Today is the first day of Fiscal Year 2010 and the first day that the Governor’s $2.7 billion in unallotments can start to take effect.
For the most up-to-date list of unallotments, download this list of “Approved Unallotments and Administrative Actions,” released just today by Minnesota Management and Budget.
-Katherine Blauvelt
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Posted by Katherine Blauvelt
Today I’m sure you heard the news that Al Franken will become our U.S. Senator. Via the Senatus blog, Congressional Quarterly reports that Senator Franken’s committee appointments will be:
Looks like he will be sworn in after the U.S. Senate returns from recess on Monday, July 6.
-Katherine Blauvelt
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Posted by Katherine Blauvelt
I recently returned from several days in Washington where I met with key staff from the Minnesota Congressional delegation.
Our discussions included, among other issues, the permanent extension of tax credits benefiting low- and moderate-income working families, such as the Child Tax Credit and the Earned Income Tax Credit, reform of the federal estate tax, and the future of the temporary 2001 and 2003 Bush tax cuts that are set to expire at the end of 2010.
There seems to be broad support among the Minnesotans in Congress to permanently extend the temporary improvements to the Child Tax Credit and the Earned Income Tax Credit that were approved earlier this year as part of the American Recovery and Reinvestment Act. You may recall that the earnings threshold to qualify for the Child Tax Credit was lowered to enable more families to qualify for the $1,000 per child tax credit. Similarly, the Earned Income Tax Credit was temporarily increased to 45 percent of the family’s first $12,570 of earned income for working families with three or more children. Both provisions will expire at the end of 2010 unless Congress passes an extension.
Another big tax issue on Congress’ plate is the future of the federal estate tax. Efforts to repeal the estate tax have failed repeatedly in recent years. However, efforts to reform the estate tax in the Senate have triggered fresh concerns about the possible loss of billions of dollars in revenue during a period of record-high deficits and a growing national debt. In April, the U.S. Senate narrowly adopted the Lincoln-Kyl amendment to the Senate budget resolution that called for raising the estate tax exemption from the current $7 million per couple to $10 million per couple and lowering the top tax rate on the portion of an estate that is taxable from 45 percent to 35 percent. (The amendment is non-binding because it is in the Senate budget resolution rather than a bill signed into law by the President. Nevertheless, it is a strong indicator of where sentiments in the Senate lie on estate tax reform). Based on estimates from the Joint Tax Committee, the Lincoln-Kyl amendment would lose nearly $100 billion in revenue over the first ten years it would be fully in effect. Senator Klobuchar voted against the amendment.
A more reasonable alternative to Lincoln-Kyl proposed by the President and endorsed by many in Congress is to make permanent the current 2009 estate tax parameters (exempting $7 million per couple and a top rate of 45%). Unless Congress acts, the estate tax would expire in 2010 and then return to its 2001 parameters in 2011 with a $1 million per couple exemption and a 55% top tax rate; a scenario that most members of Congress reject as politically unacceptable.
It is clear from talking with Minnesota’s delegation staff that the fate of these provisions will be closely connected to whatever Congress decides to do on extending or partially extending some of the 2001 and 2003 Bush tax cuts that also expire at the end of next year. Look for Congress to put together a big omnibus tax bill later this year (fall or winter).
We will continue working to ensure that Congress makes permanent the much-needed improvements to the Child Tax Credit and the Earned Income Tax Credit for low and moderate-income working families. We will also continue to urge Congress not to go beyond the parameters of current law in making any changes to the federal estate tax.
– Steve Francisco
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Taxes | Tagged: Bush tax cuts, child tax credit, earned income tax credit, estate tax | 
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Posted by Steve Francisco
Today at a Legislative Advisory Commission hearing on the Governor’s $2.7 billion unallotment plan for FY 2010-11, state economist Tom Stinson estimated that 3,300 to 4,700 jobs would be lost through June 2011 directly due to the Governor’s unallotments, including:
These job numbers are estimates, made with conservative assumptions, and should be viewed as such. But they do represent real pain.
Under the Governor’s unallotment plan, public universities, tax credits to low-income renters, mental health services and aids to local governments are cut, to name just a few examples. Localities are already feeling the impact – the Star Tribune recently reported on tough times ahead in Washington County. The county has already eliminated the equivalent of 21 full-time jobs and now it faces a loss of $2.2 million in local government aid in 2010 under the Governor’s unallotments. They are planning for more layoffs and cuts in services.
And remember, the 2009 Legislative Session yielded about $1 billion in cuts in for health care, social services, higher education and other areas, which will likely yield job losses as well.
There’s a new spreadsheet from Senate Fiscal staff, with the unallotments and the impact on the FY 2012-13 biennium. The Governor’s unallotment actions will close the budget deficit for the FY 2010-11 biennium. According to Minnesota Management and Budget, that leaves a $4.4 billion deficit in FY 2012-13. However, that number is in dispute, as it assumes the $1.2 billion school aid payment deferral is paid off in FY 2012-13 and the $600 million property tax shift from school districts is not paid off.
Budget figures are based on current law, and this is an area where there is some dispute about what the current law is. Senate Fiscal staff estimate a FY 2012-13 deficit of $5.9 billion, assuming that funding for General Assistance Medical Care would return to previous funding levels in that biennium (after losing its FY 2011 funding to the Governor’s line-item veto and a portion of its FY 2010 funding under unallotment) and the property tax recognition shift is paid off. You may also have seen estimates of a $7.2 billion deficit in FY 2012-13 – that figure includes the impact of inflation.
After an often passionate discussion with the Commissioner of Minnesota Management and Budget Tom Hanson, the Legislative Advisory Commission passed a resolution stating “it would be unwise and not in the interest of the State’s long-term fiscal stability for Governor Tim Pawlenty to approve the allotment reductions and administrative actions.” But the Commission only acts in an advisory capacity. With the start of the budget biennium tomorrow, the Governor’s unallotments will start to take effect.
I encourage our blog readers to post their own observations on the unallotments, especially the impact on the people of Minnesota.
-Katherine Blauvelt
Leave a Comment » | unallotment | Tagged: budget deficit, unallotment, minnesota, job loss, Legislative Advisory Commission | Permalink
Posted by Katherine Blauvelt
Yesterday, MPR’s Polinaut blog broke the news that the Governor has made a few changes to his unallotment plan (see the letter Minnesota Management and Budget sent to Legislative Advisory Committee members following up on last week’s LAC meeting – and don’t forget to read the attached appendixes).
There is a close to $4 million increase in cuts to health and human services, where some services are facing larger reductions and some cuts are smaller. They include:
The MMB letter also provides estimates assuming that the cuts in aids to local governments will result in property tax increases, and as a result, there will be a $6 million impact on the state in FY 2011 from higher property tax refunds paid by the state and lower corporate and individual income taxes collected (because there will be higher deductions for property taxes paid).
In the letter, Commissioner Hanson also notes that most state agencies can expect a 2.25% operating budget reduction for the biennium. Plans for reaching those reductions are still being developed.
Appendixes to the MMB letter provide more information on the impact of the unallotment cuts:
I’m sure the new information and the modifications to the unallotment plan will be discussed on Tuesday’s (June 30) Legislative Advisory Committee meeting at 10:00 a.m. in Room 15 of the State Capitol. The state economist Tom Stinson will also be there to answer questions regarding job losses associated with the unallotment cuts. I’ll blog on what happened at the hearing.
-Katherine Blauvelt
1 Comment | Health Care | Tagged: Health Care, minnesota, unallotment | Permalink
Posted by Katherine Blauvelt
The Minnesota Budget Project has made a range of policy arguments against the Governor’s proposed cut to the Renters’ Credit – a cut he plans to carry out through unallotment. The Renters’ Credit acknowledges the fact that renters pay a portion of their building’s property taxes through their rents, and provides a state tax credit for low- and moderate-income renters whose rents make up a high portion of their incomes. The Department of Revenue reports that the average Renters’ Credit would be cut by $129 in 2010 under unallotment.
We oppose cutting the Renters’ Credit because:
Recently, we’ve been hearing the voices of renters themselves in this debate. On Monday, Minnesota Public Radio highlighted the stories of Ernie McNeal and Robert Zozaski. These two retired gentlemen talk about how the Renters’ Credit helps them pay for basic expenses, such as food and health care. Here is just a part of their stories:
McNeal lives on about $1,000 a month in Social Security. His rent in the subsidized complex is about $300 a month. As the only sibling left, he shoulders the burden of his mom’s needs alone.
He’s looking forward to the end of summer, when he usually gets his renters’ credit check. It usually comes to about a month’s rent.
“Whatever I get back, it just helps out. It’s food for you.”
Eighty-year-old Korean War veteran Robert Zozaski, from Breckenridge, gets by on about $930 a month between Social Security and his pension from the VA. He saves money by eating lots of instant Ramen Noodles.
“You know, the Ramen Noodles and chicken flavor, I like,” Zozaski said. “One package of that, I double the water so I make two meals out of it.”
He’ll have to figure out a way to save even more money if he loses his renters’ credit, which usually puts a few hundred dollars extra in his pocket every year. He uses it to buy new clothes and pay his home health aide, who helps him with chores and laundry.
On MPR’s News Cut blog, Bob Collins asked readers whether they received the Renters’ Credit and how they use those tax refunds. And again, folks talked about the basics: car repairs and paying the bills.
We’ll continue to argue against this cut. Additional information and action steps can be found at our Renters’ Credit At Risk web page.
-Nan Madden
2 Comments | Taxes, unallotment | Tagged: renters credit, unallotment | Permalink
Posted by Nan Madden
It’s June, and as usual, the legislative session isn’t really over. Often it’s a special session that is keeping us busy. This year it is unallotment. But whatever it is, we are continuing to provide our audience with accurate and timely information on public policy issues. And, from the feedback we are getting, many of you find our blog to be an indispensable guide to what’s going on in the tax and budget world.
But now we have to ask for a little something back. The Minnesota Budget Project is a nonprofit, and we get our funding largely from foundations and our parent organization, the Minnesota Council of Nonprofits. While we have strong and loyal support from these sources, times are tough and resources are down.
So, if you’ve found our blog to be helpful (or any of the other work of the Minnesota Budget Project for that matter) – you can show how much you appreciate it by making a donation. It’s as simple as that. Please donate – a little, a lot, whatever. It’s tax-deductible.
But here’s the great thing. Obviously, a donation provides us with additional resources to do our work (thank you!). However, your response to this fundraising appeal also demonstrates to foundations that we are providing a service that people value – and it could help us raise more money from other sources. The gift that keeps on giving.
We have a lot of fun writing this blog – so let me say thanks. Thanks for reading our blog and thanks for considering a contribution to support our work.
-Christina Wessel
By the way – if you are relatively new to the blog, don’t worry, we rarely fundraise through the blog. Twice a year, tops.
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Posted by Christina Wessel
As some of you may realize, climate change policy is in motion at the federal level right now. The American Clean Energy and Security Act (HR 2454, authored by Reps. Waxman and Markey) is currently being amended in the House (expected to hit the floor before the July 4th break, and potentially as soon as Friday, June 26) and hearings on the legislation have already begun in the Senate (expected to begin serious work on the bill closer to fall).
What you may not realize is that the proposed cap-and-trade policy designed to reduce greenhouse gases has important implications for low- and moderate-income households.
Need a refresher on what cap-and-trade is? Cap-and-trade sets a limit on the amount of greenhouse gases that businesses are allowed to emit, which creates a new commodity by auctioning allowances for polluting. Energy companies will probably need to pay for allowances, an expense they will likely pass along to their consumers. That includes low-income families. This price increase will affect not just utility bills (which accounts for less than half of the overall hit to a low-income household’s budget), but also goods and services with significant energy inputs, such as food and gasoline. Low-income consumers spend a larger portion of their budgets on such basic necessities and often do not have the ability to reduce their energy usage by doing things like buying energy-efficient appliances or weatherizing their homes. It is critical that they receive consumer relief.
Although implementing a cap-and-trade system will have a financial impact on lower-income consumers, the alternative is worse. If we do nothing, low-income communities will continue to be hurt by the negative effects of climate change, such as pollution and extreme weather. Low-income communities are particularly vulnerable to these changes.
Thankfully, the current federal legislation has a solution: consumer relief for the lowest 20 percent of the population to hold them fully harmless from increased costs. Although the delivery mechanisms for providing this relief are frequently being tweaked, the bill currently uses an existing mechanism (the Electronic Benefit Transfers, or EBT) to provide efficient delivery of adequate relief to the lowest income households.
Although HR 2454 currently includes protections for low-income households, this legislation has a long way to go before it is finalized. Policymakers are beginning to express that they are not hearing enough from low-income consumers and service-providers. If we want to see these important provisions for low-income households remain intact, or even improve, then those who are concerned about low-income communities need to speak up.
Call your Congressman and ask for their vote in support of HR 2454 and the critical provisions of consumer relief for low-income households. To learn more about our stance on the current legislation or how you can take action, contact me at 651-757-3063 or leah@mncn.org.
-Leah Gardner
1 Comment | Poverty, cap and trade | Tagged: cap and trade, revenues | Permalink
Posted by leahgardner
On Thursday afternoon (June 18, 2009), Tom Hanson, Commissioner of Minnesota Management and Budget (MMB), presented the Governor’s unallotment plan to the Legislative Advisory Committee (LAC). This is a required step in the unallotment process. Legislators were prepared with plenty of questions…and lots of challenges (you can watch the video online). But remember, the LAC does not have any authority to reject or change the Governor’s unallotment decisions.
Here are a few of the more informative issues that were discussed:
How many job losses will result from proposed unallotments? Jim Schowalter, the state budget director, estimates that the Governor’s unallotment proposal will result in the loss of about 3,100 jobs in the public and private sector (this estimate assumes the shift in education spending will not impact any jobs). Legislators felt those numbers underestimate the impact.
Will these unallotments jeopardize any federal dollars? After some confusion, Pawlenty’s representatives acknowledged that the state will lose some federal funding by reducing state spending on Medical Assistance (MA) programs. The federal government normally matches every dollar in state MA spending with a dollar in federal funding. The federal stimulus package increased that “matching rate” to $1.50 in federal dollars for every state dollar. Representative Huntley listed more than a dozen items in the Governor’s unallotment proposal that would reduce state MA spending, resulting in a loss of these federal matching funds. Commissioner Hanson said they attempted to minimize any loss of federal dollars.
Does the Governor have the authority to enact the school aid payment shift? The $1.8 billion proposal to shift aid payments to schools really has two components – a payment deferral ($1.2 billion) and a change in when property tax receipts are recognized ($600 million). Pogemiller strongly asserted that the Governor does not have the authority to enact the property tax recogniztion component of his plan, leaving a $600 million gap in his unallotment proposal. Pogemiller threatened legal action if the Governor continued to pursue this part of his unallotment plan.
Senator Pogemiller and other legislators also argued that while the Governor may have the authority to carry out the delay in payments to school districts (the $1.2 billion part), he does not have the authority to pay the shift back to schools in the future. So, he argued, the Governor’s proposed school payment shift is really a $1.2 billion cut to school districts unless the legislature authorizes the payment to schools in the future. However, pointed out Pogemiller, since the Governor vetoed the tax bill, there will be no additional revenue available to make schools whole again.
Commissioner Hanson and the staff from the Department of Education insisted that the Governor has the necessary authority to carry out everything he proposes.
What is the size of the deficit facing the state in FY 2012-13? This answer has several layers. MMB reported that the state’s budget deficit after unallotment is projected to be $3.1 billion in FY 2012-13. But then there are several factors which could further increase that deficit:
Altogether, Senate Fiscal Staff estimated that the state’s budget deficit could grow to $7.3 billion in FY 2012-13.
Does that sound like a lot? Well, remember that the FY 2010-11 deficit is being resolved largely through the use of one-time measures. We started with a $6.4 billion deficit – then used $2.5 billion in one-time federal stimulus resources and $2.7 in one-time unallotment measures. That adds up to about 80% in one-time fixes (plus the legislature also included some one-time measures in the bills they passed that aren’t included in this calculation).
Is the Governor making policy changes in health and human services? Senator Berglin raised several questions about the Governor’s unallotment proposal:
The Governor’s representatives remained firm throughout the hearing that the Governor is not exceeding his unallotment authority and defended the various components of his proposal. The Legislative Advisory Commission plans to meet again in the next week or two to ask additional questions.
-Christina Wessel
1 Comment | unallotment | Tagged: budget deficit, education shift, federal funding, federal stimulus, GAMC, health and human services, unallotment | Permalink
Posted by Christina Wessel
**Update: Read our blog post – Legislature challenges Governor’s unallotment decisions – about the legislature’s response to the Governor’s unallotment proposal.**
When the 2009 Legislative Session ended on May 18, the state was still left with a $2.7 billion deficit for the next biennium. This afternoon, Governor Pawlenty announced his plan for solving that remaining deficit through unallotment. He described his announcement as a proposal, not a finalized plan.
Some of the major components of the unallotment proposal include:
You can read Commissioner Hanson’s letter and view the details of the unallotment proposal online.
Also, the Governor has encouraged the public to respond to his unallotment proposal by emailing budgetideas@state.mn.us.
Remember, however, that the Governor does not need to use unallotment to bring the state’s budget back into balance. There are other options for solving the problem.
Given that the Governor’s unallotment action is unprecedented, unnecessary and fails to address our underlying budget problems, the state would be better off if the Governor worked with the legislature to negotiate a balanced solution to the situation – a solution that uses a combination of spending cuts and revenue increases to eliminate our long-term deficits.
What happens next?
-Christina Wessel
1 Comment | unallotment | Tagged: deficit, unallotment | Permalink
Posted by Christina Wessel
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