHS by $482 million using accounting gimmicks, deep cuts to health care services, and cuts to affordable child care. On May 12, this bill was vetoed by Governor Mark Dayton. At a time when federal policymakers are posing great threats to our state budget, legislators should re-focus their efforts on maintaining Minnesota’s stable financial footing while making smart investments in policies that support some of our most vulnerable neighbors.

    Cuts to health care would amplify harmful impact of potential federal policy

    The bill proposes to stop paying for inflationary increases in Medical Assistance, which would cut the funding available for health insurance for the state’s lowest-income children and families by $545 million in FY 2020-21. The cuts would grow even larger over time. The bill does not specify how those cuts would be made. It isn’t clear how the state could both reduce funding for Medical Assistance and meet its legal obligation to serve all eligible Minnesotans. Funding reductions of this magnitude could only be achieved through further policy steps to reduce eligibility for Medical Assistance, cut payments to health care providers, or limit what health care services are covered.

    The bill also fails to act to maintain Minnesota’s provider tax. A law passed in 2011 would eliminate the provider tax in 2020, knocking out a vital, 25-year-old fiscal pillar from efforts to expand access to Minnesota’s nation-leading health care system. Allowing this repeal to move forward would reduce health care funding by $999 million in FY 2020-21 and put MinnesotaCare and other affordable health insurance options for about 1.2 million Minnesotans at risk.

    The bill would threaten health care for Minnesotans at a time when grave threats are already on the horizon. For example, the Affordable Health Care Act (AHCA) passed by the U.S. House of Representatives would cut federal health care funding for Minnesota by $2.5 billion by FY 2021, with even larger cuts in the future.

    Unclear policy changes unlikely to deliver promised savings

    The bill contains about $250 million per biennium in savings from several provisions that lack evidence to support their claims of anticipated savings. It could put the state’s budget out of balance if the promised savings don’t materialize.

    For example, a new eligibility audit program in the Department of Human Services is projected to save $140 million. The savings would supposedly be found by adding additional layers of paperwork to the process people follow to stay eligible for Medical Assistance. Other states following a similar path predicted, but did not find, large savings, and wound with lots of Medicaid-eligible people losing health insurance along the way. Additionally, the state is already in the process of rolling out a similar program due to a law passed in 2015; it is unclear how this new proposal could generate additional savings on top of the savings already accounted for from that proposal.

    Two other areas where the bill assumes large savings without providing evidence involve reforms to assessment and support planning for people with disabilities and changes to the state’s health care delivery systems. These proposals may make sense, but without a detailed fiscal analysis, it is unclear how they will result in the assumed $107 million in savings in FY 2018-19.

    Budgeting gimmicks obscure real costs of the proposal

    Legislators further reduce near term spending in Health and Human Services by employing a simple accounting trick that shifts costs into the future. Here’s how it works: if the state makes a payment on June 30, 2017, it shows up on the balance sheet for FY 2017; if the state makes that same payment on July 1, 2017, it occurs in FY 2018. The bill moves some payments to medical providers forward one fiscal year into the future, creating savings of $173 million in FY 2018-19 and $24 million in FY 2020-21. That lowers costs in the short term, but the state would still be responsible for making those payments in FY 2022-23 — the first years that don’t show up on this year’s budget spreadsheets.

    Similarly, the bill makes changes to important services for the elderly and people with disabilities with implications for FY 2022-23, making it difficult to fully understand the fiscal impact of these proposals.

    An investment in low-income families offset by unnecessary cuts to child care assistance

    The bill would increase the cash assistance available to Minnesota’s most financially vulnerable families for the first time in more than 30 years. Families accessing the Minnesota Family Investment Program would see their monthly assistance increase by $13. That’s still far too low — the maximum grant for a family of three is just $532 — but it is a long overdue step in the right direction.

    Unfortunately, even as the bill increases assistance for some families, it would decrease funding for a vital support for others. Parents who use Basic Sliding Fee Child Care Assistance can go to work or school secure in the knowledge that their child has stable, nurturing care. But Basic Sliding Fee is not fully funded, leaving 5,000 families on a waiting list. And the waiting list represents only a fraction of the families who are eligible and go unserved.

    Proposed changes to Basic Sliding Fee’s eligibility criteria would allow the state to serve the same number of families for about $3.7 million less per year. But despite the long waiting list, the bill is not reinvesting those savings in affordable child care; instead, they reduce funding for Basic Sliding Fee by an equivalent amount. By doing so, they lose the opportunity to serve about 250 more families per year.

    Health and human services are too important for gimmicks and broad cuts

    Minnesota has a history of finding innovative ways to ensure many of the most vulnerable Minnesotans receive the health care and other services they need to thrive. Among many other things, the HHS budget pays for critical services for the elderly and people with disabilities, and for programs that connect families with affordable child care options. Minnesota lawmakers should not place Minnesotans’ well-being at risk by making drastic cuts and assuming savings from proposals that have not gone through a rigorous policy-making process. When the state has a large surplus and is facing historic funding threats from the federal government, it’s time to invest wisely and defend the health care and other services that support our neighbors.

    -Ben Horowitz

  • Balanced tax bill should be the goal; Legislature’s tax bill has a ways to go

    by Nan Madden | May 17, 2017

    There’s more to be done to get to a tax bill that takes a balanced approach between tax cuts and state investments, and is balanced in terms of who is included. The tax bill the Legislature sent to Governor Mark Dayton’s desk earlier this week falls short (House File 4).

    Expanding economic opportunity should be a priority for tax and budget decisions this year. House File 4 has taken some steps to include Minnesota workers and families, but there’s more work to do.

    On the positive side, the Legislature’s tax bill includes the Child and Dependent Care Tax Credit. The bill would update the size of the maximum tax credit for which families can qualify, and would make the credit available to more families, providing an additional $36 million to families over the two-year FY 2018-19 budget cycle. Expanding this tax credit is an investment in building the state’s workforce for today and tomorrow. A greater ability to afford child care not only allows parents to go to work, but also employers are better able to find and retain the employees they need. The bill takes a good first step; moving further toward the governor’s version would be an even stronger commitment to addressing the child care needs of Minnesota families.

    However, the bill’s most glaring omission is its failure to include an expansion of the Working Family Credit. When workers receive this tax credit, they are able to gain traction in the workforce because they can better afford reliable transportation and other things they need to succeed, and they can save a little to deal with temporary setbacks.

    The Working Family Credit also provides positive effects for children. Research on similar credits finds they improve children’s chances of success in school and later as working adults. A final strength of the Working Family Credit is that it effectively reaches households all across the state: 48 percent of those receiving the credit live in Greater Minnesota and 52 percent in the seven-county metro area.

    House File 4 takes a step forward by addressing barriers to accessing the credit faced by some Native American members of our communities. But policymakers should also enact an expansion like what was in the Legislature’s 2016 tax bill and is proposed in Dayton’s budget. This would benefit an estimated 372,000 Minnesota workers and families by increasing the credit and including more Minnesota workers, particularly by lowering the age requirement for workers and married couples without children from 25 years old to 21.

    Fortunately, House File 4 does not include the House’s proposed cuts to the Renters’ Credit, which would have cut into the property tax refunds received by Minnesota seniors and people with disabilities living on fixed incomes, as well as families living paycheck to paycheck.

    However, the Legislature’s tax proposal takes up more than two-thirds of the state’s projected surplus for FY 2018-19. This heavy emphasis on tax cuts means that the Legislative budget also cuts funding for affordable health care for Minnesota families and fails to make needed investments. Big tax cuts, and especially ones that grow over time, are particularly unwise given that federal policymakers are considering proposals that could cost the state billions of dollars in funding.

    It’s beyond the scope of this blog to look comprehensively at everything in the 385-page bill, but here’s a quick take on the five items with the largest cost in FY 2018-19.

    The largest provision would exempt more Social Security income from the income tax, a $218 million reduction in FY 2018-19 and $242 million in FY 2020-21. Over the past several years, we’ve pointed out that such proposals provide no benefit to the lowest-income seniors, whose Social Security benefits are already exempt. In fact, House Research finds that only about 35 percent of Social Security benefits are subject to income tax.

    The Social Security provision in House File 4 is more targeted than prior iterations; it provides an exemption that gets smaller at higher income levels. But its cost remains a concern, and will grow in future years as seniors make up a larger share of the state’s population. Policymakers should beware of tax cuts that grow dramatically over time, and thereby threaten the state’s ability to sustainably fund the services that seniors count on, from community-based services to high quality nursing home care.

    The second largest item in the bill is a dramatic reduction in the estate tax. This proposal for $162 million in tax cuts in FY 2018-19 and $195 million in FY 2020-21 benefits only a small number of taxpayers – about 1,100 of the highest-value estates. It would be a dramatic reversal from Minnesota’s recent progress toward a tax system that is more equitable across income levels. In addition, it creates further inequities among taxpayers, because it would allow a greater amount of unrealized capital gains in large estates to fully avoid being subject to taxation.

    Rounding out the top five are three tax cuts for businesses:

    • Exempting up to $150,000 of each commercial/industrial property’s value from the statewide property tax, and freezing the total amount the tax raises;
    • Expanding Section 179 expensing; and
    • Expanding the Research & Development Tax Credit.

    Combined, these three items total up to about $300 million in FY 2018-19 – more than one-quarter of the entire tax bill. Their cost grows to $424 million in the next biennium, particularly because of the freeze on the statewide property tax.

    The Legislature’s tax bill is an agreement between the House and Senate majorities, and provides the baseline for their ongoing negotiations with the governor.

    Dayton has already vetoed this tax bill, in part because of its provisions related to private schools. One would allow families to include what they pay for private school tuition as eligible expenses towards the K-12 Education Credit, and the other would create a new 70 percent tax credit primarily for donations to organizations that provide private school scholarships to low- and middle-income families. Organizations including the Minnesota Council of Nonprofits have raised concerns about singling out donations to just one kind of organization for special tax benefits, rather than providing equal treatment for all charitable donors and charitable organizations.

    There’s not much time left and a ways to go to reach a balanced tax bill, but the way to get there is clear: making everyday Minnesotans a stronger priority within the tax bill, and significantly reducing the size of the tax bill so that we can invest in our schools, our families, and our communities.

    -Nan Madden

  • Legislature's higher education budget makes some financial aid investments but misses important opportunity

    by Clark Biegler | May 16, 2017
    Policymakers have put together their visions for Higher Education in FY 2018-19. The Legislature's conference committee report includes $125 million in additional funding, about an even split between the House and Senate's original proposals of $149 million and $100 million. The conference agreement though is much lower than Governor Mark Dayton's proposed $318 million in Higher Education investments. Dayton's Higher Education budget included $62 million in FY 2018-19 for three improvements to financial aid through the State Grant Program. These changes would:
    • Allow the grant to “fill in” for federal 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 financial aid than they need to afford college. The proposal would increase the grant award for these students so that they receive financial aid comparable to their citizen counterparts.
    • Increase the annual living allowance by $550 to better assist students in meeting their basic needs.
    • Reduce the family contribution by $500 to make college more affordable for lower-income families.
    The House and Senate agreement allocates $19 million in FY 2018-19 to the State Grant Program. The agreement lowers the amount families contribute for college. It also funds a House provision for a report to estimate post-secondary expenses and what students and their families should contribute in order for the financial aid system "to fully meet the financial aid needs of lower- and middle-income Minnesota college students," as well as the Senate provision to increase the annual living allowance by about $500 to assist students. However, while the House and Senate increase State Grant funding, they miss the opportunity to improve financial aid for immigrant students.

    The legislative agreement also includes some support for the state's public colleges and universities. The agreement includes $78 million in operations support for Minnesota State Colleges and Universities for FY 2018-19 and directs Minnesota State to freeze tuition, and then lower tuition at colleges and freeze tuition at universities. Originally, the Senate bill included additional assistance to non-metro area Minnesota State two-year colleges. For the University of Minnesota, there is more limited operations support totaling $17 million and the University is "encouraged" to move tuition rates toward the median tuition for public Big Ten universities. The House bill included language making a percentage of state funding for Minnesota State and the University of Minnesota contingent on meeting certain goals, but this language was not included in the Legislature's bill.

    -Clark Biegler
  • Minnesota's FY 2018-19 budget being put together

    by Clark Biegler | May 08, 2017
    In these final weeks of this legislative session, policymakers are putting together the state budget for the FY 2018-19 biennium, in which the state has a projected $1.7 billion surplus. Policymakers have laid out their different visions for what the state should prioritize. There is a lot at stake in these final budget negotiations, including whether Minnesota policymakers will use the surplus to invest in a more durable prosperity that reaches into those communities with less access to opportunity. And whether they will pass a modest tax bill that supports the efforts of Minnesotans across the state working hard to join the middle class - or instead pass an unsustainable, unbalanced tax bill that provides large tax reductions to those who are already doing well. The table below compares Governor Mark Dayton's budget proposals to the budget targets set by the House and Senate and the joint Legislative targets agreed to on April 28.

    General Fund Net Spending (FY 2018-19)
    Governor House Senate Legislative Agreement
    Tax Cuts and Aids to Local Governments $192 million $1.3 billion $903 million $1.1 billion
    E-12 Education $714 million $271 million $300 million $303 million
    Higher Education $318 million $149 million $100 million $125 million
    Health and Human Services -$412 million -$599 million -$335 million -$505 million
    Agriculture, Rural Development $10 million $0 $0 $0
    Environment, Natural Resources $65 million -$21 million -$40 million -$30 million
    Jobs, Commerce, Energy $111 million $11 million $11 million $8.8 million
    State Government and Veterans $136 million -$90 million -$29 million -$60 million
    Transportation -$18 million $343 million $400 million $372 million
    Judiciary and Public Safety $253 million $102 million $50 million $76 million
    Debt Service, Capital Projects, Other $72 million $0 $19 million $0
    Other Bills $0 $140 million $240 million $142 million
    Total $1.4 billion $1.6 billion $1.6 billion $1.6 billion

    In his budget, Dayton has proposed using more than half of the surplus to invest in E-12 Education and Higher Education. His budget proposal expands voluntary pre-kindergarten and improves the state financial aid program for college students. His Health and Human Services budget proposal expands access to health care and improves child care assistance. He also includes a targeted tax plan that prioritizes the work efforts of Minnesotans living paycheck to paycheck by expanding the Working Family Credit and the Child and Dependent Care Tax Credit. The governor also leaves about $200 million of the current surplus unspent or “on the bottom line,” in order to be better prepared in this time of uncertainty.

    In contrast to Dayton's proposals, the budget proposals passed by the House and Senate allocate a majority of the surplus to tax cuts and transportation. This leaves very little room for additional funding for child care, services for Minnesotans living with disabilities, and basic resources for very low-income families. Their tax bills include estate tax cuts for a small number of the largest estates and tax cuts for businesses, but devote much less to provisions focusing on everyday working Minnesotans. To pay for the tax cuts and still provide limited investments in some budget areas, that means that both the House and Senate propose large cuts to Health and Human Services and several cuts to State Departments.

    We're urging Minnesota policymakers to practice great caution as they finalize these budget decisions. The increased uncertainty around policy changes at the federal level is coupled with the possibility that the next recession could be in the not too distant future. Policymakers should prepare for these uncertainties by not making large and unsustainable tax cuts or weakening the budget reserve.

    -Clark Biegler
  • House targets bring déjà vu - similar to Senate's targets, they focus on huge tax cuts, big cut to health and human services

    by Clark Biegler | Mar 28, 2017
    This post was updated on March 29 in response to updated targets.

    Last week the Minnesota House of Representatives released their budget targets, which tell us how they would allocate the state's projected $1.7 billion surplus for FY 2018-19. Like the Senate targets released earlier in the month, the House targets put the bulk of the surplus to tax reductions and tax aids and credits, and propose a stark decrease in general fund dollars for Health and Human Services.

    The targets are an important milestone in the budgeting process. They set the size of the omnibus budget bills that the House budget committees need to put together by March 31.

     

    House General Fund Targets (net) FY 2018-19
    Tax Cuts and Aids to Local Governments $1.8 billion
    K-12 Education $258 million
    Higher Education $149 million
    Other Bills* $141 million
    Public Safety $102 million
    Jobs Growth and Energy Affordability $11 million
    Agriculture $0
    Capital Investment $0
    Environment and Natural Resources -$21 million
    State Government and Veterans -$90 million
    Transportation -$107 million
    Health and Human Services -$599 million
    Net Changes $1.6 billion
    *Includes the state reinsurance program.

    Similar to the Senate's priorities, the House designates most of the expected surplus to tax cuts and aids to local governments. The House allocates $1.8 billion for tax cuts in FY 2018-19 while the Senate sets aside $900 million. The House targets focus their increased general fund investments primarily in their education budgets. The House allocates $258 million for the K-12 Education target and $149 million for Higher Education. For comparison, the Senate proposes $300 million for E-12 Education and $100 million for Higher Education.

    And disappointingly, the House's target for Health and Human Services (HHS) is even lower than the Senate's. While the Senate targets would cut $335 million in general fund spending for HHS, the House cuts general fund spending by $599 million. And Health and Human Services isn't merely a wedge in the state's budget pie, so this target leaves very little room for additional funding for child care assistance, services for Minnesotans living with disabilities, health care for the elderly, and basic resources for very low-income families.

    Déjà vu targets call for déjà vu advice. As state policymakers decide how to build the state's FY 2018-19 budget, we’ve argued they should be cautious. The budget landscape is likely to change significantly as federal policymakers are expected to enact large-scale changes over the next year. State policymakers should maximize the state's ability to respond by:
    • Avoiding large tax cuts, and especially large cuts that grow over time, that would compromise the state's ability to provide essential services and respond to federal funding cuts, and
    • Maintaining a strong budget reserve to be sure the state is equipped to respond to future economic downturns.
    We will be watching closely as the details are filled in, but neither the House nor Senate targets seem to put us on this path.

    -Clark Biegler
  • Governor Dayton's supplemental budget makes additional investments, primarily in pre-k

    by Clark Biegler | Mar 28, 2017
    Earlier this month, Governor Mark Dayton released his supplemental budget for FY 2018-19, which makes a number of changes to the comprehensive budget proposal he released this January.

    We've reported on the tax, health and human services, education, economic development, housing, and transportation parts of Dayton's January budget proposal. The February forecast showed a larger projected surplus for FY 2018-19, $1.7 billion instead of $1.4 billion, so the governor was able to propose a few increased investments in his supplemental budget. His supplemental budget leaves $202 million in FY 2018-19 and $643 million in FY 2020-21 unallocated, or "on the bottom line." This is critical as dramatic changes in federal funding to the state are under consideration.

    The governor's largest additional investment in the supplemental budget is $100 million in FY 2018-19 to expand access to voluntary pre-kindergarten. He also proposes $10 million for Pathways to Prosperity, which connects workers to education and training for in-demand jobs, as well as $10 million to local governments to protect water quality.

    The supplemental budget also includes investments in health and human services; the largest ones would change pharmacy reimbursements and change the way federal funding is allocated for certain hospitals. Dayton also raises $42 million of non-general fund spending to address the opioid crisis.

    This is an important time in the budget-setting process. The Senate and House released their targets earlier this month. Legislators are expected to put together their budget bills by March 31, and then will need to work out their differences in conference committee.

    -Clark Biegler
  • Senate budget targets call for tax cuts, cuts to health and human services, some investments

    by Clark Biegler | Mar 28, 2017
    The Minnesota Senate recently released its budget targets, which describe how they propose using the state’s projected $1.7 billion surplus in the FY 2018-19 budget. The Senate targets allocate $900 million of the surplus to tax cuts, $742 million to net additional general fund spending, and leave $96 million unallocated in FY 2018-19.

    The targets indicate a similar level of spending and tax cuts in FY 2020-21. The targets are an important milestone in the budgeting process, and they set the size of the budget omnibus bills that the Senate finance divisions need to put together by March 31.
    Senate General Fund Targets (Net) FY 2018-19 FY 2020-21
    Tax Cuts and Aids to Local Governments $900 million $1.0 billion
    Transportation $400 million $500 million
    E-12 Education $300 million $435 million
    Other Bills $265 million $25 million
    Higher Education $100 million $100 million
    Judiciary, Public Safety $59 million $68 million
    Debt Service, Capital Projects $12 million $28 million
    Jobs, Economic Growth $10 million $0
    Veterans, Military Affairs $1.0 million $1.0 million
    Agriculture, Rural Development, Housing $0 $0
    Commerce, Consumer Protection $0 $0
    Energy, Utilities $0 $0
    State Government -$30 million -$30 million
    Environment, Natural Resources -$40 million -$50 million
    Health and Human Services -$335 million -$335 million
    Net Changes $1.6 billion $1.8 billion

    Most of the state's projected surplus, $900 million, is designated for tax cuts and aids to local governments. Senate fiscal staff indicate that only $40 million of this target will go toward aids and credits.

    The targets indicate increased investment primarily in Transportation and E-12 Education.

    The Senate's increased spending in these areas are funded in part by the surplus, but also through a large cut in Health and Human Services. This is disappointing, as the surplus creates an opportunity to invest in Basic Sliding Fee Child Care Assistance after more than a decade of decreased state funding, or boost the Minnesota Family Investment Program's cash grant, which hasn't increased in over 30 years. These investments will be much harder to achieve with such a small target.

    As policymakers decide how to build the state's FY 2018-19 budget, we’ve argued they should be cautious because the budget landscape is likely to change significantly as federal policymakers enact large-scale changes over the next year. They should do this by:
    • Avoiding large tax cuts that would compromise the state's ability to provide essential services and respond to federal funding cuts, and
    • Maintaining a strong budget reserve to be sure the state is equipped to respond to future economic downturns.
    We will be watching closely as the details are filled in, but the Senate targets don't seem to put us on this path.

    -Clark Biegler
  • Governor Dayton’s FY 2018-19 budget: Focus in economic development, housing, transportation is expanding opportunity for Greater Minnesota, people of color

    by Clark Biegler | Mar 15, 2017

    Note: This blog is part of a series on Governor Mark Dayton’s FY 2018-19 budget proposal, including his HHS budget, his education budget and his tax priorities.

    Governor Mark Dayton’s budget includes several proposals intended to invest in the state’s future prosperity by increasing investments in housing opportunities, wage protections, transportation and economic development.

    Housing: The governor proposes $10 million in FY 2018 intended to address racial housing disparities through the Housing Finance Agency. These would:

    • assist low- and moderate-income first-time homebuyers with down payment and closing cost assistance;
    • provide education to low- and moderate-income potential homebuyers, with particular attention to households of color; and
    • assist families to find stable housing, including those currently or recently experiencing homelessness.

    Wage protections: Dayton’s budget also seeks to address the problem of wage theft, which is when workers don’t get paid what they are owed for work already completed. The state’s Department of Labor and Industry estimates that more than 39,000 workers are victims of wage theft each year, which results in almost $12 million in lost wages. The governor proposes $1 million to create a wage theft education and enforcement team. The governor also proposes to strengthen laws regarding wage theft, including more clearly defining the term “wage theft” and increasing penalties for wage theft violations.

    Transportation: The governor’s proposal would raise $1.0 billion in additional revenues in FY 2018-19 for his “NexTen” transportation proposal. This would come from a 6.5 percent gross receipts gas tax and increasing fees for vehicle registration and title transfers. The governor’s proposal also authorizes $2 billion in highway bonds over the next decade that will fund improvements to our state’s roads. His proposal seeks to bridge funding gaps highlighted in a report by the Transportation Finance Advisory Committee in 2012 to meet state infrastructure needs like repairing the state’s roads and bridges. He also includes investments in transit: $10 million annually to increase bus service in Greater Minnesota, including more morning and evening service hours and multi-county services; and increased funding for bike and pedestrian infrastructure.

    Economic development: The governor also proposes $20 million so that businesses owned by women, people of color, people with disabilities, veterans, or located in Greater Minnesota can better access state supports for job creation and business expansion through the Minnesota Investment Fund and the Job Creation Fund. He also proposes an additional $60 million to expand the availability of broadband internet services, a portion of which is set aside to serve tribal and low-income areas.

    -Clark Biegler

  • Governor Dayton’s FY 2018-19 budget: HHS investments focus on Minnesota’s most vulnerable, preserves provider tax

    by Ben Horowitz | Mar 06, 2017

    Governor Mark Dayton’s budget makes important new investments in health and human services, largely centered on health care and families with children. Dayton also proposes preserving a crucial source of revenue – the provider tax – and reallocating resources from the Health Care Access Fund to the state’s general fund in order to pay for Medical Assistance. As a result, while increasing the state’s investment in critical services for some of our most vulnerable neighbors, the governor’s budget would actually decrease general fund spending on Health and Human Services by $400 million in FY 2018-19 and $689 million in FY 2020-21.

    Dayton’s budget cancels the planned sunset of the provider tax. By preserving this important source of revenue, $999 million would be maintained in FY 2020-21 to invest in affordable health care in Minnesota. The provider tax is a 2 percent tax on most health care services. It has been around for more than two decades, but policymakers wrote a law in 2011 that would repeal the tax on December 31, 2019.

    Cancelling the sunset makes sense, especially given the uncertainty in the health care market. The revenue supplied by the provider tax is as important as ever in order to ensure that Minnesotans are able to benefit from our world-class health care system.

    Dayton’s plan also includes several other significant changes to health care policy:

    • MinnesotaCare would become an option for all Minnesotans who do not have health insurance coverage through their employer or other public health insurance. MinnesotaCare is health insurance that is currently available to Minnesotans earning 200 percent of the federal poverty guidelines or less ($48,600 for a family of four). It features sliding-scale monthly premiums and affordable co-payments and other out-of-pocket costs. Because the state’s costs for an expanded MinnesotaCare would mostly be covered by federal funding and premiums and co-payments paid by enrollees, the state’s only expenses would be $13 million in start-up costs.
    • $716 million in FY 2018-19 and $1.1 billion in FY 2020-21 would be transferred from the Health Care Access Fund to the state’s general fund, where it would cover some of the cost of Medical Assistance. With the preservation of the provider tax, these transfers would leave the Health Care Access Fund with a $323 million surplus in FY 2021.
    • $10 million in FY 2018-19 and $13 million in FY 2020-21 would provide higher reimbursement rates for some mental health and preventative health care services.

    Dayton proposes important improvements for the parents, children, and child care providers participating in the Child Care Assistance Program (CCAP), which includes Basic Sliding Fee Child Care Assistance. His budget includes a long-overdue increase in the maximum rates paid to child care providers through CCAP, which would give parents served by CCAP greater access to child care providers. The CCAP proposals would also simplify how CCAP is administered, resulting in a more streamlined program for both families and child care providers. Failing to implement some of these changes could result in decreased federal funding and fewer families served by Basic Sliding Fee.

    In total, Dayton proposes $68 million in FY 2018-19 and $77 million in FY 2020-21 in new CCAP investments. Policymakers should build on these important steps by committing additional resources to Basic Sliding Fee so that more families are able to find stable, nurturing care for their children. Basic Sliding Fee currently has about 5,000 families on waiting lists after more than a decade of decreased state funding.

    In addition to improving CCAP, Dayton proposes several other investments in children and their families, including:

    • Improvements to the state’s child welfare system and payment rates to adoptive families ($20 million in FY 2018-19 and $49 million in FY 2020-21).
    • An increased investment in home visiting services for pregnant and parenting teens ($31 million in FY 2018-19 and $51 million in FY 2020-21).

    Unfortunately, Dayton’s budget for children and families fails to increase the resources provided to Minnesota’s most economically vulnerable families through the Minnesota Family Investment Program (MFIP). The cash assistance provided to families through MFIP has not increased in 31 years, and is just $532 for a family of three. The omission of any increase to this most basic assistance for families who have hit a rough patch is a great disappointment.

    -Ben Horowitz

    Note: This blog is part of a series on Governor Mark Dayton’s FY 2018-19 budget proposal, including his education budget, his economic development and transportation proposals, and his tax priorities.

  • Governor Dayton’s FY 2018-19 budget: Increased spending includes early ed, student formula, and narrowing achievement gap

    by Clark Biegler | Mar 06, 2017

    Note: This blog is part of a series on Governor Mark Dayton’s FY 2018-19 budget proposal, including his HHS budget, his economic development and transportation proposals, and his tax priorities.

    An educated Minnesota is critical for the state’s economic success. Minnesota has long made education a priority, but significant achievement gaps between white students and students of color remain. Governor Mark Dayton’s FY 2018-19 budget proposal includes provisions that benefit students across the state, as well as more targeted funding intended to narrow the achievement gap. Overall, Dayton’s budget proposes $927 million in additional general fund resources for E-12 and higher education.

    E-12 Education: Dayton proposes increasing funding for school districts through 2.0 percent increases in the basic student formula in both FY 2018 and FY 2019. That’s an increase of $121 and $124 per student in those years.

    Early Education: Dayton proposes spending an additional $75 million in FY 2018-19 for voluntary pre-kindergarten, increasing the maximum number of participating students from 3,300 this year to 8,300 in 2018. He also proposes to continue current levels of spending on early learning scholarships, and expand eligibility to include children ages 0 to 5.

    Higher Education: The governor proposes $62 million in improvements to financial aid through the State Grant Program by:

    • Allowing the grant to “fill in” for federal 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.
    • Increasing the annual living allowance by $550 to better assist students in meeting their basic needs.
    • Reducing the family contribution by $500 to make college more affordable for lower-income families.

    The governor also proposes $125 million to Minnesota State colleges and universities and $68 million to the University of Minnesota for operating costs, urging both university systems to use this to “fund activities that address the educational attainment gap.”

    -Clark Biegler

  • Governor Dayton’s FY 2018-19 budget prioritizes investments in broader prosperity

    by Clark Goldenrod | Jan 25, 2017

    In his release of his FY 2018-19 budget proposal Tuesday, Governor Mark Dayton outlined his priorities as an “Opportunity Agenda” that would build an economy that works for everyone across the state.

    We’ll be looking more closely at the budget proposal in coming days, but today touch on some of the pieces that most caught our attention, including initiatives that we think build a broad, more durable prosperity.

    Tax cuts focused on everyday Minnesotans

    Two centerpieces of Dayton’s tax proposal are the Working Family Tax Credit and the Child and Dependent Care Tax Credit. These two tax credits are targeted to Minnesotans who, despite working hard, struggle to pay for child care, education and training, reliable transportation and other things they need to succeed in the workplace.

    Specifically, the governor’s budget would:

    • Expand the Working Family Credit so working people can better support themselves and their families. The proposal would boost the size of the credit and make more Minnesotans eligible, including younger workers who currently are excluded. Over 367,000 families and workers across the state would receive an additional $94 million in tax credits over the two-year budget cycle.
    • Update the Child and Dependent Care Tax Credit to keep up with the rising cost of child care and allow more working parents to qualify. Under this proposal, 75,000 Minnesota families would receive an average $379 tax benefit.

    Expanded access to health care

    Under Dayton’s plan, access to affordable health insurance through MinnesotaCare would be expanded. MinnesotaCare is currently available to families earning up to 200 percent of the federal poverty guidelines. Dayton’s proposal would make MinnesotaCare an option for all Minnesotans who do not have health insurance coverage through their employer or other public health insurance. The cost for Minnesota to expand this health coverage would be covered by premiums paid by the new MinnesotaCare participants. The state’s only expenses would be $13 million in start-up costs.

    The proposal makes two important changes to the way Minnesota finances affordable health insurance:

    • An additional $999 million would be available for affordable health care in FY 2020-21 due to the preservation of an important funding source. The proposal cancels the planned sunset of the provider tax on December 31, 2019. In the face of great uncertainty about future federal health care policy, cancelling the sunset makes sense. The revenue supplied by the provider tax will be as important as ever in order to ensure that more Minnesotans are able to benefit from our world-class health care system.
    • $716 million in FY 2018-19 and $1.1 billion in FY 2020-21 would be transferred from the Health Care Access Fund to the state’s general fund, where it would help fund affordable health care through Medical Assistance. These transfers would leave the Health Care Access Fund with a $323 million surplus in FY 2021.

    Improved child care assistance

    Dayton proposes important improvements to the Child Care Assistance Program (CCAP), which includes Basic Sliding Fee Child Care Assistance. His budget includes a long-overdue increase in the reimbursement rates paid to child care providers through CCAP, and would also make CCAP work better for parents, children and child care providers. In total, Dayton proposes $68 million in FY 2018-19 and $77 million in FY 2020-21 in new CCAP investments. This is an important investment that policymakers should build on by also committing additional resources so more families can participate in Basic Sliding Fee, which currently has about 5,000 families on a waiting list.

    Further investments in racial and geographic equity

    The governor’s budget proposal also includes investments in education and economic development that address racial and geographic equity issues, including: $62 million to make college more affordable for students by improving financial aid through the State Grant Program, and $10 million for various initiatives to eliminate housing disparities.

    The big takeaways

    The positive balances projected in the state’s recent forecast reflects the state’s ongoing economic recovery and means there are resources available for strategic investments to bring about broader prosperity. At the same time, there is a great deal of uncertainty about potential large scale federal changes and their impact on the state and our residents.

    Given the uncertainty of these times, we’ve argued for the importance of maintaining the state’s rainy day fund. Dayton uses $312 million from the budget reserve to subsidize health insurance premiums, which we’ll talk more about in another blog.

    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.

    This blog is part of a series on Governor Mark Dayton’s FY 2018-19 budget proposal, including his HHS budget and his tax priorities.

  • Everyday Minnesotans are the focus of Dayton 2017 tax plan

    by Nan Madden | Jan 05, 2017

    Expanding economic opportunity in Minnesota should be a top priority of the 2017 Legislative Session, and two effective strategies to do so are the Working Family Tax Credit and Child and Dependent Care Tax Credit. These two tax credits are targeted to Minnesotans who, despite working hard, struggle to pay for child care, education and training, reliable transportation and other things they need to succeed in the workplace.

    These two credits are centerpieces of the 2017 tax plan that Governor Mark Dayton released today. We’ll see more details when the governor’s comprehensive budget proposal comes out later this month, but it’s clear the plan outlined today focuses on supporting the work efforts of everyday Minnesotans.

    Graphic Percent of households receiving the Working Family Credit The Working Family Credit expansion seeks to make Minnesota a place where working people can better support themselves and their families. The Working Family Credit reaches all across the state; its impact is especially strong in parts of Greater Minnesota where wages tend to be lower and good jobs are harder to find. Similarly, the Working Family Credit can help boost the wages of people of color, who are more likely to be earning lower wages, and begin to narrow racial income disparities.

    Dayton’s Working Family Credit plan boosts the size of the credit that eligible families and workers can receive, makes more Minnesotans eligible for the credit, and allows independent workers ages 21 to 24 to qualify for the credit.

    In addition, Dayton continues to prioritize expanding the state’s Child and Dependent Care Credit, which offsets a portion of the considerable costs that Minnesota families pay for child care. The proposal would update the credit, which hasn’t kept up with the rising costs of child care, and allow more working parents to qualify.

    The Working Family Credit and Child and Dependent Care Credit were both priorities in the 2016 tax bill. In addition, Dayton’s plan includes other components of the 2016 tax bill, including increased funding to Minnesota cities and counties, and a new tax credit on agricultural land and buildings that proponents say will help rural school districts that currently have difficulty passing local referenda to build or improve school facilities. The plan also includes provisions that Dayton has previously proposed, such as a package of corporate tax changes meant to create a more level playing field among businesses.

    Making everyday Minnesotans the priority in our tax and budget decisions addresses the economic insecurity that so many Minnesotans are facing, and the governor has done that today by including strong expansions of the Working Family Credit and Child and Dependent Care Credit in his tax plan.

    -Nan Madden

    This blog is part of a series on Governor Mark Dayton’s FY 2018-19 budget proposal, including his HHS budget.

  • Policymakers’ equity work makes strides, but much more to do

    by Clark Biegler | Oct 04, 2016

    From Governor Mark Dayton’s State of the State address to the final bills put together at the very end of the 2016 Legislative Session, equity was a major theme at the Capitol this year. But even with the progress made, it’s clear that Minnesota should go further.

    State policymakers are increasingly aware that Minnesota is a place where many people are not benefiting from the state’s economic performance. For one, despite overall prosperity, economic disparities remain between white Minnesotans and Minnesotans of color. But economic opportunity should be available to Minnesotans regardless of their race, gender, or where they live. Especially in the context of Minnesota’s tightening labor market and an imminent labor shortage, it’s crucial for the state’s economic future that all Minnesotans can reach their fullest potential in the economy.

    The governor proposed allocating $100 million in total for equity proposals in his budget. The Senate followed suit, establishing a Subcommittee on Equity and including $91 million in FY 2017 in their budget to expand opportunity to more Minnesotans. Both of these proposals were for one-time funding. The House also advanced proposals intended to promote equity, but they were not part of a specific equity bill. The final budget agreement passed this session included $35 million in FY 2017 and $35 million for the next biennium in equity provisions that are intended to reduce the state’s economic disparities. FY 2017 funding includes:

    • $6.9 million in grants for the Latino, Somali, Southeast Asian and American Indian communities to address educational, employment and workforce disparities, and to support youth;
    • $1.5 million to promote high-wage, high-demand non-traditional jobs for women;
    • $1 million for a Minnesota Youth at Work Competitive Grant Program that will connect youth with employment opportunities, targeted toward youth of color and others who face barriers in the job market;
    • $1 million for Pathways to Prosperity, which helps prepare low-wage workers for high-demand jobs; and
    • $500,000 for the Emerging Entrepreneurs Fund, which helps fund loans to businesses owned by disadvantaged groups, including people of color, women and people living with disabilities.

    However, even with this progress, a recent report from Voices for Racial Justice finds that Minnesota has a long way to go to reach racial equity. Even though policymakers passed an important equity package, they also missed many opportunities to address issues such as:

    • Criminal justice, tocreate a more just and equitable system that “treats people with compassion and dignity, and that allows for second chances.” For example, this could include restoring voting rights for individuals who were formerly incarcerated.
    • Economic equity, to ensure that all Minnesotans have the opportunity to succeed. This includes increasing cash assistance in the Minnesota Family Investment Program (MFIP). MFIP supports some of Minnesota’s poorest families, but the cash grant hasn’t increased in 30 years. It also includes expanding the Working Family Credit, which supports lower-income families trying to make ends meet and makes the state’s tax system more fair.
    • Structural racism, to tackle policies, formal practices and other barriers that continue racial inequities. This could include instituting equity impact notes that assess proposed legislation on their ability to narrow or widen disparities.

    Policymakers made some important strides this session to more directly address the state’s economic and racial disparities, but must come back in 2017 ready to continue this work.

    -Clark Biegler

  • Jobs, economic development top supplemental spending

    by Clark Biegler | May 27, 2016

    While the House and Senate put forward very different visions around how to use the projected $900 million surplus this session, legislators put together a supplemental budget bill (House File 2749) in the last days of the legislative session that had a net general fund impact of $182 million for FY 2017, providing the largest funding boost in economic development. The total impact of the bill increases to $233 million in FY 2018-19. This budget bill includes $26 million in FY 2017 and $67 million in FY 2018-19 in tax cuts in its state government provisions. The Legislature also passed a tax bill totaling $257 million in FY 2017 and $544 million in FY 2018-19.

    FY 2016-17 Supplemental Budget General FundProposals (Net General Fund Changes)
    Governor House Senate Conference Agreement
    Jobs and Energy $129 million $12 million $189 million $75 million
    State Government $51 million -$10 million $36 million $45 million*
    E-12 Education $61 million $0 $59 million $25 million
    Public Safety $65 million -$793,000 $43 million $25 million
    Environment and Agriculture $11 million $2 million $27 million $7 million
    Higher Education $76 million $0 $48 million $5 million
    Health and Human Services $86 million $0 $51 million $0
    Transportation $15 million $260,000 $1.8 million $0
    Tax Cuts and Aids to Local Governments (House File 848) $140 million $999 million $283 million $257 million
    Total $635 million $1 billion $738 million $440 million
    *This total includes the tax cut provisions in the supplemental budget bill.

     

    In the budget bill, policymakers put the most additional resources towards jobs and economic development, where they allocated $75 million in FY 2017. Providing access to broadband for Greater Minnesota was a priority expressed by the House, Senate and governor, and about half of the funding in this area ($35 million) is for that purpose. Only $5 million can go to underserved areas, defined as areas where households and businesses have internet speeds slower than the state’s 2026 goals. Policymakers also set aside up to $500,000 for areas with significant low-income populations. The final funding for broadband is much closer to the proposed House figure of $15 million than the governor’s and Senate’s proposals of $100 million and $85 million, respectively.

    The final equity agreement includes important provisions that work to move the needle on the state’s economic disparities. Policymakers dedicated $35 million in FY 2017 and $35 in FY 2018-19 for equity initiatives such as:

    • $6.9 million in grants for the Latino, Somali, Southeast Asian, and American Indian communities to address educational, employment, and workforce disparities, and to support youth; and
    • $1.5 million to promote high-wage, high-demand nontraditional jobs for women.

    Policymakers invested $25 million of the surplus in E-12 education. The House and Senate agreed to fund one of the governor’s highest priorities, voluntary pre-kindergarten, with $19 million in FY 2017. The education provisions also include funding to support development of teachers and proper placement of support staff to help improve students’ learning environments, as well as for early education and equity aid funding changes. Much of these funding increases are made possible through savings resulting from a loan refinancing option for some school districts.

    Policymakers invested $5 million in higher education, with $2 million for the state grant program, which lowers the cost of college for low- and moderate-income students, and $500,000 for colleges and universities to narrow gaps in college education attainment between students of color and white students.

    While the House and Senate found agreement in many areas of the budget, the transportation and bonding discussions proved to be less productive. For the second year in a row, policymakers failed to pass a substantial transportation bill due to disagreements on which transportation investments the state should make and how they should be funded. Last year, policymakers passed a transportation budget that maintained the status quo, but there was no funding allocated this year. Legislative sessions in even numbered calendar years like this one are also typically “bonding years,” where policymakers pass a capital budget bill that invests in our state’s infrastructure, such as roads and buildings. Policymakers this year were unable to pass a bonding bill during the legislative session.

    There is discussion that policymakers will return to the Capitol this summer to pass bonding and transportation budgets.

    We discuss more of the health and human services and tax details elsewhere on our blog. In health and human services, legislators agreed to some important investments in mental health and Medical Assistance. They also missed critical opportunities to improve MinnesotaCare, expand access to affordable child care, and support struggling families through the Minnesota Family Investment Program. The tax bill includes several provisions that make working families its priority, including nation-leading improvements to the Working Family Credit, and expansions of the Child and Dependent Care Credit.

    The House and Senate passed the supplemental budget bill Sunday night.  It now is in the governor’s hands where he has the power to sign, veto, or line-item veto this supplemental budget.

    -Clark Biegler

  • Net-zero HHS agreement invests in some vulnerable Minnesotans; misses opportunity to help many more

    by Ben Horowitz | May 26, 2016

    Sunday morning, the Supplemental Budget Conference Committee approved House File 2749, which spells out the near future of Minnesota’s Health and Human Services (HHS) budget.

    The bill provides important resources that will protect vulnerable young Minnesotans and provide for the treatment of Minnesotans with mental illnesses. However, the agreement missed an important opportunity to invest our state surplus in supports for Minnesotans who are struggling to make ends meet. It doesn’t include provisions to increase economic stability for our most financially vulnerable neighbors or expand access to affordable child and health care. On the other hand, the bill also left out harmful proposals that would have made affordable health care more difficult to come by for Minnesotans with lower incomes.

    The supplemental bill increases overall HHS spending by $79 million in FY 2016-17 and $154 million in FY 2018-19. The increased funding doesn’t come from the state’s general fund surplus. Instead, it is made possible by a $74 million transfer from the Health Care Access Fund, which updates an existing transfer for payments intended to cover services provided by health insurers and providers; the transfer amount was frozen in 2005.

    The supplemental budget bill includes many of the limited areas of agreement between the House and Senate’s HHS budget bills, and also contains some of Governor Mark Dayton’s priorities. The bill includes:

    • $63 million in FY 2016-17 and $71 million in FY 2018-19 dedicated to the hospitals and other facilities that provide care, treatment and support for Minnesotans with mental illnesses and sex offenders;
    • $4.8 million in FY 2017 and $28 million in FY 2018-19 to allow a spouse to preserve their family’s assets when their partner needs home- or community-based services provided through Medical Assistance;
    • $2.8 million in FY 2017 and $3.8 million in FY 2018-19 to tribal governments to support their efforts to provide culturally-responsive human services;
    • $2.5 million in FY 2017 and $4.8 million in FY 2018-19 to prevent liens from being placed on older Minnesotans’ estates when they enroll in Medical Assistance;
    • $20 million in FY 2018-19 for a 15 percent increase in payment rates to foster parents;
    • $188,000 in FY 2017 and $8.4 million in FY 2018-19 to be invested in certified community behavioral health clinics, a proposal that may be matched with an additional $15 million in federal dollars; and
    • $8.8 million in FY 2018-19 to support vulnerable youth through the Homeless Youth Act, school-linked mental health services and Safe Harbor for Sexually Exploited Youth.

    The bill did not include any of the proposals to seek approval from the federal government to change the way Minnesota manages our state’s options for affordable public health insurance. Negative proposals left out would have:

    • Re-instituted asset testing for MinnesotaCare, placing an unnecessary, inefficient bureaucratic wall between more than 100,000 Minnesotans and affordable health insurance.
    • Provided working Minnesotans eligible for MinnesotaCare with options for health plans that come with higher premiums and cost-sharing than MinnesotaCare.

    Constructive waiver proposals would have:

    • Re-established eligibility for Minnesotans earning 200 to 275 percent of the federal poverty guidelines, or $24,000 to $33,000 for a single adult. Minnesotans in this income range are nearly three times more likely to lack health insurance as Minnesotans with higher earnings. The cost of providing MinnesotaCare to these Minnesotans would likely be covered considerably or entirely by federal funding.
    • Allowed access to MinnesotaCare for people earning more than 275 percent of federal poverty guidelines.
    • Simplified health insurance enrollment processes for families with children eligible for Medical Assistance.

    It is disappointing that proposals that would have helped more Minnesota families reach economic security failed to make the final cut. The list of new investments skipped the Child Care Assistance Program (CCAP), leaving 7,300 families on the waiting list and failing to expand the shrinking set of child care provider options for families who use CCAP by updating rates paid to providers. It also does not contain Dayton’s plan to update cash assistance offered by the Minnesota Family Investment Program, a crucial but cruelly out-of-date support for Minnesota families who fall on hard times.

    The bill received final approval on the floor of the House and Senate on Sunday; it now awaits the governor’s signature before becoming law.

    -Ben Horowitz