Congress close to passing unemployment benefit extension, economic boost expected

July 21, 2010

Wednesday evening, the U.S. Senate approved an extension of unemployment insurance (UI) benefits, after clearing a key procedural hurdle on Tuesday. While the bill leaves some key supports for unemployed workers off the table, the action will have an immediate positive impact in Minnesota and around the country. The bill still needs House approval, which also is expected this week.

The legislation provides additional weeks of benefits for the long-term unemployed, similar to the UI extension that expired June 2. It helps individual workers and their families at a critical time and will help the country’s economic recovery as a whole.

MPR reports the extension will restart benefits for 2.5 million unemployed workers nationally, providing up to 86 weeks of benefits for workers unable to find a job.  When the last UI extension expired June 2, eligibility for newly unemployed Minnesotans dropped to 39 weeks. The extension means that 80,000 Minnesotans will get additional benefits. The proposed extension would stay in effect until November 30.

Those unemployed workers who have already received their maximum 86 weeks of benefits will not qualify for additional weeks.

On the down side, the proposed UI extension does not provide some of the benefits in the earlier stimulus. For example, it does not include the $25-a-week additional payment to unemployed workers. For the week ending May 29, that $25 bonus payment provided a total of $3.6 million in additional dollars to unemployed Minnesotans. That money helped them pay for basic needs  – and circulated quickly in the local economy. (Those who started UI before June 2 will continue to get the $25 weekly payments for a period of time, but they will get phased out.)

The proposed UI extension also does not include supports for COBRA payments, helping unemployed workers maintain their health insurance.

According to analysis by the Economic Policy Institute (EPI), the UI bill will add $34 billion directly into the economy in the form of payments to the unemployed. However, after accounting for the increasing impact of that money being spent and respent, the benefit to the nation’s economy will be closer to $55 billion. In the end, the bill will partially pay for itself, generating $20.5 billion in new federal revenues due to the increased economic activity.

-Scott Russell and Steve Francisco

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Minnesota’s taxes near average, total public revenues below average

July 16, 2010

Minnesota is near average when it comes to taxes. Total state and local taxes in Minnesota were 11.2 percent of personal income in the state in FY 2008, according to U.S. Census and Bureau of Economic Analysis data. The national average is 10.9 percent. That ranks Minnesota 17th among all states. Minnesota’s ranking on this measure has been dropping since the mid-1990s. For instance, Minnesota ranked 4th in FY 1997.

While Minnesota is near average in tax revenues, we rank even lower when measuring all revenues of state and local governments. Add federal funds and non-tax revenue to state and local taxes, and Minnesota ranks 31st in the size of government as a share of income.

Why does Minnesota’s ranking fall further when federal and other revenues are included? States vary in the amount of federal aid they receive, with higher-income states such as Minnesota tending to receive less federal money. In FY 2008, Minnesota ranked 37th in the amount of federal revenues we received, measured as a share of the state’s personal income. That means Minnesota’s state and local governments have to raise more money locally to fund services.

When comparing states, it’s most meaningful to look at state and local government revenues combined. That takes into account the fact that some states, such as Minnesota, fund relatively more services at the state level and less at the local level.

It is also useful to measure government revenues or spending as a share of personal income in the state. Higher-income states such as Minnesota have higher labor costs, and that means it costs more to keep and maintain quality teachers, police and other public workers.  Measuring as a share of income also accounts for income differences among states. A $500 tax bill is a bigger slice of the household budget in a state where median family income is $30,000 compared to a state where it is $60,000.

Minnesota ranks higher in some taxes and lower in others. For instance, Minnesota ranked 6th in personal income taxes as a share of income in FY 2008, 16th in corporate income taxes, 28th in property taxes and 35th in general sales tax revenue. State leaders have made a choice to rely more on progressive taxes such as the income tax and less so on more regressive taxes. This results in a tax system that is more based on ability to pay than in many other states.

A couple of cautionary notes on the rankings. First, tax rankings try to boil down complex tax and spending systems into a single number. Secondly, these FY 2008 rankings in particular reflect the period immediately preceding the recession. The economic downturn has cut into state and local revenue. The impact of the recession on revenues, and the decisions states have made to respond to the downturn, are not reflected in this data. And finally, in developing rankings, analysts have different ways to match fiscal year data with calendar year data, which explains why the rankings found in our analysis may differ slightly from those developed by other organizations looking at the same data set.

-Scott Russell

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Bad news and really bad news about Minnesota’s financial situation

July 12, 2010

First, the bad news. Despite some optimism from the Governor at the end of the 2010 Legislative Session that the cash flow situation for FY 2011 was manageable, the latest news from Minnesota Management and Budget (MMB) shows that the state’s cash balance in the statutory general fund will dip to near zero as early as October. The cash balance will remain near or below zero until May. That’s clearly well below the minimum workable cash balance of $400 million.

The administration is proposing some options to help manage the cash flow situation which could be implemented as soon as this August. Recommendations include:

  • Deferring $83 million in K-12 payments until May 2011.
  • Deferring $89 million in payments to the University of Minnesota until June 2011.
  • Delaying $221 million in sales tax and corporate tax refunds over $5,000 by up to six months (all would be paid out by January 2011).
  • Delaying $110 million in payments to health plans and county-based health services in October and November (all would be paid by December 2010).

Unfortunately, these actions wouldn’t be sufficient to completely resolve the cash flow problem that persists through next spring. The state is also pursuing a line of credit option to help manage those shortfalls.

And now for the really bad news. The latest economic update released by Minnesota Management and Budget shows the state’s revenue collections for the current biennium are below expectations. We are closing FY 2010 (which ended on June 30) with a $99 million revenue shortfall. This shortage will be absorbed by the $6 million policymakers left on the bottom line and the $266 million in the cash flow account. As a result, there is no deficit for the current biennium. However, if there is another shortfall of more than $173 million before the end of FY 2011 (that’s what will be left in the cash flow account), then policymakers may need to solve another budget deficit before June 30th. (As a side note, the cash flow projections mentioned above take into account the $99 million shortfall.)

The future doesn’t look any rosier. Remember that the actions of the 2010 Legislative Session left the state with a $5.8 billion deficit for the FY 2012-13 biennium, $6.9 billion if you include inflation. Although the U.S. economy is showing consistent growth, the economic update points out that, “a crisis of confidence is emerging now as Americans begin to recognize how slow this recovery is likely to be.” Although most economists do not fear another recession, real GDP growth is now expected to average 2.9 percent over the next biennium, not the 3.5 percent initially projected. As a result, “it appears that the 2012-13 budget gap is likely to be materially wider than end-of-session estimates.”

State policymakers may soon be regretting that they did not take more action to reduce the FY 2012-13 deficit during the last legislative session. A slim ray of hope could come from the federal government. Congress has been debating for months whether to provide states with additional fiscal relief. This latest financial news clearly shows that the crisis in the states continues and federal assistance is critical to preserving core public services and sustaining economic growth.

-Christina Wessel


Recovery Act has brought $2.6 billion to Minnesotans

July 9, 2010

Minnesotans have received approximately $2.6 billion in direct federal assistance from February 2009 through May 2010 as a result of the American Recovery and Reinvestment Act (ARRA), according to the Center on Budget and Policy Priorities. The direct assistance was provided through increased benefits for existing federal programs, through new tax credits and through direct cash payments. The collective impact of this direct assistance has been to put additional income into Minnesotans’ pockets to help struggling working families avoid falling into poverty and to save jobs in our local economy through increased consumer spending. Most economists agree that increased consumer spending is the key to a sustained economic recovery.

Here’s a breakdown of how much direct assistance has been received by Minnesotans through tax credits or direct cash assistance through May 2010 thanks to the Recovery Act:

1. Making Work Pay Tax Credit – $1.4 billion for Minnesotans. The Recovery Act created a new refundable tax credit equal to 6.2 percent of a worker’s earned income in 2009 and 2010. The vast majority of wage earners will benefit from this tax credit, receiving a maximum credit of $400 for an individual or $800 for a married couple. Individuals earning over $75,000 or married couples earning over $150,000 receive a smaller credit. No tax credit is available to individuals earning over $95,000 or married couples earning over $190,000.

2.  Food Stamps - $109 million for Minnesotans. The Recovery Act provided a nearly 14 percent temporary increase in the maximum Food Stamp benefit. This translated into the average participating household getting $40 to $50 more each month beginning in April 2009. Also, the time limit on how long childless adults could receive Food Stamps was suspended.

3. Unemployment Insurance (UI) Benefits – $232 million for Minnesotans. The Recovery Act temporarily increased the regular Unemployment Insurance benefit by $25 per week.

4. Extended Unemployment Compensation (EUC)- $672 million for Minnesotans. The Recovery Act , as well as other legislative action, provided additional weeks of unemployment benefits to people who would otherwise have exhausted their benefits. 

5. $250 Economic Recovery Payments – $212 million for Minnesotans. The Recovery Act included a one-time payment of $250 to anyone receiving Social Security, Supplemental Security Income (SSI), Railroad Retirement or disabled veterans’ benefits. This one-time payment was distributed mostly in May 2009.

While we have a long way to go to return to a robust, vibrant and growing economy here in Minnesota, consider how much worse off many Minnesotans and our economy would be today if not for the $2.6 billion in tax credits and direct assistance made possible by the Recovery Act. The money is flowing to struggling families and individuals who spend it in our communities, helping to spur economic recovery.

To keep the economy on the right track, Congress should extend additional aid to individuals (such as by extending  Unemployment Insurance benefits) and to states (such as through the extension of the enhanced federal matching rate for Medicaid). One point seems clear: the federal government has a powerful and significant role to play in helping struggling Minnesotans survive the continuing economic recession.

-Steve Francisco


Minnesota nonprofits urge Congress to support Child Tax Credit, Earned Income Tax Credit

July 1, 2010

Fifty nonprofits from across Minnesota joined a sign-on letter to the Minnesota Congressional delegation expressing strong support for recent improvements to the Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC) that were included in the American Recovery and Reinvestment Act (ARRA). These improvements help struggling Minnesota families to make ends meet. They provide powerful incentives that promote work, self-reliance and parental responsibility.

The Recovery Act, passed by Congress in 2009, allowed more low-income families to qualify for the Child Tax Credit of up to $1,000 per child. But this lower wage threshold is set to expire at the end of this year unless Congress acts to pass an extension of the provision. Approximately 156,000 Minnesota children and their families have benefited from this improvement to the Child Tax Credit, which brought an additional $126 million to Minnesota families.

The Recovery Act also increased the Earned Income Tax Credit for families with three or more children and some families headed by married couples. But this improvement to the EITC is also set to expire at the end of this year unless Congress acts to extend it. Approximately 102,000 Minnesota households have benefited from the EITC improvements, which brought an additional $51 million to Minnesota working families.

Extending the Child Tax Credit is especially important for children living in rural areas, including tens of thousands of children living in rural parts of Minnesota. The Center on Budget and Policy Priorities finds that:

Rural children will be roughly 20 percent more likely than those in metropolitan areas to face reductions in their child credit if Congress fails to extend the Recovery Act improvement. Nationwide, rural America includes 15 percent of all children — but 18 percent of the children whose Child Tax Credit would be reduced.

So what would the expiration of the improvements to the Child Tax Credit mean to Minnesota families?

A parent with two children who works at a full-time minimum wage job would see her Child Tax Credit cut from $1,725 this year to only $248 next year – a loss of $1,477. It’s estimated that 600,000 children nationwide will fall into poverty because of the loss of part or all of their Child Tax Credit and an additional four million children who are already living in poverty will become even poorer, according to the Center on Budget and Policy Priorities.

Congress is expected to take up a package of tax legislation some time in July or early August. Congress should extend the improvements in the Child Tax Credit and Earned Income Tax Credit, which have made a difference to thousands of Minnesota families with children. Evidence shows that this kind of federal spending helps boost consumer spending – a critical part of helping along the nation’s economic recovery.

- Steve Francisco

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Extending Medicaid aid to the states would boost economy, save jobs

June 25, 2010

The U.S. Senate faced a critical vote yesterday on measures that are important to the country’s continued economic recovery, including a six-month extension of additional federal funding to states for Medicaid (also known as FMAP), as well as an extension of Unemployment Insurance. The failure to pass these provisions threatens to slow the nation’s economic recovery.

The nation’s economic recovery remains fragile, and can be harmed by state actions to balance their budgets. The Center on Budget and Policy Priorities finds that the projected budget gaps that states must close for the fiscal year starting this July total $140 million. They estimate that state actions to close these budget shortfalls could cost the economy up to 900,000 public and private sector jobs next year – the wrong way to go if we want to end the recession and reduce unemployment. The extension of federal help to the states through FMAP would prevent deeper state budget cuts and related job losses.

Minnesota could receive approximately $220 million in additional funding from the provision; some estimates based on different but reasonable assumptions come up with higher figures. Through this May, Minnesota has already received nearly $1.3 billion in additional Medicaid funds thanks to the enhanced matching rate, funding that has protected health care for thousands of Minnesotans and has saved jobs.

The nonpartisan Congressional Budget Office (CBO) says that temporary assistance to the states, as well as Unemployment Insurance benefits, are among the most effective measures the federal government can take to create jobs and increase demand in the economy.

Some members of Congress have voted against these provisions, arguing that the nation must focus on reducing its long-term deficit. But legislation to help struggling families survive the worst economic recession since the Great Depression has not been a primary contributor to the growth in the long-term deficit. The more significant contributors include the economic downturn, the 2001 and 2003 tax cuts (that disproportionately benefited the highest-income households in the nation), and the costs associated with the wars in Iraq and Afghanistan. The extension of the enhanced Medicaid matching rate for the states is only a temporary measure – it would not add significantly to the long-term federal deficit.

In failing to pass legislation that extends help to the jobless and aid to the states, Congress is turning its back on the most effective tools it can use to help Minnesotans struggling in these tough times and help the nation’s economy recover. We are fortunate that both of Minnesota’s U.S. senators, Amy Klobuchar and Al Franken, support these provisions.

-Steve Francisco

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Finding ways to make “work supports” work better

June 24, 2010

The federal and state governments have a number of ways to help working families at or near poverty stay afloat economically and get a leg up towards self-sufficiency. Yet, for a variety of reasons, families don’t always get the help for which they qualify.

Work supports include child care assistance, Medicaid, energy assistance and Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps). These supports can make the difference between breaking the cycle of poverty, or falling deeper into debt and despair.

Governments put conditions on work supports, such as asset or income tests, co-payments and premiums. Policymakers use such restrictions to limit costs and assure program integrity. But these restrictions also can add unnecessary red tape and administrative costs, and can prevent services from achieving their intended outcomes.

The Children’s Defense Fund-Minnesota (CDF-MN) reviewed work support programs in multiple states, identified participation barriers, and highlighted how different states have made improvements in their report Public Work Support Programs: Addressing Barriers to Increase Access.

Asset limits can prevent families from accumulating savings or planning for unforeseen circumstances, CDF-MN said. Low-income families need to be able to build a nest egg to protect themselves from unexpected bills. Further, the assets tests can keep moderate-income families from getting help until they spend all of their savings. “During the current recession, asset limits are especially burdensome due to the high unemployment rate among the middle class,”  the report said.

The report includes some recent Minnesota success stories.

  • Minnesota had a $7,000 asset limit for residents to receive food assistance. But this legislative session, that asset limit was lifted. The Star Tribune reported that 70,000 Minnesotans would qualify for food support as a result of this and other changes.
  • Minnesota also has received a federal waiver, allowing people to qualify for food support by a phone interview instead of requiring a face-to-face interview. The Minnesota Department of Human Services reports that, “This waiver has reduced waiting room congestion, created more focused interviews, created flexibility in interview times and benefited clients by not having to make additional trips to the local office.”

Meanwhile, Child Care Assistance – a critical support for working parents – has seen continual erosion in funding, which has led to a growing number of qualifying families going unserved. Minnesota is among 19 states that have waiting lists or have simply stopped taking new applications.

In December of 2009, 6,623 eligible families were awaiting Child Care Assistance in Minnesota. Waiting lists in Minnesota vary across counties. Historically, only metro area counties had extensive waiting lists. This trend, however, is slowly changing as 28 percent of the child care waiting list now comes from greater Minnesota counties.

Despite the benefits of work support programs, many eligible families do not participate. Nationally, 80 percent of eligible children are not enrolled in child care assistance and 21 percent of eligible children who could receive health care coverage through Medicaid or the Children’s Health Insurance Program are not enrolled, CDF-MN finds. Using work supports to help families move out of poverty is a boost for their children. Research shows that “children living in economically stable families have a better chance at life.”

-Scott Russell

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2010 Legislative Session closes with many opportunities lost

June 17, 2010

Our new analysis released today takes a comprehensive look at the tough issues faced in the 2010 Legislative Session and the multistep process followed to bring it to completion. And we find that it was a session that can be characterized by the opportunities lost.

Clearly policymakers faced several tough issues this session. A nearly $1 billion deficit in the current budget cycle and a shortfall in the next round approaching $7 billion when the impact of inflation is included. Uncertainty about whether the courts would uphold the Governor’s unallotment decisions. Health care coverage for extremely vulnerable Minnesotans.

These challenges were resolved in three steps. First, policymakers agreed in March to $312 million in spending cuts and special fund transfers covering most parts of the state budget.

Second, the governor and legislature agreed to a compromise version of General Assistance Medical Care to maintain health care coverage for very low-income vulnerable adults, which reduced the state’s deficit by $147 million.

And third, a negotiated budget agreement passed at the end of the session addressed the remaining deficit. This agreement did not include the progressive revenue proposals or plan to cover low-income Minnesotans through Medicaid that had been earlier passed by the legislature. It accepted most of the Governor’s unallotments, including a substantial shift in school funding.

Because of heavy reliance on one-time spending cuts and timing shifts, these budget decisions did not make progress on reducing the future budget shortfall, leaving a profoundly difficult problem for the next legislature and governor to tackle next year. Read more in our analysis, 2010 Legislative Session closes with many opportunities lost.

-Nan Madden

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Go ahead, make our day…

June 16, 2010

The Minnesota Budget Bites blog has been around for three legislative sessions – providing you with interesting information in a timely way. But we aren’t just at work during the session, we’ll be blogging away all summer and fall as important policy decisions are made at the federal level, as new reports shed light on Minnesota’s social and economic health, and as the state starts gearing up for a very tough legislative session in 2011.

And why do we do it? Because we want people to have accurate information about the fiscal challenges facing state and federal policymakers – and because we want people to have a better understanding of how low-income families and other vulnerable populations are faring in our state. Ultimately, we are working towards sound budget decisions that improve the lives of all Minnesotans.

We are able to fund our work at the Minnesota Budget Project thanks to the generous support of foundations and the members of the Minnesota Council of Nonprofits. However, in these tough times, that isn’t always enough – we also need the support of those of you who count on us to deliver timely information and solid analysis all year long.

Your donation will allow us to continue to maintain our high standards. But more than that, your donation will assure us that all those late nights and early mornings are worth it because people are reading and appreciating what we do (you can donate online or send us a check).

So, go ahead, make our day.

-Christina Wessel


Signs of spring in the state? May revenues up…may they continue

June 11, 2010

There are plenty of mixed messages about the state of Minnesota’s economy. The most recent information from Minnesota Management and Budget offers some positive news. May revenues were $56 million above what was forecasted, or 6.3 percent. According to the state, most revenue categories – individual income tax, sales tax, corporate income tax and other revenue – were up in May. The only major revenue source that dipped slightly below estimates was motor vehicle sales tax.

But don’t get too excited – indications continue to point to a slow, plodding recovery. For example, read Politics in Minnesota’s interview with State Economist Tom Stinson, who notes that the job picture is not as robust as hoped, and as the state closes out the books on 2009, last year’s revenue collections will likely be below projections. It seems that the $5.8 billion deficit forecast for the FY 2012-13 biennium ($7 billion if you count inflation) is not likely to change soon. Those who would be governor will face tough, tough decisions ahead.

Keep in mind that the May revenue snapshot is very preliminary and could change. The May numbers indicate whether state revenues are following the official economic forecast, last issued in February. The state’s February economic forecast is still the official measuring stick for the state budget until the November forecast is released this fall.

-Scott Russell

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