House tax bill contains ticking time bombs

The House omnibus tax bill would take Minnesota in the wrong direction for a number of reasons:

  • It is larger than the projected surplus and is paid for in part through cuts in health care, affordable housing and other critical public services;
  • It grows unsustainably over time, threatening our ability to fund our schools, make college more affordable, and make other investments in our economic future; and
  • It provides large tax cuts for higher-income Minnesotans and business property owners rather than focusing on making the tax system more equitable.

Let’s take a look in particular at the bill’s “ticking time bombs”: tax cuts that grow dramatically larger over time.

The House tax bill (House File 848) currently weighs in at $2.3 billion in FY 2016-17 and $3.2 in FY 2018-19. But the true cost goes well beyond that, because the bill includes several tax cuts that cost much more in the future.

Rough estimates are that the cost of the House tax bill will be over $4 billion when fully in effect. The two largest provisions causing that growth are the elimination of the statewide property tax and expanding the exemption for Social Security benefits.

Eliminating the statewide property tax occurs over six years, with an estimated cost of $2 billion when fully eliminated. Unlike most property taxes, which fund local government services, the statewide property tax is a state revenue source. It is primarily paid by business properties but also by cabins and seasonal resorts.

The state already exempts Social Security benefits from the income tax completely for lower-income seniors and partially for everyone else. The House tax bill would exempt all Social Security benefits by 2019 at an estimated cost of $1 billion, and that cost would grow further as the number of Minnesota seniors grows.

While these tax cuts grow over time, that’s in contrast to the largest tax cut aimed at the middle class, which is temporary and disappears after two years.

Phasing in a tax cut over five or more years does not lower its cost. It just shifts the full cost outside of the budgeting window. That means that policymakers and the public do not have good information about their full cost or to determine whether those tax cuts are sustainable. And putting their full effect years into the future divorces the cost of these tax cuts from the inevitable trade-offs that will have to be made to pay for them – whether that is cutting funding for schools, health care or other critical public services, or raising other taxes.

The danger of tax cuts that grow dramatically over time isn’t theoretical: one delayed tax provision is contributing to a threat to affordable health care we’re dealing with right now. In 2011, policymakers agreed to repeal the health care provider tax at the end of 2019. The provider tax is one of the primary funding sources for MinnesotaCare, through which thousands of working Minnesotans get affordable health insurance.

We are among those who have raised concerns that repealing the provider tax without finding replacement funding would undermine MinnesotaCare. This year’s House Health and Human Services omnibus bill would eliminate MinnesotaCare and replace it with an option that would raise health care costs for working Minnesotans considerably. One of the proponents’ primary arguments for this radical change is that MinnesotaCare’s funding is unsustainable, even though that is a problem created in part by the decision made in 2011 to phase out the provider tax.

In addition to this particular example, we’ve seen what happens on a broader level when the state does too much tax cutting. Large tax cuts passed at the end of the 1990s and 2000s proved to be unsustainable, and were followed by deep cuts in services and a greater reliance on property taxes, double-digit tuition increases and higher fees.

We shouldn’t go down that road again. Policymakers should work toward a smaller, more sustainable tax bill that continues Minnesota’s recent successes in making the tax system more equitable.

-Nan Madden

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Senate proposal extends affordable child care to more Minnesota families

All year long, policymakers, the public and a diverse group of advocates have been discussing the need to address the high price of child care in Minnesota. We’ve been talking about the reasons to increase funding for Basic Sliding Fee Child Care Assistance. Basic Sliding Fee keeps kids in reliable care environments, makes it easier for parents to get to work or school, and boosts the available labor pool for employers. This is why we were very glad to learn that the Senate Health and Human Services omnibus bill (Senate File 1458), authored by Senator Tony Lourey, increases funding for this flexible, common-sense approach to the high cost of child care.

The Senate proposal would mean about 700 families in FY 2016-17 and about 800 families in FY 2018-19 could better afford child care in an average month. It does so thanks to an additional $19 million in funding in FY 2016-17 and $24 million in FY 2018-19.

Lourey’s bill builds on the $12 million in increased funding for Basic Sliding Fee in Governor Mark Dayton’s FY 2016-17 budget. It acknowledges the bipartisan support for Senator Jeff Hayden (Senate File 1199) and Representative Mary Franson’s (House File 1057) proposals to make child care more affordable through Basic Sliding Fee supported by the Kids Can’t Wait Coalition. Most importantly, it recognizes the voices of Minnesotans who spoke to legislators about the missed opportunities and stress caused by high child care costs.

Senate File 1458 marks a turnaround from a long-term trend of disinvestment from Basic Sliding Fee. State funding for Basic Sliding Fee has declined 44 percent since FY 2003, adjusted for inflation. As a result, about 4,500 fewer families had affordable child care through Basic Sliding Fee in FY 2014 compared to FY 2003, and nearly 5,800 families currently sit on waiting lists throughout the state.

BSF decline

In contrast to the Senate proposal, the House Health and Human Services omnibus bill (House File 1638) provides no new funding for Basic Sliding Fee.

There are many good reasons to applaud the Senate’s action. It would allow hundreds more families to share in our state’s prosperity. Policymakers should adopt the Senate’s approach during the coming conference committee.

-Ben Horowitz

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House jobs omnibus bill lowers wages, threatens job quality and cuts affordable housing

Legislators are busy putting together the FY 2016-17 budget, but some of the budget plans coming out do not help build a state of shared opportunity. Minnesotans need jobs with good wages and good benefits, affordable housing, and a strong Unemployment Insurance system for when layoffs happen, but the Minnesota House’s employment and economic development omnibus budget bill (House File 843) includes some bad news for Minnesota workers.

Among the disappointing elements of the House’s jobs and economic development proposal are:

  • a tip penalty that would reduce wages for some minimum wage workers;
  • a “local interference” provision that would prohibit higher job quality standards at the local level;
  • cuts to affordable housing; and
  • sharp reductions to the state’s Unemployment Insurance fund that threaten the state’s insurance system for unemployed workers.

The bill sets a lower minimum wage, or tip penalty, for workers who receive $4.00 or more in tips per hour. The minimum wage sets a wage floor among all workers, and for tipped workers provides a level of stability in their incomes. This provision would erode the progress our state made last session when policymakers passed a long overdue raise to the state’s minimum wage so that workers’ wages can catch up and keep up with the cost of living.

The “local interference” provision in the House bill prevents local governments from setting higher wage and job quality standards than state law. For example, if a city wanted to set a higher minimum wage or expand access to earned sick leave beyond what the state requires, they would be prohibited from doing so.

Also included in the bill are significant cuts to funding for affordable housing. In FY 2016-17, there’s a $5 million cut to the Challenge Fund, which expands affordable workforce housing in areas of job growth. The bill also imposes new requirements on how the Challenge Fund is allocated between Greater Minnesota and the Twin Cities metro area, potentially limiting the ability of the state to allocate housing funds to areas with the greatest need. The Housing Trust Fund, which increases affordable housing and provides rental assistance, is cut by $2.4 million in FY 2016-17. Family Homeless Prevention Assistance is also cut in FY 2016-17 by $1.3 million.

The House bill also threatens the ability of the state’s Unemployment Insurance system to pay benefits to jobless workers. Unemployment Insurance replaces a portion of lost wages for workers after they have lost a job through no fault of their own. It also helps keep the state’s economy going in times of high unemployment because it helps jobless workers continue to pay rent, buy groceries and put gas in their cars. To fund this insurance system for our workforce, employers pay an Unemployment Insurance tax. However, the House proposal greatly reduces Unemployment Insurance taxes for employers and caps the size of the fund. These changes are estimated to decrease Unemployment Insurance contributions by $430 million in FY 2016-17.

Fortunately, it’s not all doom and gloom. The bill would remove a provision in current law that allows a lower minimum wage to be paid to hotel or resort workers under a summer work visa who receive a lodging or food benefit. This provision marks at least one step toward bringing all workers to a more adequate minimum wage.

The House employment and economic development bill will be up for a vote by the full House today.

-Clark Biegler

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Lesson from Illinois: Use of outside contractors to verify health care eligibility unlikely to deliver promised savings

In 2012, Illinois policymakers authorized about $70 million to hire a private contractor to redetermine whether people enrolled in the state’s Medicaid health care coverage were still eligible. After predicting $350 million in savings for FY 2013, the state saved only $2.6 million during that year. The effort also resulted in lost health care coverage for thousands of people who were likely eligible.

Despite this cautionary tale, two bills being considered in Minnesota this session – HF 1460 and HF 1936 – would pay a contractor to re-examine the eligibility of participants in Medical Assistance and MinnesotaCare. A deeper dive into the “Illinois approach” reveals this effort is likely to cause many Minnesotans to wrongfully lose their health care coverage while also falling well short of the savings that proponents hope to achieve.

In Illinois, the contractor cross-referenced data on Medicaid enrollees to prioritize cases for review. Almost all of this data — aside from a credit check — came from the state. Paying a contractor millions of dollars to use Minnesota’s own data doesn’t seem like the wisest use of state resources.

Once Illinois’ contractor and state workers sorted through their caseloads, they sent some households requests for more information. Benefits would be discontinued if those households didn’t respond, or if they responded with information confirming their ineligibility.

The State of Illinois estimates that the majority of households losing coverage had their coverage cancelled because of a paperwork issue, rather than because of an actual problem with their eligibility. Three percentages drive this home:

  • 84 percent of cancellations from February to December 2014 occurred because households did not respond to the request for more information.
  • 89 percent of households whose health care coverage was cancelled due to a non-response were “likely eligible,” according to a report by the Illinois Department of Healthcare and Family Services.
  • So far, more than a third of households whose health care coverage was cancelled in FY 2015 had their coverage reinstated within three months.

In short, Illinois spent tens of millions of dollars on a private contractor who used already-available information to cancel health care coverage for likely-eligible people. Minnesota should learn from their example and invest our resources more wisely.

-Ben Horowitz

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Latest state economic update shows higher revenues but slower economic growth

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

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

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

april 2015 update gdp

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

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

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

-Clark Biegler

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Voices for Racial Justice offers equity agenda for Minnesota

Despite Minnesota’s economy showing signs of recovery, we know we still have work to do to achieve economic prosperity for all.

The fact remains that Minnesota has among the highest racial disparities in the country on a range of indicators. For example, in 2013 Minnesota’s median household income increased to $60,702, but there are stark disparities in income by race: $63,028 for white households versus $31,021 for black and African American households and $35,764 for American Indian households. The disturbing pattern of inequity persists in other areas including education attainment, employment and health outcomes.

The good news is that policy solutions to address racial disparities have been identified, with those impacted at the center of the discussion. Voices for Racial Justice works with communities of color and American Indian communities from around the state to determine what policy solutions will best advance racial equity in Minnesota.

Voices for Racial Justice recently published their 2015 Racial Equity Agenda, which highlights policies including:

  • Creating healthier work-life balance by supporting earned sick and safe time for workers currently forced to choose between earning a paycheck and taking care of themselves and their families. Currently, 41 percent of Minnesota’s workforce does not have earned sick time, including about half of people of color in our workforce.
  • Expanding health coverage to undocumented immigrants. Currently undocumented Minnesotans cannot access support through MNsure, often forcing them to resort to care in emergency rooms with high out-of-pocket expenses.
  • Allowing Minnesotans to obtain driver’s licenses regardless of immigration status — making safe, lawful driving an option for all residents.
  • Supporting Minnesota’s councils of color as critical voices for equity in public policy and important connectors to communities of color. Voices for Racial Justice supports the councils continuing as separate entities and having sufficient funding in order to be successful building bridges between their communities and state policymaking.

As we get into crunch time in the legislative session, the Voices for Racial Justice 2015 Racial Equity Agenda and Bill Watch serve as great resources to those who want to prioritize community-identified policy solutions that advance racial equity in our state.

-Leah Gardner

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Resource measures basic needs budget for Minnesota counties

The typical family in Minnesota needs to make $16.34 an hour to make ends meet. That’s according to data from the Minnesota Department of Employment and Economic Development (DEED).

The analysis from DEED takes into account the expenses that Minnesota families face, including child care, housing costs and health care, to create a basic needs budget. It is a very rudimentary budget that includes no money for entertainment, eating out, savings or vacations. When a basic needs budget is converted to an hourly wage, it’s often called a “living wage.”

DEED’s analysis is an important tool to judge the quality of jobs available in our state. We’re lucky in Minnesota that we’ve had a good idea of what families need to earn to make ends meet, thanks to the long-running work of the JOBS NOW Coalition.

The living wage for the typical Minnesota family (a family of three, with one adult working full-time and the other working part-time) varies from $11.59 in Stevens County to $19.05 in Isanti County. But families with more than one child, or only one parent working, need to earn higher wages to pay for the essentials.

Minnesota workers need to be able to get and keep quality jobs to support themselves and their families. In the 2014 Legislative Session, policymakers increased the minimum wage for Minnesota workers. This past summer, the first of three minimum wage increases went into effect, and large employers in Minnesota now pay employees a minimum wage of $8.00 an hour, on its way to $9.50 an hour by 2016. This brings the minimum wage closer to what it takes to support a family, but a meaningful gap still remains.

There are more steps policymakers can take so more Minnesotans can have good jobs with family-supporting wages. Currently, about 1.1 Minnesota workers lose wages or even their jobs if they take time off when they or a family member are sick. For many of these workers, one or two days of lost wages can mean difficulty paying the rent, or the family’s transportation and child care costs. Expanding access to earned sick and safe leave would mean more Minnesotans can keep their wages and jobs and afford the necessities.

-Clark Biegler

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Investing in our current and future workforce through Basic Sliding Fee

Ensuring more Minnesota families have affordable child care is one of our top priorities. It is no secret that child care is expensive; no parent would be surprised to learn that Minnesota is in the bottom five states for affordability when it comes to center-based care for infants or four-year-olds.

Our latest issue brief, Time to Invest in Affordable Child Care through Basic Sliding Fee, describes why Basic Sliding Fee is an important tool in achieving that goal. Basic Sliding Fee reaches across the state, supports parents’ efforts to attend school or work and provides care year-round for children from birth until age 12 (and age 14 if they have special needs).

Since the 1980s, Basic Sliding Fee has used a simple approach so that families can meet their child care needs. Parents make an income-based co-payment, and the state pays an additional amount to child care providers based on a child’s age, location and type of care. This allows parents to get to work, job training or class while their children can thrive in reliable, consistent settings. Thanks to Basic Sliding Fee, employers have access to a broader workforce when they need to fill crucial vacancies.

Unfortunately, inflation-adjusted state funding for Basic Sliding Fee has decreased by 44 percent since FY 2003. More than 5,500 families were on the waiting list at last count, and thousands more are eligible but have not signed up. Meanwhile, for families using Basic Sliding Fee or other forms of Child Care Assistance, a shrinking state reimbursement rate for child care providers has made it harder for parents to find consistent care.

BSF decline

As state policymakers build the budget this session, they should keep all of these facts in mind. As the economy recovers, Minnesota’s businesses can’t afford to have willing-to-work parents sitting on the sidelines. Investing in affordable child care through Basic Sliding Fee would help ensure that the high costs of child care don’t leave children, parents and employers out of our improving economic picture.

-Ben Horowitz

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Proposal would end affordable health care for more than 100,000 Minnesotans

On March 10, Representative Matt Dean introduced a bill that would dismantle a path to affordable health care for more than 100,000 Minnesotans. MinnesotaCare is a successful, decades-old health insurance option for working Minnesotans. MinnesotaCare offers these Minnesotans affordable health insurance that meets their health care needs – something they can’t find in the private market. The large, negative budget target given to the House Health and Human Services Committee lends dangerous momentum to this proposal that would have serious consequences across the state.

Currently, households earning 133 percent to 200 percent of the federal poverty guidelines pay income-based premiums for health insurance through MinnesotaCare. That translates to an annual income of $15,654 to $23,540 for a single individual. Budgets that small are already squeezed to capacity by the demands of basic necessities like transportation, housing and food.

MinnesotaCare spans the state to serve Minnesotans who may otherwise be unable to find affordable health care:

  • MinnesotaCare covers mental health needs often left out of private plans.
  • Certain legal immigrants are ineligible for Medical Assistance, but can get coverage through MinnesotaCare.
  • Farmers, entrepreneurs and small business employees can rely on MinnesotaCare when affordable health insurance isn’t available through their job.

House File 1665 would completely repeal MinnesotaCare. People who currently qualify for MinnesotaCare would instead pick an insurance plan from the MNsure exchange. Monthly premiums for some could more than double, according to a handout Dean brought to the bill’s first hearing, though the bill provides an unspecified amount to reduce premiums.

Dean’s examples demonstrate the harmful costs imposed by his proposal by comparing the exchange’s “silver” plans to current MinnesotaCare coverage. Silver plans are the second-lowest “metal level” on MNsure. Silver plans generally have higher premiums than bronze plans, but may offer lower deductibles and co-pays. Under House File 1665, insurance companies would receive subsidies to lower some out-of-pocket costs for the people formerly covered by MinnesotaCare, but their costs would be higher than under MinnesotaCare.

Facing higher premiums than under MinnesotaCare, families could fall into the so-called “bronze trap.” MinnesotaCare participants facing already-tight budgets may only be able to afford the premiums for bronze plans, which may have lower premiums but higher out-of-pocket costs. The trade-off for lower premiums is that when medical care becomes necessary, the family’s costs will be higher. And when people face higher out-of-pocket costs, they simply delay needed care.

If something ain’t broke, don’t fix it. Ending MinnesotaCare would mean 100,000 Minnesotans would suddenly be left wondering how they’ll pay for their medication or if they can afford a trip to the doctor when they get ill.

-Ben Horowitz

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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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