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


A preview of the Governor’s supplemental budget

February 15, 2010

The Governor will be releasing the details of his budget later this morning, but we already had a sneak peak of what’s to come in his State of the State speech last week. As we wait for the details, here are some initial thoughts.

Minnesota is not unique in facing budget shortfalls over the past few years. But a majority of states have taken a balanced approach to addressing these shortfalls, making budget cuts but also raising revenues. Relying on cuts alone makes it difficult for states to maintain adequate funding for health care, education, helping people who are out of work, and other services that Minnesotans are counting on more than ever in this tough economy.

The primary purpose of the Governor’s supplemental budget is to propose a solution to the state’s $1.2 billion deficit for the current biennium. We know the Governor’s plan will include significant budget cuts. In fact, the Governor warned that they will be “very dramatic and painful spending reductions.”

We believe that it is critical that policymakers pass a budget this year that lays out a permanent solution to our deficit problems. And we appreciate that the Governor is leading us in that direction. However, any cure isn’t necessarily a good cure. Doctors used to “bleed” their patients, hoping that they were helping them heal by removing impurities from the body. Instead, doctors were really weakening their patients, making it more unlikely for them to recover. Minnesota is sick, but slashing programs that work to strengthen our economy over the long-term isn’t going to help us recover. It may fix the budget gap, but it will disable us in the future.

Bottom line: permanent revenue increases should be part of the solution. That’s the only way be can develop a responsible solution to the budget problem while preserving services that strengthen our communities.

In his State of the State, the Governor outlined a package of tax cuts he’s planning to include in his budget proposal. Given the size of the state’s deficit, it is surprising that the Governor would want to further reduce the state’s resources. We’ll be looking at the specifics of these proposals to make sure there is accountability  – are the tax benefits specifically tied to job creation?

The Governor also mentioned his proposed constitutional amendment. As we’ve noted when this proposal first came out and when it was heard by the Senate Tax Committee, these kinds of amendments reduce accountability, undermine public participation in the budget process, have been rejected repeatedly by voters across the country and impede the state’s ability to provide adequate funding for services for the disabled, education, health care and transportation, and invest in our future prosperity.

We’ll have more analysis later this afternoon and in the days ahead after we see the details of the budget, which should be available at 11:00 today from the Minnesota Management and Budget web site.

-Nan Madden and Christina Wessel

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Climate change and low-income communities

June 24, 2009

As some of you may realize, climate change policy is in motion at the federal level right now. The American Clean Energy and Security Act (HR 2454, authored by Reps. Waxman and Markey) is currently being amended in the House (expected to hit the floor before the July 4th break, and potentially as soon as Friday, June 26) and hearings on the legislation have already begun in the Senate (expected to begin serious work on the bill closer to fall).

What you may not realize is that the proposed cap-and-trade policy designed to reduce greenhouse gases has important implications for low- and moderate-income households.

Need a refresher on what cap-and-trade is? Cap-and-trade sets a limit on the amount of greenhouse gases that businesses are allowed to emit, which creates a new commodity by auctioning allowances for polluting. Energy companies will probably need to pay for allowances, an expense they will likely pass along to their consumers. That includes low-income families. This price increase will affect not just utility bills (which accounts for less than half of the overall hit to a low-income household’s budget), but also goods and services with significant energy inputs, such as food and gasoline. Low-income consumers spend a larger portion of their budgets on such basic necessities and often do not have the ability to reduce their energy usage by doing things like buying energy-efficient appliances or weatherizing their homes. It is critical that they receive consumer relief.

Although implementing a cap-and-trade system will have a financial impact on lower-income consumers, the alternative is worse. If we do nothing, low-income communities will continue to be hurt by the negative effects of climate change, such as pollution and extreme weather. Low-income communities are particularly vulnerable to these changes.

Thankfully, the current federal legislation has a solution: consumer relief for the lowest 20 percent of the population to hold them fully harmless from increased costs. Although the delivery mechanisms for providing this relief are frequently being tweaked, the bill currently uses an existing mechanism (the Electronic Benefit Transfers, or EBT) to provide efficient delivery of adequate relief to the lowest income households.

Although HR 2454 currently includes protections for low-income households, this legislation has a long way to go before it is finalized. Policymakers are beginning to express that they are not hearing enough from low-income consumers and service-providers. If we want to see these important provisions for low-income households remain intact, or even improve, then those who are concerned about low-income communities need to speak up.

Call your Congressman and ask for their vote in support of HR 2454 and the critical provisions of consumer relief for low-income households. To learn more about our stance on the current legislation or how you can take action, contact me at 651-757-3063 or leah@mncn.org.

-Leah Gardner


Session ends at midnight…where do things stand?

May 18, 2009

The 2009 Legislative Session ends at midnight tonight, but the state’s budget for FY 2010-11 is far from resolved. The Governor and legislators are still engaged in last minute negotiations, but time is short.

First, let’s review where we stand:

  • The state started the biennium with a $6.4 billion deficit projected for FY 2010-11.
  • Medicaid matching funds included in the federal stimulus package reduced that deficit by about $1.8 billion, bringing the problem down to $4.6 billion.
  • The legislature passed omnibus finance bills that make $1.5 billion in spending reductions ($786 million of those cuts are backfilled with federal fiscal stabilization dollars).
  • The Governor signed those omnibus bills, but made several line item vetoes to cut additional general fund spending, including $381 million in health and human services, $3 million in economic development and $2.6 million in higher education.
  • So, after incorporating the federal stimulus funds and the approved spending reductions, there still remains a $2.7 billion deficit for FY 2010-11.

Now, let’s look at what has been happening in the final days of session:

The Governor and legislature exchanged a few offers on Saturday and seem to agree on implementing a $1.8 billion shift in education spending. However, the House and Senate have been insisting that the shift be coupled with an increase in ongoing revenues to ensure the shift can be “bought back” in the future biennium.

If an education shift is implemented, that still leaves a $900 million deficit for FY 2010-11. Saturday, the Governor proposed closing that gap through spending cuts to the renters’ credit, health and human services, higher education, and aids to local governments. The legislative response proposed raising about $1 billion in revenue, reducing spending for aids to local governments and other budget areas, and undoing the Governor’s line item veto of General Assistance Medical Care.

There were no negotiations between the Governor and legislature on Sunday. Instead, the House attempted to override the Governor’s line item veto of General Assistance Medical Care and his veto of the tax bill that raised close to $1 billion in revenue. Both override attempts failed.

Today, legislative leadership emerged from a meeting with the Governor around 2 p.m. and said the tax and health and human services chairs will be taking a closer look at those areas of the budget to see if there are some partial solutions that can be agreed on. More discussions with the Governor are expected as the day continues.

If no deal is reached by midnight tonight, the Governor has said he will use his unallotment powers to balance the state budget.

-Christina Wessel


A critical time in the session to keep the momentum going!

May 16, 2009

On Monday, over 500 people gathered in the Capitol rotunda to encourage policymakers to make revenue-raising part of a balanced solution to the state’s budget deficit. Organized by Invest in Minnesota, the rally brought together representatives from faith, labor and nonprofit organizations.

This week, the Governor has announced he will use his unallotment power to balance the state budget if legislators are unable to come up with a solution by the time the legislature adjourns on Monday. On Saturday, the Governor will release details about what an additional $1.2 billion in spending cuts would look like, and cuts are expected to especially touch health and human services, aids to local governments and delayed payments to schools.

Therefore, it is very important that policymakers continue to hear from constituents about the importance of raising revenues, and raising them fairly.

Invest in Minnesota has resources available to help people contact their policymakers, including a You Tube video you can forward to your elected officials. Take action soon!

-Leah Gardner


New budget bill raises revenues to fund education and health care

May 8, 2009

Just when you thought you knew what was going on…the Legislature introduced a curve ball on Thursday afternoon. The House and Senate passed a bill, HF 885, to act as a placeholder for a combined tax, education, and health and human services bill. Apparently, this bill is not meant to substitute for the work currently going on in the already formed conference committees, but to supplement it.

The House and Senate immediately appointed a new conference committee to work out the details. The committee met and passed the bill late Thursday night/Friday morning. The committee chairs – Representative Lenczewski and Senator Bakk – noted that the Governor raised just under $1 billion through his proposal to issue bonds. This bill is an effort to raise a similar amount of revenue but not through borrowing. It raises $992 million in revenue using proposals based on the House and Senate tax bills:

  • A 4th tier income tax rate of 9.0 percent on taxable income above $250,000 for married filing joint households – raises $516 million in FY 2010-11.
  • Increases in alcohol taxes of $241 million.
  • The Senate’s provision for a surtax on income raised through excess interest rates, which raises $216 million.
  • Increased tax compliance initiatives to raise $19 million.

These revenues go into three new accounts in the general fund. In FY 2010-11, the revenues are distributed as follows:

  • $586 million to the E-12 education account.
  • $288 million to the nursing homes and long-term care account.
  • $114 million to the hospital account.
  • $5 million is appropriated to pay for the tax compliance activities.

This bill is an attempt by the legislative majorities to help make their priorities clear.

The 4th tier income tax would blink off in 2014 if the February 2013 forecast shows that there would be a $500 million balance. (This would mean $500 million is left after refilling the budget reserves and cash flow account. Also, any shifts that may be enacted this year would have to be paid off first as well.)

Obviously, some issues are not resolved. It was specifically mentioned that it is not yet determined whether the legislature will pass an education funding shift, nor does this bill necessarily establish the targets for the remaining budget conference committees. Committee members noted that cuts in these priority areas will still occur, but they will be mitigated by raising these revenues.

More details and next steps will be more clear in the days ahead…and any mistakes made while blogging at 12:35 in the morning will be corrected as well.

As a side note – the House and Senate both amended the joint rules to eliminate the 5th deadline which said conference committees were to finish up by midnight on Thursday (as we reported yesterday).

-Christina Wessel and Nan Madden


Now is the time for a balanced approach to the budget shortfall

April 20, 2009

Tax bills are now being negotiated at the Capitol. We know that adequate funding for critical services is at stake unless policymakers pass a balanced approach to addressing the current budget shortfall. Now is the time when we must unite around raising revenues fairly so that legislators know where we stand.

That is why the Minnesota Budget Project has been working closely with Invest in Minnesota, a group uniting nonprofit, faith and labor organizations around the principles of raising revenue fairly. Legislators need to know that their constituents support a balanced approach that includes increasing revenues fairly.

Tuesday (April 21st) is an important day to take action. We need your involvement with a Capitol Call-In Day so that our voices are heard loudly and in unison. Just make two easy phone calls to your own elected state legislators with the message that you support raising revenue fairly as part of a balanced budget solution. For more information, go to the Invest in Minnesota website.

-Leah Gardner


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