Senate targets focus on education, more limited tax target

With an eye on learning from the past and preparing for the future, Senate leadership today released their budget targets, charting a much different path from the House’s proposal earlier this week.

The Senate proposes a strong focus on education and more limited tax cuts, while the House suggested severe cuts to Health and Human Services and an unsustainable tax target.

Taxes: Senate leadership has proposed a $460 million tax target, a portion of which will focus on property taxes. About half will be used to reverse accounting measures used in the 1980s to balance the budget. This is far less than the House’s $2.3 billion tax target, and seems to prioritize not going too far with large permanent tax cuts. The history on this is clear: when policymakers do too much tax cutting in good times, it is harder to respond when the next economic downturn comes along.

In addition to the size of tax changes, the other key issue is who will benefit. We urge the Senate to continue to make our tax system more fair, as it is still the case that the highest-income Minnesotans pay a smaller share of their income in state and local taxes than other Minnesotans.

New Spending: Most of the Senate’s new spending is focused on education. Senate leadership proposes $350 million in additional funding for E-12 Education and $205 million for Higher Education. In comparison, the House targets are substantially smaller – $157 million in E-12 Education and $53 million for Higher Education.

Under the Senate proposal, Health and Human Services will also see a boost of $341 million. In this area, we see greatly different visions between the House and Senate. While the House has proposed a $1.1 billion cut to Health and Human Services compared to base funding and discussed substantial changes to health care, the Senate has emphasized that working Minnesotans should be able to keep their affordable health insurance through MinnesotaCare.

Budget Reserve: Both the House and Senate targets show a commitment to building our state’s resources for the next economic downturn. The Senate targets include a $250 million addition to the state’s budget reserve. This would bring the state’s “rainy day” funds to $1.6 billion of the suggested $2.2 billion target. The House proposal includes $100 million in additional funding for the reserve.

Now that the House and Senate have released the outlines of their budget proposals, we can expect to see finance bills shaping up. Senate Majority Leader Tom Bakk indicated that we will see the bills on the House and Senate floors in mid-April, which is earlier than the previously set “third committee deadline” of April 24.

-Clark Biegler

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Driver’s license bill would expand opportunity for Minnesotans

For a large number of Minnesotans, the daily activities we do to support our families, like getting to work safely, dropping children off at school, or buying groceries requires driving, but too many of our neighbors cannot apply for a driver’s license.

Bills are currently being considered in the House (House File 97) and Senate (Senate File 224) that will allow Minnesotans to apply for a driver’s license, regardless of immigration status. These bills would allow undocumented immigrants to use both their passport and birth certificate as acceptable identification to apply for a driver’s license.

Having a driver’s license can open a door to greater economic opportunity. Workers are able to get to their jobs safely and reliably, and have more flexibility for scheduling and broadened job opportunities. As these Minnesotans are able to increase their earnings, that also creates a boost in consumer spending that’s good for our state economy.

Allowing all Minnesotans to apply for a driver’s license would also keep our roads safer, by requiring everyone to take a driving test before they’re behind the wheel.

More Minnesotans driving with a license increases the number of insured drivers in our state. A larger insurance pool can help hold down premium costs for everyone.

Policymakers should expand opportunity for Minnesotans this session and allow all Minnesotans to apply for driver’s licenses.

-Clark Biegler

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House budget plan sets Minnesota on the wrong course

Minnesota has recently turned the corner after more than a decade of frequent budget deficits, and now has a $1.9 billion surplus. This creates an opportunity for additional progress towards a fairer tax system and broadly-shared economic prosperity.

But that’s not the path taken in the budget plan released today by the Minnesota House of Representatives. The plan includes a $2.3 billion tax target – that’s more than the available surplus. While the details of the budget plan are still to come, proposed severe cuts in services imply that fewer Minnesotans would have affordable health care, seniors and people with disabilities will go without services that enable them to live in the community, and we won’t invest in the workforce training that helps people get and keep good jobs.

Taxes: House leadership has proposed a $2.3 billion tax target, which they indicate would include about $2.0 billion for tax cuts and the impact of dedicating some existing tax revenues to transportation. This would come on top of significant tax cuts passed in 2014. That figure is simply unsustainable. Minnesota’s recent history demonstrates that when the state does too much tax cutting in good times, it makes the hard times worse when the next economic downturn comes along. This target not only makes it impossible to invest in Minnesota today, it also threatens the state’s ability to sustainably fund nursing homes, roads and bridges, and other critical services in the future.

Also concerning is that many of the tax cut proposals being discussed in the House would cut taxes only for the highest-income Minnesotans, reversing recent progress that has made Minnesota’s tax system more equitable.

Spending Cuts: The largest cuts are proposed for Health and Human Services – a net $1.1 billion. And in fact, cuts within this area will likely be even larger, as the House has promised to increase funding for nursing homes. With such a harsh target, it is unlikely that the House will provide funding for affordable child care or community services for Minnesotans with disabilities. Instead, we expect that this budget will mean working Minnesotans will lose affordable health care coverage. Cuts are also proposed in economic development and the environment.

New Spending and Budget Reserve: The targets include some modest higher general fund spending in some areas, primarily in E-12 Education and Transportation, which together total about $300 million. The targets also allocate an additional $100 million to the state’s budget reserve. This would bring the state’s “rainy day” funds to $1.4 billion of the suggested $2.2 billion target.

The House Ways and Means Committee held a hearing last week where many Minnesotans testified to the unmet needs still experienced in their communities. The economic recovery is beginning to take hold, but many of our neighbors are still struggling. Minnesota needs targeted investments and sustainable tax changes, but the targets released today indicate that the House holds a different vision for our state.

The Senate is expected to release their budget resolution and targets later this week.

-Clark Biegler

This post was updated to reflect information discussed in the March 24 House Ways and Means hearing. 

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Kids Can’t Wait Day of Action for affordable child care

All Minnesota families should be able to afford child care that meets their needs. Affordable child care allows parents to work, provides children with long-lasting benefits from consistent and dependable care, and ensures businesses can find and keep the employees they need.

But for too many, it remains out of reach. Annual child care rates in Minnesota for an infant in a center now average $13,993, eating up a significant amount of many families’ budgets.

KCW graphic final-01

The Minnesota Budget Project joined other members of the Kids Can’t Wait Coalition at a Day of Action at the Capitol to highlight policy proposals to make child care more affordable for Minnesota families. The improved state budget landscape offers an opportunity to move more families into greater economic security, and legislators from both parties are working to do so.

The Kids Can’t Wait Coalition supports several bipartisan provisions that would:

  • Increase funding for Basic Sliding Fee Child Care Assistance so that all eligible families, including the over 5,500 families on the waiting list, can afford the child care that meets their needs;
  • Increase the reimbursement rates for child care providers participating in the Child Care Assistance Program so that more families can find affordable care; and
  • Make targeted improvements to the state’s Child and Dependent Care Tax Credit to help more low- and moderate-income families afford the high cost of child care in Minnesota.

At a press conference and in a committee hearing, parents shared their stories about how affordable child care is difficult to find, making it hard for them to keep jobs and know their children are in safe, dependable care settings.

Elizabeth Mitchell is a single mother of a 4-year-old daughter and a 12-year-old son. She works full time and spends nearly half of her income on child care. She has had to quit jobs in the past that didn’t pay enough for her to afford child care. Elizabeth qualifies for Basic Sliding Fee assistance but is on the waiting list.

“If I had assistance with my child care expenses, I wouldn’t have to constantly worry about how to pay my bills,” she said. “My children are old enough to understand that money is tight. I do my best to reassure them that everything is going to be okay, but honestly, I am struggling every day to believe that.”

The authors of the Kids Can’t Wait Coalition’s legislation​ — Sens. Jeff Hayden and Chris Eaton, and Reps. Mary Franson and Jenifer Loon — all spoke about Minnesota families’ need for affordable, dependable child care.

If legislation is passed that makes safe, reliable child care more affordable, more Minnesota parents like Elizabeth will be able to believe that everything is going to be okay.

-Laura Mortenson

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Legislators preparing to set budget priorities

Last week many concerned Minnesotans testified on the needs of our state at the House Ways and Means Committee hearing on budget resolutions.

Policymakers are getting ready to form the state’s FY 2016-17 budget, and as part of this process, the House and Senate put together their budget resolutions. These resolutions set maximum amounts for the state budget’s general fund revenues and expenditures – basically setting the size of the budget “pie,” and the amounts set aside in the budget reserve and cash flow accounts, also known as our “rainy day” funds.

Each session, the House and Senate put forth the outlines of their budgetary visions through these resolutions. Once these are set, the legislative bodies put together their targets for the finance committees, which is where we’ll start to see the budget really take shape in the omnibus spending and tax bills.

Given the context of the state’s projected $1.9 billion surplus, policymakers should continue charting a path where more Minnesotans have access to economic opportunity.

While Minnesota’s economy has finally turned a corner, testifiers at the Ways and Means hearing highlighted areas of needed investments, including: supportive services that help seniors and people with disabilities live at home, opportunities for the state’s students to make sure they’re ready for college and the workforce, and improvements to our roads and bridges. We have also written about the uneven economic recovery and the need to invest in those Minnesotans who have been left behind.

Policymakers also expressed great interest in the size of our state’s budget reserves. In the 2014 Legislative Session, policymakers improved our budget reserve to better meet the needs of Minnesotans during economic downturns, and dedicated up to one-third of any surplus in the November Forecast to building the reserve. In the most recent November Forecast, this meant that $183 million was added to the reserve. Now, at $1.3 billion, Minnesota’s total rainy day funds are much closer to what the state needs to weather a potential recession, which Minnesota Management and Budget estimates is $2.2 billion.

As policymakers decide what to do with the projected positive balance, they should continue to make targeted investments in a future of opportunity for all Minnesotans.

The House is expected to release its budget resolution tomorrow, with the Senate’s resolution expected Thursday or Friday.

-Clark Biegler

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Minnesota’s tax system fairer; proposed legislation would take us backward

There’s more evidence that the efforts Minnesota has taken to more equitably share the responsibility for funding schools, roads, nursing homes and other critical services have paid off.

The state’s new Tax Incidence Study looks at all state and local taxes that Minnesotans pay, and measures those taxes as a share of Minnesotans’ incomes. This year’s version of this essential study from the Minnesota Department of Revenue has information for 2012 and projections for 2017. That creates a “before and after” picture of what differences the tax reforms of 2013 and 2014 have made.

Key findings include:

  • Minnesota’s tax system is still regressive – that means the percentage of income paid in taxes goes down as incomes rise – but will be significantly less so in 2017 than 2012.
  • While the highest-income Minnesotans still pay the smallest share of their incomes in total state and local taxes, the gap between them and other Minnesotans has closed considerably. In 2012, the share of their incomes that the 1 percent of Minnesotans with the highest incomes paid in taxes was 1.7 percentage points lower than the state average. In 2017, that difference narrows to 0.9 percentage points.
  • Average tax levels will be about the same in 2017 as in 2012. On average, Minnesotans paid 11.5 percent of their incomes in state and local taxes in 2012. In 2017, that number is expected to be 11.4 percent. (That’s considerably less than in the 1990s, when it was as high as 13.0 percent.)

Minnesota made this progress on making the tax system more fair through tax policy changes in 2013 and 2014 that, taken together, raised taxes on the highest-income Minnesotans closer to the state average, and lowered taxes for all other income groups.

The Tax Incidence Study identifies the five recent policy changes that had the biggest impact on the distribution of taxes in Minnesota. The three policy changes that did the most to make taxes less regressive were the “4th tier” income tax bracket on the roughly 2 percent of Minnesotans with the highest incomes, increases in the Working Family Tax Credit, and larger property tax refunds (primarily for homeowners but also for renters). The two most regressive policy changes were the increase in cigarette and tobacco taxes, and estate tax cuts. The cumulative effect of the tax changes passed in 2013 and 2014 was to make the tax system more equitable.

But it seems that some want to bring us back to the bad old days, when low- and middle-income Minnesotans paid significantly more than their fair share. There are a substantial number of bills moving in the Legislature that would cut taxes just for those with the highest incomes, such as:

  • Estate tax bills, ranging from substantial cuts to full repeal. Full repeal would benefit 800 of the largest estates at a cost of $341 million in FY 2018-19, when fully in effect. Several other estate tax cutting bills cost more than $100 million per biennium.
  • House File 63, which would exempt business owners from paying taxes on their business profits at the 4th tier income tax rate. This bill provides $355 million in tax cuts in the FY 2016-17 budget cycle to only 33,100 households, all of whom have incomes high enough to be in the top tax bracket.

Bills like these that provide large tax cuts to the highest-income Minnesotans should not be our state’s priority. Instead, we should continue the positive direction we have taken over the past two years, which has focused on making the system more equal.

In addition to the distributional impact of tax changes, policymakers also need to keep an eye on the overall size of tax cuts. The lesson of the late 1990s and early 2000s is clear: too much tax cutting in the good times was followed by greater reliance on property taxes, double-digit increases in tuition at public colleges and universities, and higher fees. That combination put more of the responsibility for funding public services on to low- and middle-income Minnesotans.

While the tax increases passed in 2013 are often mentioned in the current debate, this was followed in 2014 with two tax cutting bills that reduced taxes in the upcoming FY 2016-17 biennium by around $1 billion.

The state’s more positive budget situation shouldn’t mean a change in direction. As policymakers put together their tax bills this year, they should continue progress toward a fair tax system and a sustainable budget, rather than enact large tax cuts for a privileged few and put services Minnesotans count on at risk.

-Nan Madden

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Dayton’s supplemental budget focuses on children, broadening economic security

Governor Mark Dayton today released the outline of his supplemental budget. We’re looking forward to seeing the details, but here’s our initial take: Dayton continues to focus on making the tax system work better for low- and moderate-income families, and making investments so that more Minnesotans can participate in the state’s economic success.

The supplemental budget describes the governor’s changes to his budget proposal released earlier this year. The governor responds to the improved projected surplus in the February forecast with an additional $93 million in tax cuts, $709 million in new general fund spending and $63 million to finance an $850 million bonding bill.

Taxes: Families and children remain a continued focus of the governor’s tax package. Dayton’s supplemental budget includes $83 million in FY 2016-17 for improvements to the Working Family Credit, which the administration estimates would increase the credit by an average of $138 per year for more than 287,000 families. Dayton also includes $11 million to expand the K-12 Education Tax Credit.

Health and Human Services: Dayton includes a long-overdue increase in Minnesota Family Investment Program (MFIP) cash assistance, which has not risen since 1986. The governor proposes $68 million in his supplemental budget to increase the monthly grant by $100. Dayton has also taken out his earlier proposal to increase premiums and out-of-pocket costs for the working families receiving affordable health insurance through MinnesotaCare.

E-12 Education: Statewide pre-kindergarten continues to be a major priority of the governor. Dayton’s latest proposal includes an additional $235 million for pre-kindergarten in FY 2016-17 and $587 million in FY 2018-19. The governor also proposes an additional $41 million for special education and $16 million for Indian Education.

Higher Education: Dayton continues to make college more affordable for Minnesota students. He proposes funding to the University of Minnesota and Minnesota State Colleges and Universities (MnSCU) to help them freeze tuition for students for another two years. He also proposes an additional $20 million for financial aid in the State Grant Program, which the administration estimates will increase the average state grant by $352 for about 93,000 students.

Economic Development: Dayton proposes $10 million for the state’s Housing and Job Growth Initiative, which builds affordable housing in areas with job growth but not enough housing for workers.

Stay tuned for our upcoming deeper dives into the governor’s supplemental budget recommendations, and find today’s budget materials from Minnesota Management and Budget here.

-Clark Biegler

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Federal data affirm Minnesota’s choice to raise the minimum wage

American workers earning the least saw wage gains from 2013 to 2014. Those gains were largely in states where the minimum wage increased last year. The boost for low-wage workers was the silver lining in Elise Gould’s 2014 Continues a 35-Year Trend of Broad-Based Wage Stagnation. This report for the Economic Policy Institute found that most workers’ earnings remained flat or decreased in 2014, despite the economic recovery.

Gould takes a deep dive into federal wage data and discovered that wages moved in very different ways for different people. She compares 2014 wages to wages in 2007, the most recent year before the Great Recession. When wages are adjusted for inflation, only the highest earners are doing better compared to 2007. And only the lowest earners saw a decent-sized bump in wages from 2013 to 2014: the 10 percent of workers with the lowest wages saw a 1.3 percent increase.

Gould finds that low-wage earners’ gains are largely attributable to the 17 states (plus Washington, DC) that saw a minimum wage increase in 2014. Low-wage workers’ wages in these states increased by an average of 1.6 percent, compared to just 0.3 percent elsewhere.

EPI 2007-2014 Chart

Like the evidence of greater unemployment and underemployment for Minnesotans of color in our recent State of Working Minnesota report, Gould finds that Americans of color continue to earn much less than their peers, even as the economy recovers. Women also continue to earn less than men. This gender-based wage gap shrank a little at every wage level from 2007 to 2014, but increased slightly from 2013 to 2014 for the bottom 60 percent of workers.

As many Minnesota families still struggle to recover from the Great Recession, this study offers further proof that we cannot assume that economic growth will raise all boats. Gould’s work suggests that Minnesota’s recent legislation raising our minimum wage led to higher wages for low-income workers, just as decades of research on the minimum wage predicted.

- Ben Horowitz

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Dayton makes investments in workforce development, supportive housing and transit

In our final bite on Governor Mark Dayton’s budget proposal, we look at how he seeks to strengthen the state’s economy by increasing workforce training opportunities, improving housing options and employment for people with mental illness, and investing in a better transit system.

Dayton invests in basic skills education and specialized training so that Minnesotans can enter high-demand fields. To do this, Dayton proposes to refocus two existing grant programs to form Pathways to Prosperity, a new career pathways program. Between general and workforce development funds, Pathways to Prosperity would receive $12 million for the FY 2016-17 biennium.

The governor also proposes $2 million in FY 2016-17 to support Minnesotans with severe mental illness, who experience higher rates of unemployment and poverty than other Minnesotans, to find stable jobs through Individual Placement and Supports. Policymakers expanded these services in FY 2014-15 with one-time funding; Dayton’s proposed increase will maintain that expansion.

Dayton also seeks important investments in supportive housing. He proposes $2.5 million in FY 2016-17 in funding for Bridges, which provides rental assistance to those struggling with mental illness. Bridges currently has a waiting list of about 1,300 households, and the administration estimates that the increased funding will help 200 of those households.

Dayton’s proposal also proposes $2.2 billion in revenues in FY 2016-17 dedicated to our state’s transportation needs, which would come from a mix of gas, vehicle registration and local sales taxes. As part of a broad transportation proposal, the governor includes several investments in transit. Dayton proposes $10 million in FY 2016-17 to increase bus service in greater Minnesota, including more morning and evening service hours and multi-county services. The $420 million of local sales taxes proposed in the governor’s budget would fund transit in the Twin Cities metro area, including provisions such as expanding existing bus operations by 27 percent, funding additional rapid bus lines, improving transit shelters, and meeting requirements for transitways like the Blue and Green light rail lines.

Effective transit systems are critical to our state’s economic health. Because transit can provide access to good jobs, improvements to our transit lines should be done with low- and moderate-income workers in mind.

In case you missed it, you can also check out our analyses of the governor’s tax, early childhood, education, and health and human services proposals.

-Clark Biegler

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Dayton’s health and human services budget invests in critical supports to Minnesota’s most vulnerable

Governor Mark Dayton’s budget proposal for health and human services would improve access to vital services for some of Minnesota’s most vulnerable populations, including children, people with mental illness or disabilities, and the elderly. His proposal includes a net increase of $185 million over forecasted general fund expenditures for FY 2016-17.

MinnesotaCare. One problematic component of Dayton’s budget would increase the cost of health care for working Minnesotans getting health insurance through MinnesotaCare. The administration proposes increasing premiums and out-of-pocket costs to reduce MinnesotaCare expenditures by $65 million in FY 2016-17 and $87 million in FY 2018-19. These increased costs to the already-tight budgets of working families could force them to avoid needed care entirely. Given that the recent February forecast predicts a positive balance in the Health Care Access Fund, which funds MinnesotaCare, we urge the governor to drop this provision when he releases his updated budget proposal next week.

Mental Health. People dealing with mental illness are also at a higher risk for problems with physical health, homelessness and chemical dependency. Dayton’s budget has several initiatives that recognize the interconnected nature of these issues. Most emblematic of this approach may be an investment in behavioral health homes. Behavioral health homes provide comprehensive care to improve patients’ overall health outcomes while also reducing their use of more expensive services, like emergency rooms. Dayton targets $6.9 million in FY 2016-17 and $24 million in FY 2018-19 to behavioral health homes. Dayton also proposes $2.8 million in FY 2016 and $4.3 million annually starting in FY 2017 to increase access to housing and supportive services for families dealing with mental illnesses — some of which is in Dayton’s housing budget.

Some of Dayton’s other mental health proposals are more controversial. For example, Dayton’s budget would devote $26 million in FY 2016-17 and $38 million in FY 2018-19 to boost provider reimbursement rates and contract with private hospitals to increase the availability of services for chemical dependency and highly aggressive children. However, the funding increases are paired with proposals to shut down and cap services at state-run treatment sites. During hearings on the governor’s budget, advocates cited concerns that the expanded private sector services will not completely fill the gap left by the reduced public sites. This could mean that some Minnesotans would be left without the help they need.

Dental Care. Low-income Minnesota children are about three times as likely to have their tooth decay go untreated compared to other kids. Visits to the emergency room for non-traumatic dental work cost the state $148 million over a three-year period. Dayton’s budget would spend $10 million in FY 2016-17 and $17 million in FY 2018-19 to address these issues by increasing Medical Assistance dental rates, thereby increasing access to dental services for low-income Minnesota families.

Not all dental providers would be paid more under this plan. Currently, providers operating in areas where there aren’t many dental professionals receive a “critical access bonus” when they serve low-income patients. While Dayton’s proposal increases the base rate for dental services overall, it also decreases the critical access bonuses for Medical Assistance patients and community health clinics, and eliminates the bonus entirely for MinnesotaCare patients.

MNsure. Dayton’s budget includes $12 million in FY 2016-17 and $13 million in FY 2018-19 for continued improvements and maintenance for the MNsure information technology system. This will help Minnesota improve the technology that connects consumers, insurance providers and the public sector in the health insurance marketplace.

Food Assistance. The Minnesota Food Assistance Program helps low-income people over 50 who are ineligible for federal nutritional assistance pay for food. Dayton proposes increased funding of $246,000 in FY 2015, $1.1 million in FY 2016-17, and $1.9 million in FY 2018-19 to meet the administration’s projections for increased demand.

Housing and Supportive Services for People with Disabilities. Dayton’s budget includes $3.1 million in FY 2016-17 and $22 million in FY 2018-19 to better address the housing needs of Minnesotans with disabilities. The administration is also changing some of their supportive housing guidelines, aiming to continue providing access to group residential homes while also increasing the ability for people with disabilities to live in more affordable, community-based supportive housing.

When a family hits a rough patch due to illness, economic hardship, or just plain bad luck, public services can provide critical support. Dayton’s proposals recognize the complexity of the hurdles many of these families face.

- Ben Horowitz

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