A first look at sequestration’s impact on Minnesota

April 18, 2013

It’s April in Minnesota, which means many of us are caught up in the budget discussions brewing at the state Capitol. However, at the federal level, policymakers’ inability to reach a deficit-reduction deal has triggered a series of across-the-board federal spending reductions. These automatic cuts, known as sequestration, started to take effect on March 1.

What does that mean for Minnesota? Minnesota Management and Budget estimates that federal funding that goes to the state and other entities like schools and local governments could be reduced by $90 million annually. Some of these reductions might be offset by increases in other federal funding.

Funds that are subject to cuts include many services that make a real difference in the well-being of vulnerable Minnesotans like Title I education; special education; Head Start; a number of human services block grants; the Low-Income Home Energy Assistance Program (LiHEAP); and Women, Infants and Children (WIC), which provides nutrition education and supplemental food.

According to a House and Senate fiscal staff memo, WIC funding in Minnesota will lose $1.2 million (federal FY 2013). Title I grants for education will see a loss of $12.8 million in funding, and special education will lose $9.5 million.

Federal funds account for about 30 percent of the roughly $65 billion total state budget for FY 2014-15. The largest areas of federal funding in Minnesota are for Medicaid, highway planning and construction, cash and food assistance, and education. Fortunately, several of these sources of federal funding are not subject to the automatic cuts, including Medicaid, some highway grants, cash assistance for low-income families and foster care.

Much is still unclear. The timing and final amounts of some of the cuts have yet to be determined by federal decisionmakers. State agencies like Minnesota Management and Budget are keeping in close contact with the federal government to get details as they become available.

It will then be up to policymakers to decide how to respond.

-Caitlin Biegler

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April economic update brings more good and not-so-good news

April 17, 2013

State revenues continue to come in higher than expected and employment in Minnesota has returned to pre-recession levels, according to the April 2013 Economic Update from Minnesota Management and Budget. That’s the good news.

During February and March, state revenues were $145 million higher than expected. This was primarily due to an increase in income and corporate tax collections. Most of these revenues might be one-time, and not due to increased economic activity.

Minnesota continues to do better than the national economy, and employment growth during January and February brought payroll employment in the state to 2.8 million. The state now has 8,000 more jobs than at the start of the recession in December 2007.

Now for the not-so-good news. Economic growth at the national level this year has been much stronger than anticipated, but this will be largely offset by federal sequestration and other concerns. The state’s macro-economic consultant expects that sequestration will continue until the end of the federal fiscal year (September 30), and then a “Grand Bargain” will be reached that replaces the sequester with a package of revenue increases and more targeted spending cuts that provide a short-term boost to the economy. The state’s consultant assigns a 60 percent probability to this forecast and 20 percent probabilities to more optimistic and pessimistic scenarios. In the more pessimistic scenario, the consultants predict that the country will narrowly avoid another recession.

Much is still unclear regarding the specific cuts that will take place under federal sequestration, and state agencies continue to be in contact with the federal government to ascertain exactly how Minnesota will be affected.

-Caitlin Biegler

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Research debunks idea that tax increases prompt the wealthy to leave a state

April 16, 2013

As Minnesota policymakers consider proposals to increase income taxes on the highest-income households as part of the FY 2014-15 budget, it’s time to put one misconception about taxes to rest. Raising income taxes on the wealthy does not cause them to flee a state in significant numbers.

In a recent analysis, Tax Increases Don’t Prompt High-Income Households to Move Out of State, we found states that raised taxes on high-income residents in recent years — such as New Jersey, Maryland and California — did not see a rush of wealthy households moving out of their states.

The research finds that the national economy — not taxes — has a larger impact on changes in the number of high-income households in a state. Moves are also more likely to be triggered by a major life event, such as divorce.

Our analysis concludes that raising taxes on Minnesota’s highest-income households would not cause them to leave the state in significant numbers, but it would provide revenue for critical investments in quality schools, affordable higher education, and safe communities that make people want to keep Minnesota as their long-term home.

-Nan Madden

P.S. Check out an op-ed we wrote for the St. Cloud Times on this issue. It ran in the April 14 edition.

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10 Ways in 10 Days: Invest in all-day kindergarten

April 15, 2013

Invest in Minnesota’s 10 Ways in 10 Days campaign wraps up today with a story about the need the invest in all-day kindergarten:

Amy teaches kindergarten in Janesville, Minnesota. Although it hasn’t been easy, the school district has made it a priority to fund all-day kindergarten because of the benefits they’ve seen.

“Having the extra time with kids makes a huge difference in providing the repetition needed to prepare kids for reading, writing and math,” Amy says.

Amy also sees all-day kindergarten as an important part of preparing kids for their future success emotionally and socially.

“The additional time it gives us to build relationships and have structure in our days is huge,” she says. “For example, one year I had a young girl in my class who was very quiet. Even being in school all day, it took almost half the year before she came out of her shell. But when she did it was so rewarding to see her smile, say ‘good morning,’ answer questions, and make friends. ”

Amy also knows how important these breakthroughs are to prepare students for the first grade.

“First grade is a big learning year, but when they are used to coming to school all day and have had the chance to get comfortable with a teacher and their classmates, their anxiety goes down, which is critical to helping them learn.”

But not every child gets that chance. Amy worries about the gap created in Minnesota when not every child gets that same opportunity.

“We try to teach our kids about fairness,” she says, “But what are we saying if they are not all having an equal opportunity to succeed?”

With fair and adequate revenues, we can make sure all Minnesota kindergarteners get the time and attention they need to succeed.

-Leah Gardner

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10 Ways in 10 Days Nine: Invest in services for homeless youth

April 12, 2013

Today is Way Nine of Invest in Minnesota’s 10 Ways in 10 Days campaign.

It profiles Erich Lutz, who sees the urgency of investing in our youth every day:

Erich Lutz has worked with youth experiencing homelessness in Duluth for 13 years.

The young people walking through his doors at Life House don’t have any other options.

“Many come from unsafe homes and face circumstances beyond their control,” he says. “They are forced to grow up without anyone to show them how.”

Youth come to Life House’s drop-in center simply to survive — they need shelter, food and clean clothes. Along with those necessities, they also get encouragement, learn to trust and begin to heal.

“They have experienced trauma,” Erich says. “Adults in their lives have taken advantage of them or abandoned them. We teach them a lot of things: how to balance a checkbook, do laundry and make doctor’s appointments. But most importantly, we teach them that they’re worth something and that someone cares enough to be there even if they make a mistake.”

Erich has seen youth achieve great things after receiving help. One former resident was kicked out of her home by her abusive stepfather and mentally ill mother. She crashed on couches and under bridges until she found Life House.

She recalls, “I knew it was a safe place where I could get help without fearing judgment. I was ashamed of what I’d done to survive, but Life House helped me pick up the pieces. With their help, I enrolled in college, got a job and established permanent housing.”

Today she is leading a healthy, happy life and has dedicated her career to helping youth with similar experiences.

According to Wilder Research’s 2012 Minnesota Homeless Study, at least 1,151 unaccompanied youth were homeless in Minnesota on a single night. But state investments in services like those provided by Life House will make sure youth experiencing homelessness get the help they need to lead healthy, happy lives and contribute to their communities.

The 10 Ways in 10 Days campaign features people from around the state who have first-hand experience with critical state services – and know their value. The campaign highlights how fairly raised revenue and state investments benefit all Minnesotans and why it’s time for policymakers to invest in prosperity for all.

-Leah Gardner

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Senate tax priorities start to come into view

April 12, 2013

Some of the Minnesota Senate’s tax priorities came into clearer focus yesterday when the Senate Tax Reform Division released its draft division report, authored by the committee’s chair, Senator Ann Rest. More tax provisions will be revealed when the omnibus tax bill is released later this month.

The division report raises tobacco taxes, takes a “broaden the base, lower the rate” approach to sales and business taxes, and increases funding for cities. It raises $399 million in revenues for the state’s general fund in FY 2014-15, primarily through the tobacco tax components.

Tobacco taxes. The division report increases taxes on tobacco products, including a 94-cents-per-pack increase on cigarettes. It also simplifies Minnesota’s existing tobacco taxes: The state would continue to collect the 75 cents per pack that is currently called the Health Impact Fee, but it would stop having a different name from the rest of the tobacco tax, and the funds would go directly into the state’s general fund, instead of stopping first in a Health Impact Fund. The net impact of the tobacco tax changes is to raise $376 million in FY 2014-15.

Sales tax. Under the division report, the state’s sales tax rate would be lowered from its current 6.875 percent rate to 6.0 percent. A number of items would become newly subject to the sales tax, such as:

  • Clothing;
  • Digital products, including digital books, music downloads and ringtones;
  • Personal services, such as haircuts, spa services, tattoos, wedding planning, dating services, and personal instruction in athletics, fitness and dance;
  • Auto repair, and repair and maintenance of household goods;
  • Warehousing and storage services;
  • Over-the-counter drugs;
  • Admission to trade shows and professional athletic events;
  • Publications, excluding newspapers.

The division report applies the sales tax to a narrower set of items than Governor Dayton’s original budget. The division report offsets some of the sales tax increase through a new refundable clothing tax credit for low- and moderate-income Minnesotans. It also creates a more level playing field for Minnesota businesses by requiring some internet retailers to collect sales taxes from Minnesota residents, just as retailers physically located in the state do.

The division report provides a sales tax exemption for purchases by cities and counties, and an upfront exemption for business purchases of capital equipment, replacing a cumbersome refund process. The combined effect of the sales tax provisions is to raise $78 million in general fund dollars in FY 2014-15.

Business taxes. The division report raises revenues by ending several tax preferences in the corporate franchise tax, similar to Governor Dayton’s proposal, including preferences for businesses with overseas activities. It also adjusts minimum fees paid by businesses, which have not been updated since 1990.

It then lowers taxes by increasing two existing tax credits for certain businesses and investors – the Angel Investment Credit and the Research and Development Credit – and lowering the corporate tax rate from 9.8 percent to 9 percent. The combined fiscal impact is to raise $32 million in FY 2014-15.

Funding for cities. Local Government Aid to cities would increase by $80 million per year starting in FY 2015, and distributed through a new formula. (Additional funding for counties is expected to be included in the omnibus tax bill.)

The Senate Tax Reform Division will hear testimony, amend and vote on the division report on Tuesday, April 16. The division report then goes to the Senate Taxes Committee to be considered for incorporation into the omnibus tax bill. The omnibus tax bill will include additional provisions to raise the revenues needed to fund new investments, balance the state’s budget and make the tax system more fair.

You can find the legislative language and a summary of the division report on the Senate Tax Reform Division’s webpage. A spreadsheet is available as well.

-Nan Madden

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10 Ways in 10 Days Eight: Invest in Job Training

April 11, 2013

Today’s 10 Ways in 10 Days story from Invest in Minnesota is about investing in job training:

Imagine that you’re the main provider for your wife who has health issues, a brother with physical and mental disabilities, and a daughter preparing to begin college. Then you lose your job.

That’s what happened to Kenneth in 2010.

He didn’t know where to turn at first. After giving it some thought, he decided to change careers.

Kenneth contacted Lifetrack Resources in St. Paul to find out about careers in welding. He took classes and received certifications offered through Renewable Energy Network Empowering Workers (RENEW), which provides access to sustainable career pathways, while ensuring that area businesses have access to a well-trained workforce.

After completing the program, Kenneth still encountered challenges finding a permanent job but worked closely with his Lifetrack Resources job counselor to pursue potential employment opportunities while working temporary jobs.

Today, Kenneth has a stable, permanent job due to his patience and determination to support his family – and because of state investments in services like Lifetrack Resources and RENEW.

He says that thanks to the job training assistance and support, he was able to start over and succeed. Today, he is proud to once again provide for his family.

Kenneth’s story is a prime example of how state investments benefit Minnesota’s economy – and why policymakers should raise revenues fairly to fund these services.

The 10 Ways in 10 Days campaign features people from around the state who have first-hand experience with critical state services – and know their value. The campaign highlights how fairly raised revenue and state investments benefit all Minnesotans and why it’s time for policymakers to invest in prosperity for all.

-Leah Gardner

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10 Ways in 10 Days Seven: Invest in higher education

April 10, 2013

Day Seven of Invest in Minnesota’s 10 Ways in 10 Days campaign shows why Minnesota needs to invest in higher education and our future:

Justin Lewandowski is 24 years old and lives in Saint Cloud.

At age 18, Justin started at Saint Cloud State University with bright eyes cast toward the future.

“I fully believed in what I had been taught my entire life,” he said. “If you study hard and work your way through college, you will have endless potential.”

But by age 20, he found himself working 50 hours a week just to afford school and pay the bills while attending classes full time — and on top of that he was worried about the future job market.

The financial strain and debt burden became too much, and Justin decided to put his education on hold. Today, he is still working full time and is also active in the community. He even started his own nonprofit working with local artists and Justin Lewandowskimusicians to grow a culture of community development through the arts.

To further his career, Justin knows he needs to go back to school. But he is afraid that the cost of college will leave him once again struggling just to make ends meet. “I see my story as the story of so many young people today. We want to be active and contribute to our communities, but too many of us are overwhelmed just trying to succeed and make ends meet juggling both work and school.”

State investments in financial aid for our public colleges and universities are critical so Justin and others can afford school and meet their full potential. In 2011, Minnesota ranked 3rd in the nation in the average graduate’s debt, which is a drag on the economy and contributes to lagging completion rates. Making higher education affordable for the next generation of Minnesotans is an investment in our future workforce – and our future community leaders.

The 10 Ways in 10 Days campaign features people from around the state who have first-hand experience with critical state services – and know their value. The campaign highlights how fairly raised revenue and state investments benefit all Minnesotans and why it’s time for policymakers to invest in prosperity for all.

-Leah Gardner

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10 Ways in 10 Days Six: Invest in Early Childhood Education

April 9, 2013

Day Six of Invest in Minnesota’s 10 Ways in 10 Days campaign features an Osseo teacher:

Gretchen Dullinger is an early childhood education teacher in the Osseo school district. She’s taught in Osseo for 11 years.

“We have programming for children ages birth to five including preschool for three- and four-year olds, Early Childhood Family Education classes, home visits, screening and more,” Gretchen says. “Children in our programs develop social, cognitive and motors skills that prepare them for kindergarten.”

Gretchen Dullinger

Gretchen adds, “There is a tremendous return on investment in these children as they move on to be successful in our elementary schools.”

Osseo’s program served 3,260 students in 2012. However, there is a waiting list of more than 150 children who are currently unable to attend because of lack of space and resources.

A large number of the students in the program qualify for free and reduced lunch, and are able to attend early childhood programs for a reduced cost or for free.

Gretchen noted that children in the school district, which includes some or all of Brooklyn Center, Brooklyn Park, Corcoran, Dayton, Maple Grove, Osseo, Plymouth and Rogers, come from a variety of backgrounds and family structures.

“With additional state funding, we would be able to ensure that dozens if not hundreds of children have the skills and knowledge base to succeed in school and life,” she says.

With fair and adequate revenues we can make high-quality early childhood education options accessible for all kids.

The 10 Ways in 10 Days campaign features people from around the state who have first-hand experience with critical state services – and know their value. The campaign highlights how fairly raised revenue and state investments benefit all Minnesotans and why it’s time for policymakers to invest in prosperity for all.

-Leah Gardner

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10 Ways in 10 Days Five: Invest in Domestic Violence Advocacy

April 8, 2013

Domestic violence is the painful subject of Day Five of Invest in Minnesota’s 10 Ways in 10 Days campaign. Today’s profile looks at three survivors of domestic violence and how their lives were turned around thanks to advocacy services in Minnesota.

To the outside world, Beth had a wonderful 15-year marriage. Behind closed doors, life was different. Her husband insulted her, controlled her relationships, constantly emailed/called her at work. Four days after the birth of their child, he beat her and ruptured her spleen. He routinely beat, bruised and raped her.

Marisa was 17 and living in Mexico. She was kidnapped and held captive. She escaped and returned home but her family rejected her. So, she married her kidnapper. He beat and strangled her daily. When they came to the United States she hoped the abuse would stop. It didn’t: the abuse got worse.

Nicki fell in love at the age of 20 but her boyfriend isolated her, told her she was stupid and unwanted. He held Nicki captive by gunpoint for three days, brutally beat, strangled, whipped and raped her. Finally he slept and Nicki escaped, running five blocks to find help.

What happened to Beth, Marisa and Nicki? Thanks to domestic violence advocacy services around Minnesota, they survived and lead stable, happy lives today.

In 2012, Beth, Marisa, Nicki and 63,267 other victims were able to get help in Minnesota – transportation to a safe location, crisis line support, legal assistance, safe housing, protection orders – a network of interdependent services.

These services exist because of public investments: domestic abuse agencies are an essential connector in a network that includes law enforcement, prosecutors, the education system, the medical system, and social services.

Unfortunately, these services have suffered cuts in recent years, and the network doesn’t reach every part of the state. It’s time to raise the revenues needed to fund these critical services.

The 10 Ways in 10 Days campaign features people from around the state who have first-hand experience with critical state services – and know their value. The campaign highlights how fairly raised revenue and state investments benefit all Minnesotans and why it’s time for policymakers to invest in prosperity for all.

-Leah Gardner

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