Friday, February 27, 2009

dedicating sales tax

In the election in November of 2008, Minnesotans voted on a constitutional amendment to raise the sales tax rate by 3/8 of one percent, dedicating this revenue to natural resources and the arts. The bill that passed, enabling this ballot question was HF 2285 (Sertich):

More information about the proposed constitutional amendment can be found at:

The idea of dedicating a sales tax or any funding to a particular cause raises controversy no matter how non-controversial the cause is. Earmarking revenues for a particular purpose has its advantages. In the case of the constitutional amendment, the passage of it guarantees that there will be funding for natural resources and the arts until 2034. It will allow for predictability of revenue for budgeting purposes. These advantages help to make the case for the dedication of the additional sales tax by constitutional amendment. Here is some information about earmarking:

On the other hand, there are several draw backs to earmarking revenue for particular purposes, especially when doing so through an amendment to the constitution. In the case of the 2008 ballot question, the revenue is additional revenue, thereby not affecting the pre-existing budget. However, in 2006 the ballot question that passed, dedicating all motor vehicle sales tax (MVST) revenues to transportation instead of streaming them into the general fund, shifted the revenue stream away from the general revenue fund and left a hole to fill.

Another drawback to earmarking is that the legislature can no longer alter the level of that funding, even if future elected officials and their constituencies would prefer to allocate those revenues to other things. If circumstances change, dedicating sales tax revenues to anything, especially by way of the constitution, can be short sighted.

On the other hand, while dedicating revenue streams to particular causes ensures some funding, depending on the state of the budget each year, lawmakers could decrease the amount of discretionary spending for a cause if there is already earmarked spending for it. For example, the environment, which is often seen as underfunded, could have its funding cut in a given year in order to resolve a budget deficit, based on the merits that it already has earmarked revenue streams (which could be insufficient on their own).

Perhaps a better way to handle funding for any priority is to fund the needs outright, rendering dedicated funding unnecessary. Funding decisions are best made through the legislative process, with the ability to adapt to changes in need.

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