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


Support the Minnesota Budget Project on Give to the Max Day

November 16, 2011

It’s Give to the Max Day, when thousands of Minnesotans say a special thank you to the nonprofits they value. Please add the Minnesota Budget Project to your list of donations today. Your gift will help us continue our work advocating for tax and budget decisions that invest in Minnesota and build a prosperous economic future.

Our work takes on special importance in these difficult economic times. The Minnesota Budget Project is out in front calling for a balanced approach that strengthens the building blocks of economic growth: high-quality schools, strong communities, educated workers and opportunities for all Minnesotans to succeed.

Here’s a quick reminder of what your contribution to the Minnesota Budget Project means:

  • You’ll support the timely non-partisan analysis of budget and tax debates that you count on at Minnesota Budget Bites.
  • You’ll support our work to stand up for balanced solutions that include fairly raised revenues. You’ll see us testifying at legislative hearings, talking to the news media, and ensuring that those whose voices aren’t always heard can be part of the debate.

Please make your tax-deductible contribution today!

Your gift today can work even harder because it makes us eligible for $1,000 prizes drawn every hour. Each donation to us – no matter at what time or how often – gives us one more chance in the drawing.

Our work depends on donors like you to step up on Give to the Max Day and year-round. Thanks for your support today!

-Nan Madden


Tax changes for online hotel booking create level playing field

November 3, 2011

It was little noticed, but Minnesota did score a small victory this legislative session: The state budget created a level playing field between similar businesses, and it updated our tax system to catch up with modern technology.

Online booking agencies such as Priceline were collecting less sales taxes to book Minnesota hotel rooms than traditional travel agents or even the hotels themselves. The system created a competitive advantage for online companies and revenue losses for state and local governments.

Governor Dayton proposed closing the loophole in his budget. The proposal resurfaced as part of budget negotiations and was included in the final tax bill. It will raise $9 million in FY 2012-13.

Here’s how the online booking system works, and what the change means: Hotels contract with online travel companies to market some of their rooms. The online agencies get a discount room rate, then sell them to customers at higher prices. The problem is that the online agencies were only collecting sales tax on the wholesale room rate, not the higher retail rate that customers paid, as hotels and traditional travel agents do. With the change in Minnesota’s tax law, online travel companies will collect the sales tax on the retail price.

On any individual transaction, the difference between the taxes on wholesale and retail room rates is small. But it adds up. Online agencies account for an estimated 14 percent of room receipts in 2011, according to the Center on Budget and Policy Priorities. It reports that the difference costs state and local governments roughly $275 million to $400 million a year nationally. It recommends states update their tax laws to keep up with technology, arguing that:

At a time when sharply reduced revenues are forcing states and localities to cut health care for the poor, lay off teachers, close fire stations, and increase tuition at state universities and community colleges, all of which are reducing economic growth, it is counterproductive to permit [online travel companies] to exploit a tax loophole that pads their profits at the public’s expense.

Minnesota’s new law leaves some questions unanswered. Some Minnesota local governments have their own local lodging taxes. In cases where the Minnesota Department of Revenue collects the lodging tax for the local unit of government, the new law will apply. If the tax is collected locally, the new law may or may not apply, depending on the ordinance’s wording.

Treating online travel agencies and other similar companies equally is part of the larger national debate over a level playing field in e-commerce. On a larger scale, this debate asks whether it fair for online retailers to sell taxable products without collecting sales tax while Main Street businesses selling the same product have to collect the sales tax.

At the national level, the proposed Main Street Fairness Act would make it easier for states to require remote sellers to collect sales taxes on Internet and catalog purchases, putting them on a level playing field with their Main Street competitors. Governor Dayton’s budget also would have required “remote sellers who sell to Minnesota purchasers that are referred under an agreement by a business that has nexus (physical presence) in Minnesota to collect the sales and use tax on those purchases.” That proposal would have raised $11 million in FY 2012-13, but it was not part of the final budget deal.

-Scott Russell


Metro area unemployment hits communities of color hardest, puts state’s long-term growth at risk

October 27, 2011

Racial disparities in employment are widespread and systemic. It’s true across the country, but it is particularly true for the Twin Cities, where black unemployment hit 21 percent in 2010, more than triple the rate for whites, according to a recent report from the Economic Policy Institute (EPI). The Twin Cities ranked second worst among 29 large metropolitan areas in black-white unemployment disparities in 2010, according to the EPI report. And although Twin Cities Hispanic unemployment was relatively low compared to the rate in other major metropolitan areas, it was still nearly double the white unemployment rate, a separate EPI study found.

People of color are a growing part of the state’s population, and failure to address underlying causes of these significant disparities puts Minnesota’s prosperity at risk.

The problem is in part an educational issue. The achievement gap between white students and students of color is well documented in Minnesota – and research finds that individuals with less education are more likely to be unemployed. However, employment disparities exist even when accounting for educational attainment. For example, for Minnesotans under age 35, blacks without a high school diploma had an unemployment rate of 59 percent in 2009, nearly triple the 22 percent rate for whites without a diploma.

We were glad to see a panel at the recent 27th Annual Conference on Policy Analysis shine a spotlight on racial disparities in unemployment. It’s everyone’s problem.

Panelist Carolyn Roby, vice president for Wells Fargo Foundation Minnesota, said racial disparities exist at every educational level. “It’s not enough to say that education is the answer,” she said. “We are leaving talent and potential on the table, untapped.”

Roby urged people to address the impact of “unexamined internal bias.” People need to  become more aware of their own biases, and then examine their impact on hiring and promotion decisions, she said.

Panelist Luz Maria Frias, St. Paul’s director of human rights and equal opportunity, raised several issues concerning racial disparities in employment. One was the issue of long-term unemployment. Communities of color are not only disproportionately unemployed, they tend to be unemployed for a longer period of time, Frias said. One way of helping overcome unemployment disparities would be to make it illegal for employers to screen out applicants with a history of long-term unemployment. Excluding them from the applicant pool adds to a vicious unemployment cycle.

Frias also supported policies making it illegal for employers to screen out candidates with criminal records. The legislation, called “Ban the Box,” refers to the part of employment applications that applicants check off if they have criminal histories.

Minnesota was the first state to pass Ban the Box legislation that applies to hiring public employees. The Second Chance Coalition is working to expand it to private sector employers, too.

Criminal history screening perpetuates racial employment disparities. People of color are involved disproportionately with the criminal justice system. As the Organizing Apprenticeship Project explains in its Legislative Report Card on Racial Inequity, those criminal justice disparities are rooted in unequal disciplinary action between white youth and youth of color for similar crimes.

Business, political and community leaders can pursue multiple avenues to address employment disparities. Reducing educational disparities is one step. But eliminating employment barriers that put communities of color at a disadvantage and being vigilant and courageous in addressing internal biases are also important. Such approaches will help ensure equal opportunities for all and help build stronger communities.

-Scott Russell


New studies tell a familiar story: Racial disparities in assets

October 19, 2011

Two new reports from a national think tank look at financial security and opportunity in Minnesota, and find that Minnesota as a whole does better than the national averages, but worse than national averages when it comes to communities of color. Unfortunately, the story of Minnesota’s deep racial disparities is a familiar one – one you’ve heard from us most recently in our blog on census data on incomes and poverty.

CFED, the Corporation for Enterprise Development, is a leading national think tank on asset development and economic opportunity. Its work is built on the idea that income is necessary for families to get by, but assets are crucial for families to get ahead. CFED finds that 25.9 percent of households nationwide are in “asset poverty,” meaning they do not have enough savings or wealth to meet their basic needs in the event of job loss or other emergency.

CFED’s new Assets & Opportunity Profiles for Minneapolis and Hennepin County and St. Paul and Ramsey County find that Minnesota does better than the national average, but the figures for Minnesota’s communities of color are shocking, and are worse than the national figures. While 20.7 percent of all Minnesota households are asset poor, 58.5 percent of black Minnesotans, 42.0 percent of Latino Minnesotans, 21.7 percent of Asian Minnesotans and 43.3 percent of Native Americans in Minnesota are asset poor. Minnesota’s communities of color are also less likely to access higher education and own their homes.

While low-income households are more likely to be asset poor, the issue goes well up the income scale. Nearly one-quarter of households with incomes of $37,741 to $59,604 live in asset poverty. When families are asset poor, they have fewer opportunities to move up financially through education, home ownership, or entrepreneurship, and are less able to provide the stable environment that supports their children’s education. Lack of family economic security is a threat to the economic vitality of our communities and state.

I had the opportunity to learn more about these reports at a forum held Tuesday by CFED in partnership with Northwest Area Foundation, Legal Services Advocacy Project and the Greater Twin Cities United Way. In addition to providing analysis of assets and opportunity in our area, CFED and other participants talked about policies that can support Minnesota families to learn, earn, save, invest and protect. Minnesota has done well in some of these policies, including a strong state Earned Income Tax Credit and partnerships that promote its use and connections to free tax preparation, financial education and access to mainstream banking services.

Public policies play a role in determining who has the opportunity to build assets, as do employers, financial products, incentives and education. However, CFED finds that our nation’s approach to asset building is “upside down” because it provides the greatest support for asset building to those with the highest incomes, primarily through the tax code. In FY 2009, the federal government provided an average of $95,820 to support asset building by households with incomes over $1 million, yet only provided an average of $4 for asset building to households with incomes of $10,000 to $15,000.

As we’ve seen in our analysis of this year’s budget outcomes, this is an area where the state has reduced its investment. For example, state funding was eliminated for Family Assets for Independence in Minnesota (FAIM). Low-income participants in FAIM get their own savings matched with state and federal funds to help obtain post-secondary education, purchase a home, or start a new business. The loss of nearly $500,000 in state funds in FY 2012-13 will likely mean the loss of a matching grant from the federal government.

The participation in Tuesday’s forum of elected officials at the city, county and state levels, and other community partners, is a good sign. But we can – and must – do better. In order for our region and our state to be economically competitive in the future, all Minnesotans must have the opportunity to gain the education and economic stability that enables them to thrive and make their greatest contribution in the workforce.

-Nan Madden


State revenue and cash flow steady, but economic worries remain

October 12, 2011

First the good news. The State of Minnesota started out the first quarter of the FY 2012-13 biennium with higher-than-expected revenue. From July through September, the state collected $59 million above estimates, up about two percent from earlier projections, according to the state’s October 2011 Economic Update. Corporate income tax, individual income tax and sales tax receipts all exceeded forecasted levels.

While revenue is up slightly, Minnesota’s cash reserves remain low. Still, state financial experts reported at a legislative hearing last week that they do not expect that it will be necessary to take any administrative actions or turn to short-term borrowing in order to cover our bills during the current fiscal year. (State leaders took out a line of credit in 2010, just in case.)

The national economy continues to be the problem. The October Update reiterated concerns raised earlier this summer:

While most economists expect the U.S. to avoid a recession, real GDP growth over the next six to nine months is expected to be very slow…Forecasters’ major concern is that the tepid growth rate now seen likely through at least mid-2012 leaves the expansion dependent on the absence of extraordinary events and the avoidance of policy errors both in the U.S. and in the Eurozone.

State economist Tom Stinson says Minnesota will likely face a new deficit for the current biennium, MPR reported. When Governor Dayton and the Legislature made FY 2012-13 budget decisions, the national economy was expected to grow at a somewhat respectable pace – 3.2 percent growth in GDP in 2011 and 2.9 percent in 2012. The latest GDP growth estimates have been cut by about half, to 1.7 percent for 2011 and 1.4 percent for 2012. The steep drop in economic growth means a decline in state revenues, which increases the likelihood that a deficit will open up within the current biennium.

Federal and state leaders need to steer a careful course. This subdued level of economic growth assumes Congress will extend the expiring employee payroll tax cut into 2012, a proposal that is part of President Obama’s jobs bill. Stinson said last week that if Congress fails to extend the payroll tax cut, it would further reduce GDP growth expectations by one percent in 2012, resulting in a virtually no-growth scenario nationally.

We’ll know whether the state will face a deficit in the current biennium – and the size – when Minnesota Management and Budget releases the November Forecast. And on January 24, the Minnesota Legislature will reconvene. Given the current fiscal instability, policymakers need to focus on supporting Minnesota families struggling in the slow economy, and investing in the future economic health of the state.

-Scott Russell


Going full circle on the cycle of advocacy – tell your story

October 6, 2011

As the leaves fall, many of us are bracing for the next legislative session and continuing our advocacy for critical state services.  But we also know that the cycle of advocacy is a complete circle—including raising awareness of the consequences of past budget cuts in order to strengthen our case for a balanced approach to meet our state’s future needs in the next budget.

If you are seeing first-hand how families and communities throughout Minnesota are suffering because of severe cuts in the state budget, your stories can help us ensure that the public and policymakers see the human impact of over $2 billion in budget cuts.

Together we can complete the cycle of advocacy and shape public opinion to prevent such severe cuts in the future. If you know about someone who was harmed by a budget cut, or if you or your organization has a story to share, please complete our online Tell Your Story form. We’ll be in touch after we receive your information to discuss ways to publicize it.

For more information, contact me at 651-757-3063 or lgardner@mnbudgetproject.org.

– Leah Gardner


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