Supermajority requirements are no guarantee of economic success

February 28, 2012

The reasons to oppose a supermajority requirement to raise state taxes keep coming in.

The Center on Budget and Policy Priorities recently released Six Reasons Why Supermajority Requirements to Raise Taxes Are a Bad Idea. I’ve previously written about the report’s finding that there was no evidence that supermajority states had lower taxes or better tax policy than states without supermajority requirements.

Another major finding of this report is that there’s no evidence that supermajority requirements improve a state’s economy. In fact, the report finds that “states with supermajority restrictions have suffered more in this recession than other states.” The Center on Budget and Policy Priorities found that from the beginning of the recession in December 2007 through November 2011:

  • “The seven states with broad, constitutional supermajority restrictions have lost 6.7 percent of their jobs, while states with no supermajority restrictions have lost 3.4 percent.
  • Six of the seven states with strict supermajority requirements have experienced above-average job declines.
  • The two states with the deepest job losses — Arizona and Nevada — both have broad, constitutional supermajority restrictions. Nevada has lost 13 percent of its jobs since the recession started and Arizona has lost nearly 10 percent.”

The Center on Budget and Policy Priorities also warns that supermajority rules could increase the chances that recessions will be deeper and longer. Supermajority requirements limit states’ options in dealing with recession-related budget shortfalls. When states respond to recessions solely by cutting spending, they take actions that reduce overall economic activity: layoffs, cancelled contracts or reduced payments to companies and nonprofits that do business with the state, and reduced payments to individuals. That all adds up to additional damage to a state’s already-fragile economy.

The more we learn about supermajority requirements, the more it becomes clear that they are wrong for Minnesota.

- Nan Madden

 

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Unemployment rate among blacks highlights continuing racial disparities in Minnesota

February 27, 2012

Minnesota’s black unemployment rate was a shocking 27 percent in the third quarter of 2011 – by far the highest level in the 25 states examined in a recent study by the Economic Policy Institute (EPI).  The study, No Relief in 2012 From High Unemployment for African Americans and Latinos, focused on states where there was a sufficient sample size to calculate estimates for racial subgroups. Minnesota was one of only five states where black unemployment topped 20 percent. In contrast, Minnesota’s white unemployment rate was just six percent, ranking 36th lowest in the nation.

The data is alarming, but it shouldn’t come as a surprise. We have previously noted high levels of racial disparities in unemployment in the Twin Cities. Last year, another EPI report showed the Twin Cities ranked second worst among 29 large metropolitan areas in black-white unemployment disparities in 2010, with black unemployment more than triple the rate for whites.

As the state slowly emerges from the recession and overall unemployment rates continue to fall, we cannot afford to overlook the reality that unemployment may continue to remain disturbingly high among people of color. EPI projects unemployment for blacks in Minnesota will remain at 25 percent through the fourth quarter of 2012.

Minnesota’s troubling racial disparities are not limited to unemployment. In the past, we have highlighted disparities in poverty and income, assets and health outcomes, issues that merit state attention. Strong education, job training and health care programs can help close those gaps.

The Organizing Apprenticeship Project (OAP) recently released its 2011 Minnesota Legislative Report Card on Racial Equity, which highlights the importance of state policy choices that can “build an equitable state, one where all people have genuine access to the opportunities that could make Minnesota great.” The report evaluates steps forward and steps backwards.

For instance, state leaders took the positive step of doubling state funding for the five Opportunities Industrialization Centers in Minnesota that provide job training programs targeted to some of the state’s poorest communities of color.

On the other hand, lawmakers failed to move forward on implementing the federal Affordable Care Act by setting up a Minnesota-designed health insurance exchange. The exchange is a central element of health care reform and will help low- and moderate-income families access more affordable health insurance. Since people of color are more likely to be living in poverty and more likely to be uninsured, a well-designed exchange could help reduce health disparities by improving access to health care.

OAP also highlighted the impact of tax choices made in 2011, such as the 13 percent cut to the Renters’ Credit, a property tax refund for about 300,000 low- and moderate-income Minnesota households. This cut disproportionately hurts both low-income people and people of color, who are more likely to rent.

The report points to significant and persistent racial disparities in poverty, education, employment and other key areas. We cannot afford to ignore them, or the impact they will have on the state’s future economic and social well-being. People of color are 16 percent of Minnesota’s population today, and will grow to 25 percent by 2035. In the Twin Cities metro area, one in three residents will be a person of color by 2035. We must be working to reverse disparities if we want to ensure that all Minnesotans are prepared to play an essential role in the community as workers, consumers and contributors to cultural vitality. Minnesota’s future success depends on it.

-Scott Russell

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Constitutional amendment could risk Minnesota’s credit rating

February 21, 2012

Minnesota’s legislative leaders are considering a constitutional amendment that would require a supermajority vote in both the House and Senate to raise taxes. It could be a bad move for the state, increasing jitters among national credit rating agencies that are already nervous about Minnesota’s financial flexibility and creditworthiness. Lower credit ratings could make it more expensive for Minnesota to build roads, repair bridges and fix schools.

Rating agencies do not look favorably on states that have constitutional constraints on their ability to raise revenues quickly in response to changing budget conditions. Other states have recently seen their credit rating downgraded, with their supermajority requirements mentioned as one of the concerns. Our recently released issue brief, Supermajority Requirement Would Limit Financial Flexibility, Risking Minnesota’s Credit Rating, provides more details.

Minnesota’s strong credit rating has already been slipping. Last year, two of the three major credit rating agencies, Standard & Poor’s and Fitch, lowered the state’s credit rating a notch; the third agency, Moody’s, issued a warning. They are all concerned about the state’s lack of long-term budget solutions.

In recent weeks, we have highlighted reasons that a supermajority requirement is wrong for Minnesota. The amendment could shift the cost of providing valued services onto other sources of revenue, resulting in higher tuition, fees and property taxes. And the experience of other states shows that a supermajority amendment would not deliver on the promise of lower taxes or better tax policy.

Now there is one more argument against a supermajority amendment: It could put Minnesota’s credit rating on even shakier ground.

-Scott Russell

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National study calls supermajority amendments a ‘bad idea’

February 16, 2012

A supermajority requirement in Minnesota would not produce promised results, if the experiences of states that already have supermajority rules are any indication.

A national study released this week analyzed supermajority requirements in other states and found no evidence that those states had lower taxes or better tax policy than states without them.

Six Reasons Why Supermajority Requirements to Raise Taxes Are a Bad Idea by the Center on Budget and Policy Priorities concludes that, “On average, states with strict supermajority requirements levy taxes at a nearly identical level as other states. That’s because most states avoid tax increases most of the time, without supermajority requirements.”

supermajority

The report discusses six reasons supermajority requirements to raise taxes are a bad idea:

  1. Supermajority rules reduce accountability by protecting special interest tax breaks.
  2. Supermajority rules shift costs from some state residents to others.
  3. Supermajority rules may raise state spending or dissuade states from making capital investments by increasing interest rates.
  4. Supermajority rules make it harder to finance transportation investments.
  5. Supermajority rules limit budget options available to legislators and increase the chances that recessions will be deeper and longer.
  6. Supermajority rules increase the power of extremists and special interests.

The report provides evidence that amending Minnesota’s constitution to require supermajority votes to raise taxes won’t deliver on its promises. They found that supermajority restrictions don’t necessarily improve a state’s economic performance, and those states did not generally outperform other states during the recent recession.

Minnesota can avoid the problems experienced by states that do have supermajority requirements, and instead should retain the flexibility to make budget decisions based on thoughtful discussions about what is best for the state.

- Nan Madden

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Proposal asks Minnesota’s renters to pay the price to end business property tax

February 10, 2012

Here we go again with another proposal to dramatically cut the Renters’ Credit, a property tax refund for about 300,000 low- and moderate-income Minnesota households. It refunds a portion of the property taxes that renters pay through their rents. More than one-quarter of participating households include seniors and/or people with severe disabilities.

On Wednesday night, the House Property and Local Tax Division passed House File 1914, which cuts business property taxes, primarily through phasing out the state property tax paid by businesses and cabins. Unfortunately, it cuts the Renters’ Credit to partially pay for the tax cuts.

If state leaders believe eliminating the statewide business property tax is good policy, surely they can find a broader-based way to pay for it, and not single out low- and moderate-income renters. Here are three reasons state leaders should reject this latest plan.

First, Minnesota’s low- and moderate-income renters already took a hit. The Renters’ Credit was cut by $26 million during the 2011 Special Session, a 13 percent cut. Nearly 300,000 Minnesota households will see an average $87 cut in their credit. About 7,300 households lost their entire credit.

House File 1914 revives a proposal passed by the Legislature last year and vetoed by Governor Dayton. Under House File 1914, another 74,000 households would lose their entire property tax refund – that’s close to one in four participating households. Those still getting a credit would, on average, lose another $221 of their credit – and that’s on top of the $87 already cut last year. That’s a lot of money to these families.

Second, the Renters’ Credit provides a local economic boost. In past debates, renters have talked about how they spend their property tax refunds on necessities like school supplies, medicine and car repairs. That puts money directly into local businesses and the economy.

Third, the Renters’ Credit is meeting its goal of ensuring that low- and moderate-income Minnesotans don’t pay more than their fair share in taxes. For the first time in a while, the state has a budget surplus. Cutting the Renters’ Credit is both unnecessary and a move in the wrong direction.

There is another problem with this bill. The cost of gradually eliminating the statewide property tax grows over time. While in the first year that cost is made up by the cuts to the Renters’ Credit, the bill creates a $229 million hole in the FY 2014-15 budget, a revenue estimate said. Minnesota already faces a $1.3 billion deficit next biennium, and it hasn’t begun to repay the $2.8 billion in school funding shifts. This isn’t the time to dig the deficit hole deeper.

House File 1914 now moves on to the full property House Tax Committee on Tuesday. Leaders need to slow down and reject these deep and ill-considered cuts to the Renters’ Credit. Clearly, tough choices were made last year, and Minnesota’s renters made a contribution toward balancing the budget. They shouldn’t be asked this year to pay for other people’s tax cuts.

-Scott Russell

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One likely unintended consequence of a supermajority amendment

February 8, 2012

Minnesota could see pressure to increase property taxes if a constitutional supermajority amendment is adopted, according to a new Minnesota Budget Project analysis.

Our report warns that restricting legislators’ ability to raise taxes would make it harder to provide the services that residents want and value. Policymakers would look for ways to fund services that don’t need supermajority votes. Past experience has shown that the inability to raise taxes at the state level in Minnesota leads to more pressure on tuition, fees and property taxes.

Our analysis looks at what has happened to property taxes in states that have constitutional requirements as strict as the ones under consideration in Minnesota. We used U.S. Census data to compare average property tax increases in supermajority states and non-supermajority states.

We found that the nine states with strict supermajority requirements saw total property taxes rise by an average of 22 percent, after adjusting for inflation, between 2000 and 2009. Property taxes in states without supermajority requirements for tax increases rose by just 13 percent.

A supermajority amendment may not deliver on its promises. In fact, a supermajority requirement could create unintended consequences like shifting costs to the local level and potentially higher property taxes.

Policymakers should make tax and budget decisions directly, not through rigid formulas that create unintended consequences.

Our website has a special page with more information about the constitutional budget amendments and how you can get involved.

- Nan Madden

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Momentum against constitutional budget amendments is building

February 2, 2012

It wasn’t too long ago that most Minnesotans had not heard about proposed constitutional budget amendments that the Legislature could take up this session. The amendments would create more government gridlock and budget gimmicks, and remove policymakers’ flexibility to respond to changing circumstances.

Minnesotans are now hearing more about the budget amendments – and the more they hear, the less they like, if recent newspaper editorials are any indication.

Newspapers throughout Minnesota are speaking out against the proposed constitutional budget amendments. At least a dozen newspapers have editorialized or run columns against the amendments in the last few weeks. Here are quotes from a few:

  • “If it goes to the ballot and is passed, it would lead to bigger legislative struggles, more state shutdowns, budget setting through the constitution, and the most ineffective government ever seen in Minnesota.” – Montevideo News, January 26
  • “It’s a trend that Minnesotans need to keep an eye on, because legislating via amendment is a trend that could prove destructive in the long term.” – Austin Daily Herald, January 31
  • “The state will be less able to adjust to changing population demographics, and it will have a harder time than neighboring states in its efforts to crawl out of the recession economy because it would be locked into 2012 status.” – Albert Lea Tribune, January 18
  • “Passage of this amendment would assure continued deficits, which would have to be balanced by slashing things like schools and Local Government Aid.” – New Ulm Journal,  January 27
  • “Existing discrepancies in money, resources and special interest backing would also probably grow as a result, making cities — not to mention their schools and such important employers as nursing homes — far less viable.” – Worthington Daily Globe, January 26

All it takes is a majority vote in the Legislature to put these amendments on the November 2012 ballot, even though a growing number of Minnesotans oppose these dangerous ideas.

If you would like to learn more or get involved, visit a special page on our website dedicated to the constitutional budget amendment issue.

Posted in Budget Process, Constitutional Amendments, Economy, Taxes | Tagged , | 1 Comment

Opportunity knocks with federal health care reform

February 2, 2012

Among the hot topics at the Capitol in the 2012 Legislative Session is how federal health care reform will be implemented here in Minnesota. The federal Affordable Care Act (ACA) of 2010 lays out a path to address the many problems facing the nation’s current health care system, offering tremendous opportunities to improve health outcomes and reduce health disparities in Minnesota. Over the coming months, we will blog about how our state can best implement federal health care reform to benefit Minnesotans.

Today’s blog highlights an opportunity in federal health care reform that few people are aware of. The ACA allows our state to set up a Basic Health Plan to continue offering working Minnesotans access to affordable and comprehensive health coverage, similar to MinnesotaCare, and would bring more federal money to the state to pay for health care. It’s an option that Minnesota policymakers should keep on the table as they work on implementing health care reform this session.

Let’s take a step back to explain. Starting in 2014, many Minnesotans can begin finding private health insurance through a health care exchange – an online marketplace where individuals and small businesses can shop, compare and purchase health insurance. Many lower- to middle-income Minnesotans will be eligible for federal tax credits to help cover the costs of purchasing health insurance. Unfortunately, even with the tax credits, the lowest-income working Minnesotans will probably not be able to find comprehensive policies that are also affordable. Some people will still fall between the cracks.

Minnesota has a solution in place for these folks right now – it’s called MinnesotaCare. More than 100,000 Minnesotans are able to purchase affordable health insurance through MinnesotaCare each month, including pregnant women, children, parents and adults without children. But once the health care exchange is up and running in 2014, MinnesotaCare will likely be eliminated and these working Minnesotans will need to find private insurance through the exchange. Unless we take a different path.

Thanks to the ACA, states have the option of creating a Basic Health Plan, which would provide health care coverage for adults under the age of 65 with incomes that do not exceed 200 percent of the federal poverty level ($30,260 for a couple), who are not eligible for Medicaid (known as Medical Assistance in Minnesota) and do not have access to affordable and comprehensive employer-sponsored insurance.

Creating a Basic Health Plan could have many advantages for working Minnesotans.

  • A Basic Health Plan allows the state to establish a health care option similar to MinnesotaCare that would continue to provide comprehensive coverage with affordable out-of-pocket costs for working individuals and families.
  • Once the health care exchange is in place in 2014, very low-income Minnesotans whose incomes are on the rise would become ineligible for Medicaid (where they pay very limited out-of-pocket costs for their health care) and find themselves shopping for private health insurance through the exchange. This sudden move could create serious barriers for these Minnesotans trying to move out of poverty, including a dramatic increase in costs and most likely a change in their doctors and clinics. A Basic Health Plan, if integrated with Minnesota’s Medicaid program, could help ease the transition between Medicaid and the exchange.
  • There is also the potential to keep family members enrolled in the same health plan. If the state contracts for the same provider networks for the Basic Health Plan as for Medicaid, parents and children could visit the same clinics and doctors.

And the Basic Health Plan offers a benefit for the state budget too – it would bring in more federal dollars to pay for health care for Minnesotans. Currently, two-thirds of the funding for MinnesotaCare comes from the state, primarily from a tax on health care providers and health plans. With a Basic Health Plan, the federal government would pick up most of the cost of providing health care for these working Minnesotans. That’s not a bad deal.

The Basic Health Plan could be the best way Minnesota can honor its commitment to ensuring equity in health care – helping low-income working Minnesotans access affordable and comprehensive health care coverage. Policymakers should keep the door open to this option as details of implementation are worked out.

If you want to learn more about the Basic Health Plan, check out our recent issue brief on the topic.

-Christina Wessel and Scott Russell

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Our Priorities for Minnesota

January 24, 2012

As the Legislature opens the 2012 session today, the Minnesota Budget Project is out with our policy agenda. We will focus on dangerous constitutional budget amendment proposals and improving health care in Minnesota.

We’ll also watch for any new efforts to cut the Renters’ Credit, and we’ll encourage a balanced approach, including raising revenues fairly, should a new budget shortfall emerge.

Visit our policy agenda to learn more about these issues and get involved. This year’s agenda is:

  1. Opposing Constitutional Budget Amendments That Put Minnesota’s Future at Risk. Three proposed amendments dealing with the state budget would result in even more government gridlock and shutdowns, budget gimmicks, and cuts to critical services. They would make it more difficult for Minnesota to recover from the recession and invest in economic growth.
  2. Supporting Successful Health Care Reform in Minnesota. Health care should be affordable for low-income Minnesotans, supportive of small employers, contain unsustainable cost increases, and include adequate federal funding. Developing a health care exchange in Minnesota that is focused on the needs of the consumer – individuals and small employers – is an essential step.
  3. Protecting the Renters’ Credit so that low- and moderate-income Minnesotans do not pay more than their fair share in taxes. Last year’s budget agreement cut the Renters’ Credit by 13 percent, starting in 2012. More than 300,000 Minnesota households will lose some or all of this property tax refund. The Minnesota Budget Project will oppose any additional cuts.
  4. Advocating for a Balanced Approach, including revenues raised fairly should a new revenue shortfall appear in the state’s February Forecast. This approach will allow the state to maintain education, health care, job training and other services that help Minnesotans weather these tough economic times, and make needed investments so that the state will be well-positioned when prosperity returns.

We’ll blog and otherwise keep you informed on these issues in the coming year.

 

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Surplus offers hope for Minnesota schools and communities

December 1, 2011

Nobody expected this morning’s good news – that the State of Minnesota is projecting an $876 million surplus for the current two-year budget cycle (FY 2012-13). This gives the state the chance to take positive steps toward keeping our promise to our kids and protecting vital investments in our economy.

While it’s nice to have good news for a change, it is short-lived. The November 2011 Economic Forecast projects a $1.3 billion shortfall for the next budget cycle (the FY 2014-15 biennium), or $2.6 billion if we include the impact of inflation. So policymakers must be careful how they use these one-time resources. In the face of serious economic hard times in the last few years, lawmakers have depleted most of the state’s rainy day resources and resorted to significant borrowing, including from our schools. The best thing we can do is to start reversing some of those actions.

Fortunately, that is exactly what will happen with this surplus. As required by state law, the first $255 million of the projected surplus will be used to refill the state’s cash flow account and the remaining $621 million will go to refilling the state’s budget reserve close to its target of $653 million.

That is good news for Minnesota’s schools, because it brings us closer to making good on the state’s promise to pay back what it borrowed from our schools. After the state’s cash flow and budget reserves are refilled, by law, any future surplus will be used to start buying back the school payment shift.

Unfortunately, the slow economic recovery means the state is projected to face deficits again. Using the current surplus to rebuild our rainy day funds will allow us to avoid deep cuts to areas vital to our future economic success – like education and training for Minnesotans of all ages.

Decisions being made at the federal level pose an additional threat for Minnesota’s economic future. The November Forecast assumes that Congress will extend the payroll tax cut and unemployment insurance benefits that expire at the end of this year. If Congress fails to do so, we face the serious risk of another national recession. Furthermore, federal deficit reduction could result in the loss of federal funding for health care, education, and other community services are the critical for Minnesota’s future prosperity.

Although some may float the idea of using the surplus for other purposes, policymakers will be wise to stay the course and refill our rainy day funds to position us to weather the storms on the horizon.

You can get all the details on the November Forecast on the Minnesota Management and Budget website.

-Christina Wessel

Posted in Budget Process, Education | 1 Comment