Serving Northern St. Louis County, Minnesota

Revenue forecast could curb big tax cuts, spending

Tom Klein
Posted 3/4/16

REGIONAL – Area lawmakers say the revised revenue forecast should curb any big tax cuts or spending by the state Legislature this session. The session is scheduled to begin on Tuesday.

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Revenue forecast could curb big tax cuts, spending

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REGIONAL – Area lawmakers say the revised revenue forecast should curb any big tax cuts or spending by the state Legislature this session. The session is scheduled to begin on Tuesday.

State officials cut the revenue forecast by $300 million for the current two-year budget cycle, citing lower-than-expected growth in income and sales tax collections. That reduces the state’s projected available balance to $900 million from a previously forecast $1.2 billion when the fiscal biennium ends on June 30, 2017. A third of that, by law, must go into the reserve or rainy day fund, leaving a surplus of $600 million.

Tax relief

“The feasibility of tax cuts declined with the revenue forecast,” said state Rep. Tom Anzelc, DFL-Balsam Township. “And I don’t see much of an appetite for spending.”

But House Republicans differ and plan to push for a $4.8 billion tax bill they say will provide significant relief to the middle class.

“Minnesota families have watched as their hard work has produced surplus after surplus for state government,” House Majority Leader Joyce Peppin, R-Rogers, stated in a press release. “Part of the adjustment in the projected surplus is a result of lower consumer spending. While Democrats talk about raising the gas tax, our focus will be on middle-class tax relief and giving families a break so they can spend their own money and strengthen Minnesota’s economy.”

House Speaker Kurt Daudt, R-Crown, said middle-class tax relief is a priority this session, along with fixing the state’s crumbling infrastructure by steering sales tax revenue towards roads and bridges.

But the Dayton administration said the Republican tax bill benefits the wealthy the most.

“The House Republicans claim their tax bill is for the middle class, but in reality, Speaker Daudt’s tax bill provides middle-class Minnesotans pennies per day for a single year, while lavishing permanent tax giveaways on large corporations, skyscraper owners and the ultra-wealthy,” said Linden Zakula, deputy chief of staff, in a press release.

According to a breakdown of the tax bill by the Minnesota Department of Revenue, the bill’s one-year personal tax exemption would save taxpayers earning less than $50,000 an average of $80 or less than 22 cents per day.

Those earning between $50,000 and $100,000 would see an average savings of $144 or 39 cents per day.

Meanwhile, the bill calls for $2.1 billion in permanent tax giveaways for corporations, property developers and the wealthy.

According to the Revenue Department’s analysis, the largest beneficiaries of the tax bill are large corporations and property developers, many of which are headquartered outside of Minnesota.

Meanwhile, the 50 largest property owners in Hennepin County would see $50 million in tax cuts every year.

“These figures show that while the Republicans claim their tax bill benefits the middle class, the real beneficiary is large business owners and the ultra-wealthy, who will receive $2.1 billion in tax giveaways — close to 10 times what middle-class Minnesotans would receive under the current Republican personal exemption,” said Zakula.

Rep. Rob Ecklund, DFL-International Falls, said the Republicans’ plan concerns him.

“Now is not the time to give a big tax break to the wealthy,” he said. He met recently with Reps. Erik Simonson, DFL-Duluth; Jennifer Schultz, DFL-Duluth; and Mary Murphy, DFL-Hermantown, to discuss the tax bill. “We’re going to be playing defense on that one,” he said.

Senate Majority Leader Tom Bakk was away on a trip and could not be reached for comment.

Unemployment benefits

Meanwhile, extending unemployment benefits for those affected by mine company closures is a priority for the Iron Range delegation.

Attempts to call a special session to extend benefits wilted under Republicans’ resistance.

State Rep. Jason Metsa, DFL-Virginia, said extending the benefits is at the top of the Iron Range delegation’s list.

He noted that the extension isn’t aimed at just unemployed miners, but also at the mines suppliers and vendors who are affected by the temporary closures.

“We’re not playing political football on this,” said Metsa. “Unemployed workers are not political chips. We need to get their benefits extended before we do any other business.”

Anzelc agreed. “The Iron Range delegation wants to get that done right away,” said Anzelc. “We’re up against the wall here and on the cusp of losing another large segment of our population. We can’t let that happen without trying to prevent it.”

Other priorities

The abbreviated session, which is slated to end in late May, won’t leave time for discussion on a wide variety of issues.

Even so, Metsa said some issues that could surface are Local Government Aid and transportation funding.

Robert Broeder, mayor of LeSueur and president of the Coalition of Greater Minnesota Cities, said increasing LGA is a priority for the coalition.

“LGA is absolutely vital to our communities,”said Broeder. “Many cities rely on LGA to help pay for basic services like police protection and street repairs. Without it, we’d be forced to either cut staff and services or drastically raise property taxes.”

Broeder said LGA is at a crossroads. Efforts to increase LGA during the last legislative session were ultimately unsuccessful when the Legislature failed to pass an omnibus tax bill. Although the Senate approved a bill that increased LGA by $45.5 million, the Republican-led House countered with a bill that cut $84 million from the program by targeting aid that goes to “first class” cities such as Duluth, Minneapolis and St. Paul.

Metsa said boosting LGA is something that legislators should revisit this session.

Ecklund agrees and said he’s supporting a bill by Sen. Rod Skoe, DFL-Clearbrook, that calls for a $45.5 milllion increase in LGA, which would return spending to 2002 levels. In addition, Skoe’s bill calls for more solid school funding.

Last year’s Legislature also failed to pass a comprehensive transportation package, which was a priority.

Rep. Dave Baker, R-Willmar, is confident a plan to increase recurring transportation revenue will be approved during the 2016 session. In the last session, Republicans proposed a measure that included utilizing a budget surplus, various bonds and an existing sales tax on auto parts, car rentals and leases to generate $7 billion over a 10-year period for transportation funding.

Others, including Gov. Dayton, however, proposed increasing the state’s gas tax to pay for much-needed infrastructure improvements.

Metsa said that battle is likely to resume this session. With gas prices fluctuating almost weekly and still below $2 a gallon, Metsa said adding a five-cent gas tax would hardly faze most consumers.

Several states have already increased their gas taxes to generate new transportation revenue. In the past three years, 16 states have raised taxes on motor fuels. Although passing a tax increase during an election year is difficult, at least eight states have already begun discussing proposals for the 2016 legislative session.

Ecklund is unsure whether he would advocate for a fuel tax increase. He suggested a more equitable solution might be to institute a wholesale fuel tax which would also affect other fuel users such as airlines.

“We know the tax is going to be passed on to consumers in some fashion and I’ll take some heat for that.”

But Ecklund said the state’s crumbling infrastructure needs a reliable income source to meet its need and not just the “keep the lights on” approach favored by Republicans, who want to tap the state’s surplus.

Additional funding for preschool education could also surface this session.

Gov. Dayton has been pushing for free preschool for all of the state’s four-year-olds. But the revised budget forecast could temper support for his proposal.

Ecklund is on board with more funding for preschool education, but said it should be voluntary not mandatory.

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