Monday, May 10, 2010

And. . .We're Off! I mentioned HF 2037 in one of my Saturday entries and it has now formally become the Senate's (at least the Senate DFL's) budget-balancing proposal. It was heard in Finance on Saturday and was referred to the Senate Tax Committee this morning, where a conditional tax increase was attached to the bill. The tax proposal attached to HF 2037 would create a new fourth tier on the income tax for single filers making in excess of $130,000 and families making more than $200,000. The new tier would be set at 9.15 percent, which is 1.30 percentage points higher than Minnesota's current top rate of 7.85 percent. The tax increase would be suspended if Minnesota had a budget surplus of $500 million at the end of the next biennium.

It is being discussed on the Senate floor as I write. It will likely pass today and if there is time left tonight, the House will take it up. It will likely pass there as well, but will meet a brick "veto wall" in the Governor's office. The text should be available shortly and I will post it as soon as it becomes available.

Below is the text of the DFL News Release (in bold and in blue--I hope you all have color monitors).

Minnesota Legislature

State Senate Majority Leader Larry Pogemiller
235 State Capitol, 75 Rev. Dr. Martin Luther King, Jr. Blvd., St. Paul, MN 55155-1606

House Speaker Margaret Anderson Kelliher
463 State Office Building, 100 Rev. Dr. Martin Luther King, Jr. Blvd., St. Paul, MN 55155-1606

May 10, 2010

Minnesota legislators propose balanced-budget solution

Moving quickly to create a solution to the state’s historic fiscal crisis, DFL lawmakers today unveiled a plan to solve the state’s $3 billion budget deficit.

Just last week, the Minnesota Supreme Court ruled that Gov. Tim Pawlenty’s unilateral budget-borrowing plan from last summer was illegal, presenting the Legislature with a $3 billion budget problem to be solved in the final days of the session. The justices noted that the governor willfully signed all of the Legislature’s spending bills, while vetoing the funding solution to pay for them. Now, with the governor’s illegal actions voided, lawmakers are taking action on a balanced-budget solution.

“This is a budget that meets the governor, but does not compromise Minnesotans’ most important priorities – our kids, families, and communities,” said Speaker of the House Margaret Anderson Kelliher.

“The state of Minnesota is facing two very serious fiscal challenges,” said Senate Majority Leader Larry Pogemiller, DFL-Minneapolis. “We have an ongoing structural deficit which was brought to a head when the Supreme Court threw out the governor’s unilateral budget
cuts. We are also facing an ongoing cash crunch that could result in the state being unable to pay its bills in a matter of days. The balanced-budget solution presented by the Legislature today addresses both of these issues and puts the state on more stable financial footing.”

Given the state’s dire financial situation, the Legislature’s budget plan includes more than $2.5 billion in spending reductions, including adoption of the same level as the governor’s unilateral budget cuts and K-12 borrowing. However, unlike the governor, the Legislature’s plan includes a way to repay the debt created by borrowing from Minnesota schools. The proposal would create a fourth-tier income tax on the wealthiest Minnesotans, which will generate more than $400 million in new revenue in the current biennium.

“A recent Minnesota Department of Revenue report showed the wealthiest Minnesotans pay a significantly smaller share of their income in taxes as compared to low- and middle-income Minnesotans,” said Senate Tax Chair Tom Bakk, DFL-Cook. “Our plan would not only ensure that our schools get paid back, but also increase the fairness of our revenue system.”
In total, the Legislature’s plan would cut $5 in government spending for every $1 raised in new revenue.

“We can’t make false promises to our schools,” said Senate Finance Chair Dick Cohen, DFL-St. Paul. “The governor has borrowed money from our students he simply can’t afford to pay back.

We are proposing a budget plan that honestly and responsibly balances our books, while protecting our schools from the deep cuts imposed by the governor.”

Underscoring the seriousness of the state’s financial situation, Gov. Pawlenty this week issued an emergency Executive Order in an attempt to keep the state from defaulting on its bills. In the order, the governor cited Article XI of the Minnesota Constitution which requires the state to balance its budget. However, the governor failed to note the same article also requires the State Auditor, when the state is out of money, to raise property taxes on every business, landowner, and homeowner in Minnesota in order to pay back its borrowing.

Without a balanced-budget plan in place, the constitution could require a statewide property tax increase. If the state’s current debt service had to be covered by property taxes, the average property tax payer would experience a 6.7% property tax increase.

“The choices are stark: we can make our tax system fairer and stabilize our budget, or face real cuts to schools and large property tax increases,” said House Finance Chair Rep. Lyndon Carlson.

“The Supreme Court’s decision did not cause this fiscal crisis, it simply revealed the governor’s plan to kick the can down the road has failed,” said Sen. Pogemiller. “The governor’s inability to make the hard decisions at the right time has put our state in a perilous position, and it’s time for all sides to come together on finding a balanced solution to this crisis.”


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