Minnesota Budget Bites

Rep. Lenczewski continues pushing tax reform

November 10, 2009

Rep. Ann Lenczewski, chair of the Minnesota House Tax Committee, is continuing to push the state to take a hard look at “tax expenditures”, the tax deductions, credits and exemptions written into state law.

These tax expenditures include such things as the JOBZ subtraction and credit, the long-term care credit and any number of deductions that lower the amount of tax the state collects. Lenczewski is not saying that all tax expenditures are bad, but they need the same scrutiny as appropriations. The problem is tax expenditures are regressive, she says. They predominantly go to the state’s wealthiest residents.

Lenczewski made her comments Sunday at an event at St. Louis Park’s City Hall, sponsored by the DFL Education Foundation. She first made her tax proposal last spring. Sunday’s talk helps set the stage for tax and deficit issues for the 2010 session and the upcoming governor’s race, where budget issues will be front and center. Tightening tax expenditures offer one avenue to increase revenue and rebalance the tax system.

“All the shifts and gimmicks are over,” Lenczewski says.

Minnesota’s budget is $35 billion over two years. Tax expenditures represent an additional $11 billion the state chooses not to collect.

Lenczewski seems particularly skeptical about using tax policy for economic development – whether tax expenditures are the most efficient way to create jobs.

She has seen huge pressure in the last year or two to move towards using tax expenditures for business subsidies, a move she opposes. In tight budget times, one way to make taxes more progressive is to reduce tax expenditures, not add them.

“The question is: Will legislators have the courage to not just look at how we ding cities and counties and roads and higher education,” but look at some of the $11 billion in tax expenditures? she says.

As an aside, Lenczewski said we should no longer consider ourselves a high-tax state. Minnesota tends to have higher state taxes to reduce service disparities among local communities. But if you combine state and local taxes, Minnesota now ranks 21st in taxes as a percent of income.

-Scott Russell

Leave a Comment » | Budget Proposals, Taxes | Tagged: Lenczewski, progressivity, tax expenditures | Permalink
Posted by Scott Russell

MCN/MCF conference addresses health care reform

November 6, 2009

Jan Malcolm, former Minnesota Commissioner of Health, says fixing the federal health care system is more doable than people think. True, reform legislation is estimated to cost nearly $1 trillion over the next decade. But the federal government is expected to spend $35 trillion on health care in the next 10 years, Malcolm says. And the current system has lots of room for improvement.

“We get horrible value for what we spend,” she says. “It doesn’t make it easy politically; [the money] is there to be saved.”

Malcolm, who is now CEO of Courage Center, made her comments today at the joint conference of the Minnesota Council of Nonprofits and the Minnesota Council of Foundations. She made the following points about potential savings:

The U.S. spends 50 percent more per capita than any other country on health care.
We rank 37th overall in a World Health Organization analysis of population health and system effectiveness.
The only place we rank #1 is in life expectancy at age 80

Malcolm says improving the health care system will take a long-term commitment. She makes a powerful case for the need to pass a health care reform bill, but reminds us that what happens this year is not the end of the journey.

“What passes won’t be perfect,” she says. “We will have to keep working on it.”

And the wheels are spinning fast. One version of the health care reform bill is expected to come to a floor vote in the House this Saturday. That particular bill does not include nonprofits in provisions that allow small for-profit employers to get subsidies to help them afford health insurance for their employees. MCN has drafted a sign-on letter to members of Congress supporting health care reform and equal treatment for nonprofits. The deadline to participate is Nov. 13.

Tim Delaney, president and CEO of the National Council of Nonprofits, promoted the sign-on letter at the conference. He praised Rep. Betty McCollum for leading efforts to try to get nonprofits covered in the tax credit portion of the bill. If the bill is going to give relief to small businesses, Delaney said, “why not to small nonprofits which are set up for public good?”

-Scott Russell

Leave a Comment » | Federal Budget, Health Care | Tagged: Federal Budget, Health Care, health care reform | Permalink
Posted by Scott Russell

Pawlenty proposes legacy which undermines public debate on the budget

November 5, 2009

This morning, Governor Pawlenty announced a proposed constitutional amendment to limit state spending to the amount of revenues that were brought in the door during the previous two-year budget cycle. This proposal would limit the flexibility of policymakers to respond to changing circumstances and maintain funding for such areas as schools, health care and services that help the unemployed get back to work. And it also reacts to a non-issue in Minnesota – there is no taxpayer revolt or out-of-control spending in our state.

The exact language the Governor proposes: “Shall the Minnesota Constitution be amended to require that state government general fund expenditures be limited to the amount of actual general fund revenues received by the state in the previous two-year budget period?”

Governor Pawlenty immediately made clear that his proposal isn’t the Taxpayer’s Bill of Rights (TABOR), a tax and expenditure limiting proposal that has been circulating around the country. He’s right…it actually appears to be more strict in some ways. Tax and spending amendments like TABOR usually allow government expenditures to increase by some formula (usually inflation and population growth). Governor Pawlenty’s proposal wouldn’t allow any increase in spending until two years after the revenues increase. No increases. We collect $31 billion in FY 2010-11…we can only spend $31 billion in FY 2012-13.

What are the practical implications of his proposed amendment? Right now we are facing at least a $4 billion deficit for FY 2012-13. That assumes the state will be collecting a projected $34 billion in revenues in FY 2012-13. If the Governor’s constitutional amendment were in place, the state would only be allowed to the amount of revenues we collected in FY 2010-11 – about $31 billion. That would add an extra $3 billion to the $4 billion deficit – and suddenly policymakers would be forced to cut $7 billion from the state’s budget. $7 billion in budget cuts. On top of the painful cuts to services for the disabled, higher education, and health care that we saw in 2009. Policymakers would have to leave that extra $3 billion just sitting on the table until the FY 2014-15 biennium. Even if policymakers chose to raise revenues as part of a balanced approach to the budget shortfall, they would not be able to spend it until FY 2014-15.

Bottom line…this is a bad idea. The balance of revenues and expenditures in our state should not be rigidly set by the constitution because the economy, the population and other important aspects of our state are continually changing. Instead, Minnesota’s elected representatives must bear the responsibility of adjusting the balance of revenues and expenditures in response to an informed and public debate. A constitutionally-determined budget limit severely limits that debate and takes away the flexibility of future legislatures or local government officials to carry out their responsibility to react to unexpected circumstances and changing conditions and for the public to participate in the budgeting process. It is interesting the Governor is recommending this course just as he prepares to leave office – he would not have to govern under its arcane restrictions.

Budget expenditure limits aren’t even popular anymore. The Governor says this isn’t TABOR, but it sure is TABOR-like. Colorado was the first to adopt TABOR back in 1992. It has also been the last state (plus, Colorado voters acted to lessen its restrictions in 2005). Tax and spending limit ballot initiatives were just rejected on Tuesday in both Maine (60 percent opposed it) and Washington (55 percent opposed it). So far, serious efforts to pass similar initiatives have failed in 20 states. Growth & Justice just posted a blog on the failure of TABOR.

And its unlikely to be popular with Minnesotans. In fact, Minnesota voters have recently demonstrated that they support tax increases when they are needed – note the recent successes just this week of school referenda.

Although the Governor may be proposing this amendment, in Minnesota, he actually plays no role in amending the state’s constitution. The only path to the ballot is through the legislature. A constitutional amendment must be approved by both bodies of the legislature, just like any other session law. The Governor, however, does not need to sign it and cannot veto it. Once it has been passed by the legislature, it is placed on the ballot during the next general election. In order to succeed, a constitutional amendment must be approved by a majority of those voting in the election (not just a majority of those who vote on the amendment).

We developed materials about tax and spending limit proposals when this issue first came up in Minnesota in 2006 and the Center on Budget and Policy Priorities also has helpful resources.

-Christina Wessel

Leave a Comment » | Budget Proposals | Tagged: constitutional amendment, TABOR, tax expenditure limits | Permalink
Posted by Christina Wessel

Scott Russell joins Minnesota Budget Project staff

November 3, 2009

We are very pleased to welcome Scott Russell, who joins us today as our new policy analyst.

Scott has extensive and award-winning experience in writing about complex financial issues as a journalist, covering issues such as education funding, public pensions and the nonprofit sector. Prior to joining the Minnesota Budget Project, Scott was a regular contributor to MinnPost.com, so he also brings plenty of experience writing online content. Scott has worked as a reporter for The Capitol Times in Madison, Wisconsin and the Southwest Journal/Downtown Journal in Minneapolis and does many freelance projects.

Not only does Scott bring investigative skills and knowledge of state and local government to this job, but also a genuine enthusiasm for the work and a passion for the issues.

Over the last few months we’ve definitely been feeling Katherine’s absence as we’ve engaged in a long and challenging search to fill this position. Through the process, we had the privilege of meeting with many very talented candidates. Now we are very excited to have Scott on board and start a new chapter in our work.

-Christina Wessel and Nan Madden

Leave a Comment » | General Information | Permalink
Posted by Christina Wessel

State Policy Fellowship Program seeks applicants

November 3, 2009

I’m very excited to announce that the State Policy Fellowship Program, sponsored by the Center on Budget and Policy Priorities in coordination with the State Fiscal Analysis Initiative (SFAI), is currently seeking highly-qualified candidates to serve two years as entry-level analysts. Fellows will work in a state policy organization belonging to the SFAI network, such as the Minnesota Budget Project, or at the Center on Budget and Policy Priorities’ state fiscal division in Washington D.C.

Fellows will gain hands-on education and experience while working alongside experts in the field of state policy to analyze the impact of state budget and tax policy choices on low-income residents and promote positive reforms. The program offers a competitive salary with health benefits and features professional development opportunities.

To expand the diversity of voices that speak with authority in state policy debates, the program seeks highly qualified candidates from diverse backgrounds who recently received a graduate degree in public policy, public affairs, economics, social work, public health, law, or a related field, and have an interest in state fiscal policies affecting low- and moderate-income households.

Completed applications must be submitted online by January 15, 2010.

You can find out more on the Fellowship web site.

-Nan Madden

Leave a Comment » | Action Opportunity, General Information | Tagged: Center on Budget and Policy Priorities, diversity, policy fellowship | Permalink
Posted by Nan Madden

Pelosi unveils modified House health care reform bill

November 2, 2009

House Speaker Nancy Pelosi has unveiled the long-awaited House health care reform bill that will go to the floor for debate beginning late this week. The so-called “merged bill” was negotiated by the House Democratic leadership with the leaders of the three House committees that reported different versions of health care legislation this summer: Education & Labor, Energy & Commerce and Ways & Means.

A summary of the new House bill from Speaker Pelosi shows that it would achieve several of the objectives outlined in MCN’s position statement on health care reform by expanding Medicaid coverage to make health care affordable for more low-income Minnesotans, by providing adequate federal funding without increasing the federal budget deficit, and by helping to contain unsustainable cost increases by implementing strategies such as the public option.

According to the Washington Post, the bill would provide health insurance coverage to 36 million Americans who are currently uninsured, either through private insurance, a public option, or Medicaid.

Key features of the bill include:

An individual mandate requiring most individuals to purchase coverage.
An employer mandate requiring employers to either provide coverage or pay a penalty. Small firms with annual payrolls below $500,000 would be exempt.
Medicaid eligibility levels would be simplified and raised to 150% of the federal poverty level (about $16,200 annual income for an individual). (The original House bill proposed raising Medicaid eligibility to 133% of the federal poverty level).
A new national health insurance exchange that would offer consumers a choice of private insurance plans and a federal public option.
New restrictions on insurance companies, including a ban on denial of coverage for pre-existing conditions and a new review process on premium increases.
Establishment of a new voluntary long-term care insurance program to be financed through payroll deductions.

According to Speaker Pelosi, the House bill meets President Obama’s criteria of having a price tag below $900 billion over ten years, fully paid for, and reducing the deficit in the long term. An official price tag or “score” is expected early this week.

The bill also includes improvements to make Medicare and Medicaid more efficient, including closing the gap in Medicare Part D coverage for medicines and a study on geographic disparities in Medicare reimbursements, among others.

In a bow to moderate and conservative Democrats in her caucus, Speaker Pelosi endorsed a modified public option in which reimbursement rates for health care services would be negotiated between the federal government and health care providers, instead of basing reimbursements on Medicare rates. Many representatives representing rural constituencies, including most of Minnesota’s Congressional delegation, have previously expressed strong concerns about regional disparities in Medicare reimbursement rates.

All eyes are on conservative “Blue Dog” Democrats who may hold the fate of the House bill in their hands. Initial reactions to the new House bill from some Blue Dogs seemed to be favorable. Republican House members appear to be solidly opposed to the bill. While Speaker Pelosi concedes that she may not yet have the 218 votes needed in hand, the trend is clearly moving in the direction of gaining support to pass the bill.

Your organization still has time to join our sign-on letter to the Minnesota Congressional delegation in support of comprehensive health care reform.

-Steve Francisco

Leave a Comment » | Health Care, Taxes | Tagged: employer mandate, Federal Budget, Health Care, health care reform, medicaid, public option | Permalink
Posted by Steve Francisco

Lawsuit filed over Governor’s unallotment actions

October 30, 2009

We’ve all been expecting it – a lawsuit has been filed to seek a temporary injunction to prevent the implementation of cuts made by the Governor through the unallotment process. The lawsuit, filed by Mid-Minnesota Legal Assistance on behalf of six disabled and low-income Minnesotans, specifically looks at two programs targeted for reductions under unallotment:

Elimination of Minnesota Supplemental Aid-Special Diet (MSA-SD) grants, which provides cash supplements to help low-income individuals purchase medically necessary diets.
Reduction in the renters’ credit, which provides a property tax refund to low-income renters. Under unallotment, nearly 281,000 Minnesota households will see a cut in their Renters’ Credit, the average Renters’ Credit will be reduced by $163, and 18,200 households will lose their Renters’ Credit completely in 2010. Twenty-eight percent of households receiving the Renters’ Credit include seniors or people with severe disabilities. More information on the renters’ credit is available on our Web site.

The lawsuit seeks an injunction while the court determines whether the Governor’s actions were constitutional.

We don’t know too much more than that now, but here are some sources for additional information:

Mid-Minnesota Legal Assistance has a brief summary on their Web site
If you read legal jargon, a copy of the full complaint is also available
A short story appeared in the Star Tribune
Doug Grow has a column looking at the issue in more depth on MinnPost

-Christina Wessel

2 Comments | Budget Process | Tagged: lawsuit, mid-minnesota legal assistance, renters credit, unallotment | Permalink
Posted by Christina Wessel

Friday’s data covers only a sliver of the Economic Recovery Act’s impact

October 29, 2009

Data to be released on Friday, October 30, about jobs created by the American Recovery and Reinvestment Act (ARRA) will only cover a small portion of the economic activity generated by that legislation. It’s important to understand what’s included in that report and what is left out. Here’s some of what I learned from the Center on Budget and Policy Priorities’ extremely helpful paper on the topic.

What’s in: About 16 percent of Recovery Act funds spent through September 30 are covered under the reporting system that will generate this jobs data. But only a portion of the jobs created through this portion of spending will be counted. The data will include jobs created or retained by recipients of ARRA grants and loans, but not the indirect impact of these dollars, such as the jobs created by subcontractors or suppliers involved in those projects.

What’s left out: About 84 percent of Recovery Act funds through September 30 are not included in the job reporting requirements. These include important areas of the act that have had a positive economic impact, such as:

Unemployment Insurance and other direct aid to individuals hurt by the economic downturn. By the end of August, more than $30 billion had been spent on unemployment benefits for laid-off workers and an increase in Food Stamps. These provisions have a great “bang for the buck” as the struggling families who receive them spend those dollars in local grocery stories and businesses. Economist Mark Zandi finds that every $1 spent on unemployment insurance generates $1.63 in economic activity and each $1 spent on additional Food Stamps generates $1.73 in activity. The jobs created or retained through this additional activity are not included in the jobs data. Minnesotans have received an estimated $356 million in additional unemployment insurance benefits and $42 million in Food Stamps through September from the Recovery Act.
Additional Medicaid funds to the states. About $31 billion by the end of September has gone for additional Medicaid for the states – Minnesota’s share is $782 million. We’ve written repeatedly about how crucial these dollars were in preventing thousands of Minnesotans from losing health care in the 2009 Legislative Session and by preventing other painful cuts to balance the state’s budget shortfall. These Medicaid dollars are used to pay health care providers of various kinds. But those health care jobs, and the impact of those health care workers’ spending in the economy, is not included in the jobs data.

More complete estimates will come later this year or early next year. The President’s Council of Economic Advisors is required to make comprehensive quarterly estimates about the full impact of the Economic Recovery Act on jobs. The report they released last month estimated that between 600,000 and 1.1 million jobs were created or retained in the third quarter of this year from the Recovery Act. In Minnesota, 20,100 jobs were estimated to be created or retained in the third quarter. (In contrast, 3,300 to 4,700 jobs are estimated to be lost through June 2011 due to state spending cuts under unallotment.)

-Nan Madden

Leave a Comment » | Federal Budget | Tagged: ARRA, budget deficit, Economic Recovery Act, stimulus, unemployment | Permalink
Posted by Nan Madden

Congress set to debate health care reform; Senate bill will include public option

October 29, 2009

The U.S. House and Senate are both scheduled to begin floor debate of health care reform bills the first week of November. In a stunning announcement on Oct. 26, Senate Majority Leader Harry Reid announced that the Senate bill will include a public option but will also include a provision allowing states to opt out. Until recently, it had appeared that the public option was all but dead in the Senate. However, recent polling has indicated broad public support for including a public option in health care reform legislation. Also, a new analysis last week from the Congressional Budget Office (CBO) revealed that a public option tied to Medicare reimbursement rates would actually reduce the federal budget deficit by $110 billion over ten years.

According to the Washington Post, Reid has not yet rounded up the 60 votes that will be necessary to take up the bill on the Senate floor and to subsequently cut off an expected filibuster and proceed to a final vote. Reid’s task is made more difficult by Independent Senator Joseph Lieberman’s announcement that he will oppose a final vote on any bill that includes a public option, even if it includes an opt-out provision for states.

Meanwhile, the Minnesota Council of Nonprofits (MCN) has adopted a position statement on health care reform that urges Congress to support comprehensive health care reform legislation that includes:

Support for small employers, including nonprofit employers
Making health care affordable for low-income Minnesotans
Providing adequate federal funding
Containing unsustainable cost increases

In this critical juncture in the health care debate, MCN is coordinating a sign-on letter to the Minnesota Congressional delegation in support of these four critical elements. Organizations wishing to sign on should download and return the letter to us by Friday, November 13.

-Steve Francisco

Leave a Comment » | Action Opportunity, Health Care | Tagged: Health Care, health care reform | Permalink
Posted by Steve Francisco

Joint legislative committee takes a look at solving state’s structural deficit

October 29, 2009

Last week, the legislature convened a meeting of the Subcommittee on a Balanced Budget (a subdivision of the Legislative Commission on Planning and Fiscal Policy). This new subcommittee, created in the wake of last month’s Leadership Summit, is charged with setting up a “framework” for addressing the state’s long-term budget challenges.

In their first meeting, the members reviewed much of the information covering during the Leadership Summit, including an overview of the state’s economic challenges (from state economist Tom Stinson and state demographer Tom Gillaspy) and the state’s budget challenges (from Senate lead fiscal analyst Matt Massman and House chief fiscal analyst Bill Marx). The information-packed handouts are available on the committee’s website.

There were a few things that struck me as either new or interesting:

In considering the projected budget deficit for the next biennium, FY 2012-13, keep in mind that the forecast already assumes that revenues will increase by 10 percent over the FY 2010-11 biennium. So, said Stinson, if we think a strong economic recovery would allow us to “grow” our way out of the budget deficit, we need a reality check. The recovery is already factored into the forecast. In order to balance the budget through economic growth, revenues would need to increase by 25 percent between FY 2010-11 and FY 2012-13. In other words, we cannot grow our way out of deficits, we will need to make some fundamental changes.
Minnesota’s Price of Government (or how much of our personal income goes towards paying for all state and local government) has declined. Back in the early 1990s, Minnesotans were paying close to 18 percent of personal income for all state and local government. That percentage has dropped to less than 16 percent. Stinson pointed out that if Minnesota was spending at the same level of personal income as we were in the mid-1990s, we’d have about $4.4 billion more in revenues available right now.

And legislators also engaged in a little political sparring with Tom Hanson, Commissioner of Minnesota Management and Budget:

Apparently, some in the legislature feel that there is no legal authority for the Governor to pay back the shift in education funding that he implemented through unallotment. Senator Larry Pogemiller pushed Hanson on that issue, arguing that there will need to be authorizing legislation in order to “pay back” the shift.
Pogemiller also warned Hanson that when the legislature reconvenes next February, the Governor should be prepared to present a proposal for balancing the budget all the way through FY 2012-13. Hanson responded that he’ll carry their message to the Governor, but the easiest answer would be to just continue the Governor’s unallotments, including the shift in education funding.
Senator Dick Cohen asked whether the Governor was considering another round of unallotments if the November Forecast shows a new deficit. Hanson answered that the idea hasn’t come up and they are busy preparing a supplemental budget to be introduced in the 2010 Legislative Session.

Two additional meetings of the Balanced Budget Subcommittee have been scheduled:

Thursday, November 12, 9:00 am – 12:00 pm, State Capitol Room 15
Thursday, December 10, 9:00 am – 12:00 pm, State Capitol Room 15

-Christina Wessel