As we finish up the last week of the state’s legislative session, the Legislature has passed their initial budget and tax bills, and now need to reach compromise agreements with Governor Mark Dayton.
In February, the state’s economic forecast projected a positive balance of $329 million for the current FY 2018-19 biennium. That provides some opportunity to make additions to the two-year state budget passed last year. In addition, a major pressing issue for policymakers this session is how to respond to the federal tax bill.
As policymakers move into final negotiations, they have taken different approaches. The governor allocates about half of the surplus to education, while the House and Senate make taxes their biggest priority.
| Proposed General Fund Changes (FY 2018-19) | ||||
| Governor | Senate | House | Conference | |
| Education | $164 million | $20 million | $30 million | $28 million |
| Higher Education | $30 million | $1 million | $5 million | $3 million |
| Health and Human Services | -$40 million | $23 million | $10 million | $18 million |
| Environment | $3 million | $0 | $750,000 | $0 |
| Agriculture | $200,000 | $0 | $250,000 | $0 |
| Public Safety | $23 million | $8 million | $7 million | $10 million |
| Transportation | $36 million | $14 million | $101 million | $58 million |
| Jobs and Energy | $34 million | $15 million | $15 million | $15 million |
| State Government | $34 million | -$17,000 | -$7 million | $0 |
| Capital Investment | $27 million | $0 | $14 million | |
| Taxes | -$12 million | $171 million | $107 million | $140 million |
| Other Bills | $27 million | $28 million | $46 million | $27 million |
| Net Changes | $327 million | $280 million | $329 million | |
| *A conference target for Capital Investment has not been released. | ||||
The governor introduced his proposed budget in March, in which his largest new investments were focused on education. He includes funding for safe schools and special education, as well as expanded access to pre-kindergarten. He more recently proposed emergency funding for schools through an increase the basic student formula. Dayton’s budget also includes investments in health and human services, including provisions to protect families from disruption in their child care, and maintains an essential funding source for affordable health care – the provider tax. Dayton also includes investments in other areas of the budget, like additional funding to expand access to broadband for thousands of Minnesotans.
The Legislature’s tax plan shares some important components with Governor Dayton’s tax plan – both would maintain parts of the tax code that protect families with children, seniors, and people with disabilities from state tax increases as a result of conformity. But they have important differences in how additional tax cuts are distributed. The Legislature proposes income tax cuts that leave out an estimated 1 in 5 Minnesotans, and provide the largest tax cuts to those with higher incomes. Dayton’s tax plan takes a more across-the-board approach, through a $60 per person tax credit and expanding the Working Family Credit, so families struggling to get by are included.The 2017 federal tax bill creates complexity and challenges for states, and a top issue in this session has been how to respond. While the federal legislation provides the largest tax cuts to profitable corporations and high-income individuals while adding to the nation’s debt, Minnesota can instead put everyday Minnesota families first while protecting the resources needed to fund essential services.
The Legislative tax plan is $140 million in the current biennium – over 40 percent of the projected FY 2018-19 surplus. Also concerning is that it contains cuts in income and corporate taxes that grow over time, but relies on some temporary funding sources to pay for these ongoing tax cuts.
The House also includes a large general fund target for Transportation, three-fourths of the proposed $101 million would be transferred to a fund that supports the state’s highways. The conference agreement of $58 million follows this value and overwhelmingly goes to roads and bridges and the state’s computer system for vehicle license plates (MNLARS).
Both the House and Senate make some investments like funding for safer schools and increased access to broadband in Greater Minnesota, but their investments often don’t go far enough to meet the needs of Minnesotans. For example, as we discuss in another blog, the House and Senate budgets make some important policy changes to make child care more accessible, but additional investment is needed to fully address the fact that 2,000 families are on a waiting list for child care.
Legislators and the governor are now in negotiations to reach agreement on tax and budget decisions for this session. We continue to urge policymakers to include a tax response that prioritizes those Minnesotans who were left behind in the federal tax bill and make targeted investments to support Minnesota families and communities.