Renters’ Credit should be part of tax plan

When the Legislature comes back into session next week after the Easter/Passover break, we encourage policymakers to focus their final tax bill negotiations on tax policies that create a fairer tax system.

A proposal that fits that principle well and should be part of final tax legislation is an increase in the Renters’ Credit. The House’s omnibus tax bill (House File 3167) includes a provision to boost the Renters’ Credit by 5 percent for this year only. More than 317,000 Minnesota households would see an average $33 increase in their property tax refunds. The increase in the Renters’ Credit would be automatic – taxpayers wouldn’t need to submit anything in addition to the usual property tax forms or amend applications that have already been filed.

This provision increases the Renters’ Credit by $10.4 million. When they receive their refunds, Minnesota renters are able to catch up on the basics, including medicine, food and school supplies.

The proposed increase in the Renters’ Credit would make our tax system fairer. Low- and moderate-income Minnesotans pay a higher share of their incomes in state and local taxes than those with the highest incomes. The Renters’ Credit limits how much of their incomes these Minnesotans pay in property taxes.

Your organization can demonstrate your support for an increase in the Renters’ Credit by joining a sign-on letter by the close of business on Thursday, April 17.

After the break, a conference committee will convene to work out a compromise between the House and Senate versions of the second tax bill passed this session, House File 3167. Right before the break, the Senate passed its version of House File 3167, which includes $101 million in tax reductions for FY 2014-15 and $107 million in the next biennium. As with its House counterpart, the bill focuses primarily on sales tax and property tax provisions.

The first tax bill passed this session, House File 1777, added $150 million to the state’s budget reserve and made $443 million in tax cuts in this biennium and over $1 billion in the next budget cycle, focused on income tax conformity, the repeal of three business-to-business sales taxes, and estate and gift taxes.

Given the size of the tax cuts in House File 1777, we encourage policymakers to keep the second tax bill limited. The state’s recent April Economic Update provides a caution about the uncertainty inherent in economic projections, and our state’s recent history reminds us that going too far in tax cutting during the good times threatens our ability to sustainably fund our schools, health care and other critical services.

In the remaining days of the session, policymakers should maintain their focus on sustainably funding our state’s priorities, making the tax system fairer, and investing in a future of shared economic success.

-Nan Madden

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Budget bills make additional investments in education

A quality educational system plays a critical role in a state’s economic success. For Minnesota to build an economy that works for everyone, all Minnesota children need access to quality education regardless of their race, income or where they live.

Education was high on policymakers’ priorities last session, and the House and Senate’s supplemental budgets continue on that path this year. Both the House (House File 3171) and Senate (Senate File 767) supplemental education funding bills make further investments in our state’s learners.

The House adds $75 million in E-12 funding for FY 2014-2015, while the Senate adds $41 million. Both bills include funding for common priorities, like:

  • English Language Learners.
  • Reduced price school lunches.
  • Early childhood literacy.
  • Achievement gap initiatives, the Northside Achievement Zone and the St. Paul Promise Neighborhood.

In addition, the House includes $54 million to increase per-pupil funding in the general education formula for all school districts. The Senate adds $8.8 million for early learning scholarships, which enable low-income children to attend high-quality early education opportunities, as well as $8.9 million for a per-pupil allowance increase for early childhood family education.

Both the House and Senate wrapped all of their supplemental funding proposals into one omnibus bill (House File 3172), which passed the House on April 3 and the Senate on April 8. A conference committee will convene after the legislative Passover/Easter break to work out the differences.

-Caitlin Biegler

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Minimum wage raise is final

It’s official: 325,000 Minnesotans will get a raise. This afternoon, Governor Dayton signed House File 2091, the bill increasing the state minimum wage, into law.

The increase is long overdue. The previous minimum wage was not enough for many workers to support their families or escape poverty. But as a result of the minimum wage increase, 325,000 Minnesotans will have higher wages. This will make it easier for working families to make ends meet. And it’s good for our economy, as these workers have more to spend in their local communities.

The new minimum wage begins phasing in over a two-year period:

  • Large employers: $8.00 per hour starting on August 1, 2014, $9.00 starting on August 1, 2015, and $9.50 starting August 1, 2016.
  • Small employers: $6.50 per hour starting on August 1, 2014, $7.25 starting August 1, 2015, and $7.75 starting August 1, 2016.
  • Training wage (for employees ages 18 and 19 for the first 90 consecutive days of employment): $6.50 starting August 1, 2014, $7.25 on August 1, 2015, and $7.75 on August 1, 2016.

Two other wage tiers are created:

  • Youth wage (workers under age 18): $6.50 starting August 1, 2014, $7.25 on August 1, 2015, and $7.75 on August 1, 2016.
  • Hotel or resort workers under an Exchange Visitor non-immigrant visa for summer work who receive a lodging or food benefit: $7.25 starting August 1, 2014, $7.50 on August 1, 2015, and $7.75 on August 1, 2016.

For purposes of the minimum wage, Minnesota will match federal definitions for small and large employers. A large employer has annual gross sales over $500,000, and a small employer has gross sales below that amount.

Minnesota’s minimum wage will increase each year based on inflation starting in 2018 (commonly called “indexing”), so that it keeps up with the cost of basic necessities. The annual increase cannot be more than 2.5 percent. The state has the option of suspending an annual increase if economic indicators show potential for a substantial downturn in the state’s economy. In the years after a wage increase is prevented, the state can make supplemental increases in the minimum wage to catch up.

This new law will help thousands of working Minnesotans – especially people who are often left behind in the economy, including women and people of color. It will make sure these workers benefit from the economic growth they help create.

-Caitlin Biegler

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Health and Human Services supplemental budget bills increase funding for health care workers

The Legislature made important progress in increasing access to health care for Minnesotans last session using limited resources, and the positive balance in the February Forecast has allowed policymakers to propose additional investments in health and human services this year.

The House Health and Human Services supplemental funding bill provides $88 million in FY 2014-15, while the Senate provides $95 million.

The House and Senate bills have many similarities. They both include:

  • A 5 percent rate increase for home- and community-based services to seniors and people with disabilities.
  • A funding increase for nursing facilities (to fill any funding gaps that arise from a minimum wage increase).
  • Improved access to educational opportunities for participants in the Minnesota Family Investment Program.

The bills also include funding for health equity provisions that work toward Minnesota’s people of color having the same access to good health that white Minnesotans enjoy. The House and Senate bills provide grant funding for health equity programs for Somali women, and the House has additional funding for grant programs that address dementia outreach, and immigrant and refugee mental health. The Senate bill carries a provision that would require the state to develop a plan for releasing health care quality data by several indicators (including race and ethnicity) that are related to health disparities.

Both the House and Senate wrapped all of their supplemental funding proposals into one omnibus bill (House File 3172). The bill passed the House on April 3 and the Senate on April 8. A conference committee will convene after the legislative Passover/Easter break to work out the differences.

-Caitlin Biegler

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April Economic Update provides a note of caution

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.

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.

-Caitlin Biegler

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Minimum wage increase close to the finish line

Minnesota legislators agreed yesterday to increase the state’s minimum wage. Working Minnesotans shouldn’t be in poverty, and increasing the minimum wage is an important step toward a future of more broadly shared prosperity. An increase in the minimum wage reaches Minnesota workers who tend to be left behind in our economy, and boosts their purchasing power.

Minnesota has been one of just a handful of states with minimum wages below the federal figure of $7.25 an hour, so that federal rate is what many minimum wage workers in our state currently earn.

That will change this summer, when new state minimum wage standards begin phasing in over a two-year period:

  • Large employers: $8.00 per hour starting on August 1, 2014, $9.00 starting on August 1, 2015, and $9.50 starting August 1, 2016.
  • Small employers: $6.50 per hour starting on August 1, 2014, $7.25 starting August 2015, and $7.75 starting August 2016.
  • Training wage (for employees under age 20 for the first 90 consecutive days of employment): $6.50 starting August 1, 2014, $7.25 on August 1, 2015, and $7.75 on August 1, 2016.
  • Two other wage tiers are created: youth wage (workers under age 18), and working under an Exchange Visitor non-immigrant visa: $6.50 starting August 1, 2014, $7.25 on August 1, 2015, and $7.75 on August 1, 2016.

For purposes of the minimum wage, Minnesota will match federal definitions for small and large employers. A large employer has annual gross sales over $500,000, and a small employer has gross sales below that amount.

Minnesota’s minimum wage will increase each year based on inflation starting in 2018 (commonly called “indexing”), so that it keeps up with the cost of basic necessities. The annual increase cannot be more than 2.5 percent. The state has the option of suspending an annual increase if economic indicators show potential for a substantial downturn in the state’s economy. In the years after a wage increase is prevented, the state can make supplemental increases in the minimum wage to catch up.

The minimum wage agreement is in House File 2091, and is expected to be voted on in the House and Senate this week.

-Caitlin Biegler

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House tax bill boosts property tax refunds for renters and homeowners

The second major tax bill of the session is moving through the Minnesota House of Representatives this week, and it takes an important step forward for low- and moderate-income taxpayers.

The bill would boost the Renters’ Credit by 6 percent for this year only: more than 317,000 Minnesota households would see an additional $39 in their refunds. Homeowners would see a 3 percent increase in their property tax refunds. The increase would be done automatically – taxpayers wouldn’t need to submit anything in addition to the usual property tax refund forms or amend applications that have already been filed.

This provision was part of the House’s Property Tax and Local Division Report, House File 1884, authored by Representative Jim Davnie, and was based on House File 3142 (Representative Tim Faust) and House File 2929 (Representative Rick Hansen).

The Renters’ Credit provides a property tax refund to low- and moderate-income renters whose property taxes are high in relation to their incomes. The Renters’ Credit is effective in limiting how much of their incomes these Minnesotans pay in property taxes. When they receive their refunds, Minnesota renters are able to catch up on bills and purchase basics like medicine, food, and school supplies in their local communities.

The Renters’ Credit is important to Minnesotans all across the state. More than one-quarter of qualifying households include seniors or people with severe disabilities, who may struggle to get by on fixed incomes. In 14 Greater Minnesota counties, at least half of participating households include seniors and/or people with disabilities.

Even after the progress made toward tax fairness in last year’s tax bill, low- and moderate-income Minnesotans still pay a higher share of their incomes in state and local taxes than those with the highest incomes. The proposed increase in the Renters’ Credit is a good step to narrow that gap. While important improvements were made to the Renters’ Credit last year, we have not fully made up lost ground from 2011, when the Renters’ Credit was cut by 13 percent.

The omnibus tax bill, House File 3167, which contains the increase in the Renters’ Credit, is up for a floor vote as soon as tomorrow. The bill focuses on sales taxes, property taxes and local provisions; House File 1777, which passed earlier in March, focused on income tax conformity, the repeal of business-to-business sales taxes, and estate and gift taxes.

Haven’t filed for your property tax refund yet? You can find forms and instructions on the Department of Revenue’s website.

-Nan Madden

Note: Since this blog was originally published, the bill was amended on the House floor. The current version of the bill would boost the Renters’ Credit by 5 percent for this year only; more than 317,000 Minnesota households would see an additional $33 in their refunds on average. This is an increase of $10.4 million.

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Keys to a healthy state budget

Minnesota has recently turned the corner from more than a decade of frequent budget deficits to a $1.2 surplus. But unforeseen events and the inevitable ups and downs of the business cycle create volatility in state economies and state budgets. These events, like extreme weather or recessions, can’t be avoided, so it’s important for states to address volatility so they can meet the needs of their residents even in the face of the unexpected.

A recent report from The Pew Charitable Trusts, Managing Uncertainty: How State Budgeting Can Smooth Revenue Volatility, explores uncertainty and revenue volatility in state budgets. I recently had a chance to hear Pew’s research presented to the House Tax Committee.

Pew recommends three strategies for states to evaluate and strengthen their responses to volatility:

  • Regularly study volatility in their budgets and make policy recommendations to manage uncertainty.
  • Release budget forecasts as close as possible to the time budget decisions are made.
  • Develop mechanisms to create a healthy budget reserve.

Minnesota already does well on some of these strategies, and has taken recent steps to improve how it deals with volatility.

Minnesota’s most recent “deep dive” into volatility was the 2008 Minnesota Budget Trends Commission report. The Commission made a number of recommendations in order to more adequately respond to the level of volatility in Minnesota’s state budget, including: a larger budget reserve, avoiding permanent tax or spending changes that would take the budget out of balance in the following biennium, and refilling a depleted reserve within two biennia. The state could benefit from comprehensively studying volatility more regularly.

Minnesota also does well on the strategy of releasing timely budget forecasts. Minnesota releases two economic forecasts each year, one in November and one in February. The November Forecast informs the development of the Governor’s budget, and the February Forecast provides more current data to policymakers as they make budget choices each spring.

Minnesota recently took some steps forward along the lines of Pew’s recommendation of building reserves that would better meet the needs of Minnesotans in the next economic downturn. The recently passed House File 1777 adds $150 million to the reserve. It also requires that Management and Budget set a recommended reserve level each year, and requires that one-third of any positive balance in a November forecast go to the budget reserve until it reaches MMB’s recommended amount. In January, Minnesota Management and Budget recommended reserves of $1.9 billion. That figure is substantially higher than the prior budget reserve target of $653 million.

Volatility in state budgets is inevitable. But with careful planning, states can be better prepared and avoid drastic cuts to vital services when a downturn hits.

-Caitlin Biegler

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Time ticking for health insurance coverage through MNsure

Open enrollment for individuals and families who want to purchase private insurance through MNsure ends March 31. If you want to take advantage of the state’s health insurance exchange, you need to act quickly!

MNsure is Minnesota’s online marketplace where individuals and small businesses can shop for, compare and enroll in insurance. As of January of this year, the federal Affordable Care Act requires nearly all U.S. residents to have health insurance or pay a penalty, and here are two reasons why people should use MNsure to get insured – low premiums and tax credits.

Minnesotans looking for health insurance through MNsure will find the lowest average premiums in the nation.

You’re not required to get health insurance through MNsure. However, MNsure is the only way to access federal tax credits that reduce the cost of premiums. Individuals without other qualifying insurance with incomes below 400 percent of the federal poverty level ($45,960 for an individual, or $94,200 for a family of four) may qualify for federal premium tax credits to lower the cost of coverage.

For more information about both private and public insurance options, federal tax credits and cost-sharing assistance available through MNsure, check out our paper.

There is also more information available on the MNsure website, or through its toll-free hotline at 1-855-3MNSURE (1-855-366-7873). Don’t delay if you want to enroll!

-Caitlin Biegler

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Tax bill includes improvements for working families, boosts reserves

The Minnesota Legislature took important steps to make the tax system work better for working Minnesotans today when it passed two great improvements to the Working Family Credit. House File 1777 conforms the credit to federal improvements reducing marriage penalties starting in tax year 2013, and it increases the maximum credit starting in tax year 2014. These two improvements together represent about a 25 percent increase in the Working Family Credit.

House File 1777 also includes a number of other federal conformity items, which make Minnesota’s tax system simpler by mirroring a number of credits and deductions found in the federal tax code, and repeals three business-to-business related sales taxes (commonly called ‘B2B’).

The bill also repeals the gift tax enacted last year and cuts Minnesota’s estate tax. We’ve argued that policymakers should minimize the loss of revenue and the impact on tax fairness as they sought to address some technical problems with the estate tax. The estate tax cut passed today is about $50 million smaller in FY 2016-17 than other versions on the table this year.

House File 1777 also makes a $150 million contribution to the budget reserve. As we come out of more than a decade of frequent budget deficits, it’s wise to 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.

In total, the bill cuts taxes by $443 million in this budget cycle, and $956 million in FY 2016-17.

Policymakers in the House and Senate said today they expect to put together a second tax bill before the session is over.

-Nan Madden

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