House and Senate present a plan to resolve budget gap

As the legislative session draws to a close, the recent State Supreme Court decision overturning the Governor’s unallotment actions has added a new twist for policymakers. Monday morning, the House and Senate announced a proposal that would fix a $2.962 billion hole – $535 million needed to fix the state’s remaining budget deficit and another $2.4 billion to preemptively deal with the uncertainties resulting from the State Supreme Court decision.

The proposal (HF 2037) ratifies most of the Governor’s unallotments (including the shift in K-12 education payments), includes $435 million in new revenues and adopts some fixes for helping easing imbalances in the state’s cash flow.

The details of the proposal include (a spreadsheet is available):

• $1.75 billion from ratifying the Governor’s shift in education payments
• $21 million from approving some of the Governor’s unallotments and recommended reductions to state agencies (these would be permanent reductions)
• $293 million from ratifying the Governor’s local government aid unallotments in FY 2010-11
• $52 million from ratifying the Governor’s unallotment of the Renters’ Credit for low-income families in FY 2010-11 only
• $19 million from ratifying other tax aids and credits the Governor unallotted in FY 2010-11 (including the political contribution refund program)
• $100 million from ratifying the Governor’s unallotments to higher education in FY 2010-11
• $114 million from the health and human services conference committee agreement (this is traveling in a separate bill, not HF 2037)
• $74 million from ratifying some of the Governor’s unallotments to health and human services in FY 2010 (additional unallotment actions are included in the health and human services conference committee agreement)
• An additional $77 million in reductions to health and human services in FY 2011 that would be implemented if the state does not receive the federal enhanced Medicaid funds
• $40 million from the Closed Landfill Investment Fund
• $435 million in new revenues (about 15 percent of the solution). The bill would create a new 4th tier income tax rate, increasing the rate for married couples with taxable income over $200,000 from 7.85 percent to 9.1 percent. If the state attains a surplus of at least $500 million in the February 2013 forecast, the rate would return to 7.85 percent in 2014. Another provision would also accelerate the expiration of several federal tax cuts that are set to expire next year.

This proposal assumes the state will not receive $408 million in federal money from Congressional action to extend increased federal funding for health care under Medicaid. The bill does include contingency language so that if the resources arrive by June 15, 2010, $77 million in reductions to health and human service would not be implemented and $36 million would be used to fill a hole in financial aid for higher education. The remainder would be used to begin to pay back the school shift and help with the state’s cash flow problems (this part was not clearly explained). Representative Carlson placed the probability of receiving the funds at 80 percent.

The bill also includes language recommended by the Governor that would help ease the state’s cash flow challenges by shifting when the state receives some revenues.

Both the Senate and House are expected to take up the bill on the floor today. Watch the blog for more analysis…

-Christina Wessel (with lots of support from the rest of the amazing Minnesota Budget Project staff!)