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


House and Senate jobs bills cut more, transfer more, than Governor’s plan

March 31, 2011

The House and Senate budget proposals for economic development, workforce development and housing cut funding far below the Governor’s recommendations. The House proposal (House File 1049) contributes $87 million toward solving the deficit and the Senate bill (Senate File 887) contributes $65 million towards solving the deficit. In contrast, Governor Dayton’s budget recommends a net $3 million in cuts.

With such large savings targets, these legislative proposals would seem to require deep spending cuts. However, both the House and Senate plans transfer significant amounts of money from dedicated accounts to the general fund, avoiding deeper cuts.

Economic and workforce development. The Department of Employment and Economic Development (DEED) is the agency primarily responsible for workforce development. The Governor proposes a 10 percent increase in its general fund base budget for FY 2012-13, the House cuts funding by one percent, and the Senate cuts funding by six percent.

The House and Senate proposals reduce funding for a number of DEED-run grants for economic and workforce development. These grants fund a variety of services – such as job training, career planning, business development and financial education – to a variety of disadvantaged and disabled people, as well as young people just entering the job market. The House and Senate propose deeper reductions in these grant programs than the Governor. Following a recommendation from the Legislative Auditor, the Senate also converts many of these grants into competitive grants instead of naming grantees in statute.

The Governor’s proposal increases funding for both Vocational Rehabilitation Services, which provides employment services for people with significant disabilities, and State Services for the Blind, which helps Minnesotans who are blind, visually impaired or Deafblind with their employment skills. This increased funding would allow the state to draw down additional federal matching funds. The House includes these funding increases; the Senate does not.

The Governor also proposes $5 million in one-time money to local governments to aid in expanding businesses, creating jobs and cleaning up blighted properties for redevelopment. The House and Senate proposals do not include this local economic development funding.

Affordable housing and housing development. Overall, the Governor cuts the Minnesota Housing Finance Agency’s general fund budget by five percent, the Senate cuts it by seven percent and the House cuts it by 11 percent. Efforts to preserve and rehabilitate affordable housing units are the hardest hit by these cuts. The proposals largely protect services for those who are homeless or at risk of being homeless. The Governor also shifts $2 million from another housing fund to preserve 150 rental assistance opportunities within the Housing Trust Fund. The Senate does not provide any resources to preserve this rental housing and the House proposal actually cuts the Housing Trust Fund by $500,000 in FY 2012-13.

One-time transfers from other funds. Cuts to workforce development and housing will have an important impact on Minnesotans struggling to find and keep employment and those seeking affordable and stable housing during this slow recovery. However, the cuts make up only a small portion of the budget changes in this area. More than 80 percent of the savings in the House and Senate bills comes from transfers from other funds. In total, the Governor uses $6 million in transfers from economic development and workforce funds to help resolve the general fund deficit. The Senate transfers a total of $54 million and the House transfers a total of $76 million.

  • Mining companies pay into the Douglas Johnson Economic Protection Fund in lieu of property taxes. The Senate transfers $45 million to the general fund, repaying the loan with interest over three years beginning in FY 2015. The House transfers $60 million with no payback provision. The transfer reduces the Iron Range’s ability to respond to economic development and job creation opportunities, and uses the money for a purpose for which it was not intended.
  • The Workforce Development Fund pays for job training and business development programs and is funded by payroll taxes. The Senate proposal transfers $9 million to the general fund in FY 2012-13, filling the state’s budget deficit with money intended to help with job training for youth, people with disabilities, and other disadvantaged populations.
  • The Unemployment Insurance (UI) Contingent Account gets money from the penalties and interest on unpaid employer UI taxes and is used for UI administration. All three budget proposals continue a long-standing practice of transferring some of the available funds to help out with shortfalls in the general fund or backfill cuts in other funds.

The House and Senate budget bills are moving quickly towards a conference committee. As legislators look to reach a compromise with Governor Dayton, negotiations will surely focus on the heavy use of one-time transfers. These short-term fixes only highlight the point that the state needs to find a balanced solution to the budget deficit, one that includes new revenues.

-Scott Russell

Unemployment Insurance makes up only a small piece of federal legislation

December 20, 2010

Now that Congress has passed the “framework agreement” on extending tax cuts and unemployment benefits, it’s a good time to understand the relative size of the various components of that package.

The Center on Budget and Policy Priorities has released a breakdown of the cost for the tax package. It shows that over half of the package’s cost is to continue the “middle-class” tax cuts, Alternative Minimum Tax (AMT) changes, tax extenders, and 2009 estate tax rules. Continuing the tax cuts for high-income households and further weakening the 2009 estate tax rules makes up 16 percent of the bill’s cost. In contrast, extending tax credits for low- and moderate-income households makes up only 5 percent of the cost. The provision to provide additional weeks of Unemployment Insurance for workers unable to find jobs makes up only 7 percent of the package.

On December 17, the U.S. House of Representatives passed the tax package by a vote of 277 to 148. Minnesota Representatives John Kline, Jim Oberstar, Erik Paulsen, Collin Peterson, and Tim Walz voted for the bill, while Representatives Michele Bachmann, Keith Ellison, and Betty McCollum voted against it. The House vote followed a vote in the U.S. Senate on December 15 where the bill passed by a vote of 81 to 19. Both of Minnesota’s senators, Al Franken and Amy Klobuchar, voted for the bill.

As we noted in our December 8 blog, this package contains some good news for low- and moderate-income working families but also includes some bad news in the ongoing struggle for fair and responsible tax policies.

The good news is that the package extends expiring Unemployment Insurance benefits for some 7 million Americans over the next 13 months and extends improvements to the Child Tax Credit and the Earned Income Tax Credit, actions that are vitally important to thousands of Minnesota families that are struggling through these difficult economic times. These are actions that have a high “bang for the buck” in supporting consumer spending and the economic recovery.

The bad news is that the package extends all of the expiring 2001 and 2003 tax cuts, including those to households with annual income above $250,000, for another two years, and dramatically weakens the estate tax. These provisions come at a high cost and have been found by the Congressional Budget Office to be a relatively ineffective way to boost economic growth.

-Steve Francisco

Lame duck Congress facing key decisions on tax policies, unemployment insurance

December 3, 2010

The “lame duck” Congress is preparing to vote on whether or not to extend some or all of the expiring 2001 and 2003 tax cuts. Sharp divisions in both the House and Senate, however, have made the outcome of these votes uncertain. Additionally, efforts to extend expired unemployment insurance for millions of  jobless Americans may also play a part in whether a compromise tax package can pass both the House and Senate and make its way to President Obama for his signature.

On December 2, the House voted 234 to 188 to extend the expiring 2001 and 2003 tax cuts for households with incomes of $250,000 or less. Minnesota Representatives Ellison, McCollum, Oberstar, and Walz voted for the bill. Representatives Kline, Paulsen, and Peterson voted against the bill. Representative Bachmann did not vote. Although the bill passed in the House, the Senate is not expected to pass this version. Thus, the key bill to watch will be whatever compromise is reached between the White House and Congressional leaders.

The Minnesota Budget Project was joined by fifty-seven nonprofits from across the state on a letter to our Minnesota Congressional delegation urging that the tax cuts for high-income households (i.e., those with incomes over $250,000) be allowed to expire as scheduled at the end of this year. With large annual budget deficits and growing national debt, we simply cannot afford to permanently extend the tax cuts for the highest-income households. Making these cuts permanent would add nearly $1 trillion to the deficit over the next decade (including added interest costs) and have little impact on job creation.

Congress may also decide whether to reinstate the expired federal estate tax. Key decision points will be the level of the exemption from the estate tax as well as the top tax rate. We support a fair and reasonable compromise of reinstating the estate tax at its 2009 levels with a $3.5 million individual or $7 million per couple exemption and a 45 percent top tax rate. At these generous levels, only the wealthiest one in 400 estates in the nation owed any estate tax in 2009.

Temporary improvements included in the Recovery Act to both the Child Tax Credit (CTC) and Earned Income Tax Credit (EITC) are also set to expire on December 31 unless Congress acts. Approximately 156,000 Minnesota children and their families have benefited from the improvements to the Child Tax Credit, which has brought an additional $126 million to Minnesota families. Similarly, enhanced Earned Income Tax Credits for working families with three or more children or headed by married couples has brought an additional $51 million to approximately 102,000 Minnesota households. We are calling on Congress to permanently extend these improvements that help working families make ends meet.

Finally, pressure is building for Congress to extend expired unemployment insurance benefits for millions of Americans. With the nation’s unemployment at 9.6 percent and Minnesota’s jobless rate at 7.1 percent, there is clearly an urgent need for Congress to extend this vital assistance for economically struggling families. Some prominent economists have noted that extending unemployment insurance would also be one of the most effective steps Congress could take to stimulate the economy because unemployed families will most likely spend this money in their local communities. (The improvements to the Child Tax Credit and Earned Income Tax Credit have a similar effect, providing additional income for struggling families to spend on basic needs.)

Watch for a potential compromise that could include a temporary one- or two-year extension of all of the expiring tax cuts along with a further extension of unemployment insurance benefits. It is uncertain whether the extension of the improvements in the Child Tax Credit and the Earned Income Tax Credit would be part of such a compromise.

– Steve Francisco

Congress needs to continue added weeks of unemployment insurance until economy recovers

November 19, 2010

The Lame Duck Congress needs to get to work for those who can’t find work, passing a year-long extension of federal unemployment insurance benefits. It’s a critical support for families on the financial edge, and it’s a critical support to the economic recovery.

Unless Congress acts by November 30, unemployed Minnesotans will qualify for a maximum of 39 weeks of unemployment benefits instead of the current 86 weeks, more than a 50 percent drop. This would happen as people still struggle to find work, and before the economy has fully recovered. Roughly 2 million people nationally would be impacted starting in December, according to the National Employment Law Project (NELP). Some would face a loss of benefits that month, others would see their weeks of eligibility shortened, leaving them “out in the cold for the holidays,” notes NELP.

Here is how unemployment benefits work in Minnesota. In normal times, people who lose their jobs can qualify for up to 26 weeks of unemployment benefits. When unemployment reaches a certain level it triggers “extended benefits,” an additional 13 weeks, bringing the total to 39 weeks. In 2008 and 2009, as more and more people lost jobs, the federal government started paying for additional weeks of “emergency benefits.” The length of these benefits varies, depending on the state’s unemployment rate. In Minnesota, emergency benefits add 47 weeks, bringing the total to a maximum of 86 weeks.

If the federal emergency unemployment benefits end, the Minnesota impact would be delayed. (The benefits of last resort are the 13 weeks of the extended benefits, so those are still available after the emergency benefits end.) The St. Paul Pioneer Press offers a compelling story of a woman who faces an early end to her benefits, and explains how the system works at a personal level.

In broader terms, here’s why keeping the additional weeks of benefits is both important and doable.

Extending federal benefits makes economic sense. Failing to extend benefits would put people near the financial edge over the edge, adding to the suffering of those who want to work but can’t find a job. Also, unemployed workers spend their unemployment benefits right away, spurring the recovery. The Congressional Budget Office said increasing aid to unemployed workers would create a bigger economic boost than reducing payroll taxes, infrastructure investments, or any of the other 10 options it analyzed.

There aren’t enough jobs yet. In Minnesota and the rest of the nation, job seekers still outnumber job openings. In Minnesota, there is roughly one opening for every five people looking for work, according to a September analysis by the JOBS NOW Coalition. Many of those jobs are part-time. “Job seekers outnumber full-time job openings by 8-to-1,” JOBS NOW found.

Even with the extension, many Minnesotans are running out of benefits before they find work, 1,000 a week according to Minnesota Unemployment Insurance.

It’s unprecedented to cut unemployment benefits at this point in a recovery. In September, the nation’s seasonally-adjusted unemployment rate was 9.6 percent. “Since the unemployment insurance program was created in response to the Great Depression, Congress has never cut federally-funded jobless benefits when unemployment was this high for this long, (at over nine percent for 17 consecutive months),” NELP said.

We have the money to pay for it. Some Congressional leaders would increase the deficit by billions of dollars by extending the 2001 and 2003 tax cuts for millionaires. Congress should let those tax cuts expire and instead put that money to a higher priority use – and one with a greater economic impact.

For additional information, see the Center on Budget and Policy Priorities’ recently-released paper Emergency Unemployment Insurance Benefits Remain Critical for the Economy and Economic Policy Institute’s What Would You Do With $67 Billion?

-Scott Russell & Steve Francisco

Let high-income tax cuts expire, redirect money to stimulate economy

September 2, 2010

The Center on Budget and Policy Priorities makes a strong case for letting $40 billion in Bush tax cuts for high-income households expire as scheduled at the end of this year. That $40 billion could instead be redirected to help stimulate the weak national economy.

According to the nonpartisan Congressional Budget Office (CBO), if this money were used for job-creation tax credits, continued federal aid to states and extended unemployment insurance benefits, it would create more jobs and generate more economic growth than simply extending the Bush tax cuts for the top income households in the nation (i.e., those with incomes over $250,000 a year). Why? Because higher income households are more likely to save this extended tax windfall than spend it. What the economy needs right now, however, is more consumer spending.

In fact, “CBO found extending the tax cuts for high-income households to be the worst of all options under consideration for preserving or creating jobs and boosting economic growth while the economic is weak,” the Center on Budget and Policy Priorities notes.

In the near term, the CBO found that some actions would create more economic growth and more jobs per dollar spent than extending the high-income tax cuts. For example:

  • A temporary jobs tax credit (a temporary payroll reduction on new hires).
  • Extending federal fiscal aid to states to help them avoid bigger and deeper spending cuts. (Congress in fact has recently taken this action, which may provide $430 million for health care and education in Minnesota.)
  • Extended unemployment insurance benefits for the unemployed. This provides the greatest “bang for the buck,” as benefits paid out to the unemployed would undoubtedly be injected right back into the local economy in spending by the unemployed to meet basic living needs.

When Congress returns from its summer recess in September, expect a fierce debate over the future of the expiring tax cuts (along with whether or not Congress will extend tax credits targeted to low- and moderate-income working families, such as the Child Tax Credit and the Earned Income Tax Credit). Extending the tax cuts for high-income households is the worst option for spurring economic growth, and would add $1 trillion to the national debt over the next ten years. Congress should allow the Bush tax cuts to expire. In the short-term, Congress should redirect that money toward initiatives that will truly stimulate the economy and help struggling working families. Once the nation’s economy is on more solid footing, the resources can be used to make a dent in the nation’s deficit.

-Steve Francisco

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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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