Monday, May 13, 2013

Global Agreement Reached.  The Governor and legislative leadership reached accord on the parameters of the budget for the coming biennium.  The plan features $2 billion in tax increases (income, tobacco, and probably alcohol) and a $475 million target for the E-12 education budget.  It also contains a temporary surtax on high income earners that will be used to pay back the school shift, a high priority for the House DFL caucus.

Here is a StarTribune article that outlines the agreement:

Home Stretch.  It’s the time of the year when I start dusting off the analogies to describe how the legislative process operates as it enters the stage when conference committees on the major budget and policy bills start to put together the final versions of these bills for final legislative approval.  As a refresher, it’s important to remember that each legislative body assembles its version of a bill and those bills, especially in the case of the major budget bills, are rarely identical.  This necessitates the conference committee process—a body composed of representation from both legislative bodies (including the chairs of the budget committee whose jurisdiction covers the bill)—in which the final version of the bill is developed through a set of compromises.  I don’t know if you covered this in your ninth grade civics class (or if you even had ninth grade civics), but a bill must pass both houses of the legislature in exactly the same form (and when I mean exact, I mean exact) before it can be sent to the Governor either for his signature or veto.

Enough with the civics lesson, it’s time for the analogy.  Think of the legislative session as you planning your Thanksgiving dinner.  You probably start out by thinking what you want to serve.  You think about how many people are going to be at dinner and how big a turkey you are going to need to buy.  You think about what you want to serve for side dishes and what recipes you are going to use.  Now imagine that another family member has decided to help out, but they have their own special stuffing recipe that you don’t particularly care for that they insist on using in the turkey.  You balk, but relent after agreeing with the family member that you will stuff the turkey with their recipe and your recipe.  You then buy the turkey and on Thanksgiving Day, you and your sibling stuff the turkey simultaneously with your respective recipes.

We’ve reached the time in the legislative session that the size of the turkey has been determined.  The tax increases agreed upon by legislative leadership and the Governor have allowed the purchase of a big old twenty-five pound Butterball © and over the next few days, it is going to get stuffed with legislative “ingredients,” namely provisions on spending and policy.  In the end, because both recipes have been used and cooked into one turkey, the meal will be identical for all the guests that arrive instead of having one turkey with one dressing recipe and one turkey with a different dressing recipe.

Have I tortured this analogy enough (please say “yes”)?  At any rate, the informal deadline for completion of the bill is Thursday at midnight and the negotiations will undoubtedly result in a package that contains both the House and Senate recipes.  As I said earlier, the package of tax increases that have been agreed upon will provide a sizeable budget target of $475 million for the conference committee.

As I said, the bill will likely be finished by late Thursday (May 16) and it will feature a commitment to voluntary all-day/every-day kindergarten and an increase (perhaps as large as 2% in each year of the biennium) in the general education formula basic amount.  There will also be a commitment to the early childhood scholarship program promoted by the MinneMinds coalition which looks to be about $40 million over the biennium.  In the policy realm, there will be a new assessment system that eliminates the 11th grade MATH grad and replaces it with a suite of assessments that will hopefully ensure college and career readiness.  The House provision known as "Minnesota's World's Best Workforce," will also likely be part of the final package in some form.

Tax Bill.  The tax bill will also be put together over the next few days and if there is going to be increased referendum equalization (and there likely will be), it will be the product of those discussions and not the discussions on the E-12 bill.  Senator Rod Skoe has been promoting increased equalization all session long and it appears at this point that resources will exist to do something considerable in this area.  One possible negative that exists is the proposed referendum freeze that would prevent districts seeking to increase their referendum this fall.  While districts that have already passed a resolution stating their intent to put a question on the ballot in November are exempt from the freeze, there are many more districts that are likely interested in going before the voters this fall and this issue will have to be discussed and the restriction either eased or eliminated.  Another potential problem springs from the fact that equalization aid currently follows students to the serving district under open enrollment or charter school law.  This could prove extremely problematic, as an equalization increase would result in a district losing money.  Just more things to consider in the thicket-laden world of education funding.

Thursday, May 09, 2013

Equalization Proposals Discussed in Tax Conference Committee.  The tax conference committee tackled the provisions in the Senate bill relating to referendum equalization and providing districts with little or no referendum levy with added financial support.  The Senate has altered its approach a bit from the initial proposal that was contained in the tax bill.  Instead of creating a new revenue category (early advancement revenue or EAR), the altered approach calls for making the first $300/PU a board-authorized levy equalized at a very high rate.  Districts with less than $300/PU in referendum authority could, by board action, raise that amount by board action.  Districts with more than $300/PU would have the first $300/PU converted to board-authorized authority that would not have to be renewed by voters.  This first tier, as stated earlier, would be equalized at a rate approximately 65% higher than the current first-tier equalizing factor.  It is difficult to gauge the exact increase in the equalizing factor because the Senate omnibus education finance bill radically changes pupil weightings and balancing the changes with the new "denominator" is inexact at this point.  Rest assured, however, that the new first tier of the referendum (now board-approved) is increased mightily.  The second tier of the referendum then becomes the revenue space between $300/PU and $775/PU and that is equalized at a rate above the current first tier equalizing factor of about 15%.  The third tier is the revenue area between $775/PU and the cap and the equalizing factor for that increment is well above that of the current second tier equalizing factor.  So equalization increases all around and the opportunity for districts with low levels of referendum revenue to close the gap between themselves and districts with high levels of referendum revenue.

Hard to tell where the debate goes after today's exchanges.  There is both support and skepticism coming from the House side.  House Tax Chair Ann Lenczewski, while sympathetic to the plight of low property wealth school districts, has concerns that the metropolitan area continues to subsidize low property wealth areas in the state through property tax relief mechanisms like equalization of school aid formulas and local government aid formulas.  The House position does little in terms of "yield adjustment" in its tax bill (it does increase referendum equalization in its education finance bill) and relies more on direct-to-taxpayer assistance through an improved property tax refund program.

The Senate is committed to accomplishing something in the area of school-related property tax relief this year and the current proposal is very strong.  I would urge all SEE members to contact their members of the House of Representatives and urge them to take a serious look at the Senate proposal.  While the Senate proposal does not recoup the entire erosion of the equalization program that has occurred over the past 20 years, it takes a big step toward righting the ship.
Education Conference Committee Begins.  The Senate/House conference committee that will work out the differences that exist between the two versions of the 2013 omnibus education funding bill began its work this morning.  While there are differences within the bills, there is nothing here that probably cannot be overcome rather easily once the budget targets are set.  The committee has spent the first few hours of the meeting going through the competing bills and highlighting differences that exist.  These differences are relatively minor and it's important to remember that both bills contain:

  • A commitment to voluntary all-day kindergarten.
  • Revenue going to the general education formula instead of special education.
  • Similar provisions on student assessment largely based on the work of the assessment working group convened by the Minnesota Department of Education last summer.

For those of you who want to see the differences in the bill, here is a link to the side-by-side summary.


Deb and I will keep you posted on the conference committee's progress.

Tax Conference Committee Continues.  It's important to remember that the Senate tax bill also contains significant property tax relief for school districts and those provisions are on tap to be discussed at some point today.  I will keep you posted on this important matter.

Monday, May 06, 2013

Two Week Warning.  Two weeks from tonight, the 2013 regular session of the Minnesota Legislature will come to a close.  While there's a lot of work remaining to be done, it looks as though things will fall together fairly quickly after the tax target is determined by the conference committee on HF 677, the 2013 omnibus tax bill.  There is little doubt that taxes will be raised this session, but the obvious question is, "By how much?"  Both the Senate and the House have ambitious revenue increases in their respective bills, but the approaches differ dramatically.  Both bills raise state income tax rates for high income earners and make changes to the sales tax that broaden the sales tax base by taxing transactions currently not subject to tax.  The increased revenue generated by these changes in state taxes are used to:  (1) balance the state budget for the coming biennium, (2) put additional revenue into several areas of the state budget beyond what was included in the Governor's budget released in January, and (3) provide property tax relief.  The greatest departure that exists between the two bills is that the House proposes to implement a temporary income tax increase with the proceeds of the tax going to eliminate the property tax early recognition shift and set the education aids payment schedule at 90%/10%.

The tax conference committee has been meeting regularly, but no headway has been made on the major issues facing the panel, which leaves pretty much everything else in flux at this point.  The conference committee will be discussing the Senate's education property tax provisions tomorrow (Tuesday) evening.  As many of you recall, the Senate tax bill contains a $300/PU roll-in of the referendum levy (and equalizes the roll-in at an extremely high rate), increased equalization of the remaining referendum levy, and a re-establishment of the integration levy.  It is also important to remember that the Senate also buys down education property taxes in their version of the omnibus education funding bill by combining a set of levies that are either unequalized or equalized at a fairly low rate and reducing the total levy by $150 million.  The House has approximately $30 million in referendum equalization in their version of the omnibus education funding bill.

It will be a busy two weeks, but I have seen the Legislature cover more ground in less time, so it's not like the session has reached a point where things will simply be thrown together at the last minute.

Follow-up on Referendum Freeze.  As I've reported before, the Senate tax bill contains a provision that would prevent districts from going before the voters this fall to add to their current level of referendum revenue.  Senator Karin Housley offered an amendment on the Senate floor that would exempt districts that have already passed a board resolution outlining their intention to seek additional revenue through a voter-approved referendum to put a question before the voters this fall.  This will not exempt many districts (I can only think of one) from the freeze, but Senator Rod Skoe, the Senate Tax Chair, expressed support for making a larger exemption in conference committee with the only question being how to accomplish that.  I would urge all districts that are considering going out this fall to pass a resolution as soon as possible.  It is my guess that if the freeze survives (and there is a strong chance it won't), districts that pass a resolution by a certain date will be exempted from the freeze.  Everyone will have a pretty good idea of their revenue situation for the coming year and should be in a position to know whether (and how much) they will be embarking on a referendum campaign in the fall.

Anti-Bullying Bill Passes House.  After several hours of debate on a slate of amendments that reached double digits, the House passed HF 826 (the anti-bullying bill) by a party-line vote of 72-57.  There wasn't much new ground plowed in the debate, as questions over free speech, parental notification, and privacy were once again brought forth by those objecting to the implementation of a statewide anti-bullying policy.  Representative Jim Davnie, the bill's chief author, added an amendment to the bill that made clear the free speech rights of students and to not have those rights infringed upon in the implementation of the new policy. The difficulty will be--and this has always been the case--in determining the point at which speech becomes an exercise of opinion and morphs into harassment which then morphs into a pattern that would resemble--and may well prove to be--bullying.  The Senate is taking up its version of the bill--SF 783--in the Senate Education Funding bill tomorrow and it will then have to return to the Senate Finance Committee before hitting the floor.  The earliest the bill would hit the floor is likely to be Thursday and only then if the timing of the Senate floor sessions is such that it will accommodate the re-referral of the bill and the processing of committee reports.  I will keep you posted on the bill's progress.