Friday, March 30, 2012

Minnesota's Overall Revenue System could be changing

Minnesota’s revenue system, like others across the county, is a mix of different political philosophies, generational values, and remnants of past swings in the economy. These differences come to light every year the differing tax proposals make their way through the legislature. This comes to fruition in the tax bill created through choices in new revenue sources, cuts to revenue sources, and changes to fees and credits.

Minnesota’s legislature is currently debating the appropriate amount of taxes that should be levied. Their choice is going to have rippling effects on individual's taxes, on cities budgets, and on county budgets as well.  The two different bills that passed out of committees are the Minnesota House of Representatives File HF 2337 and the Minnesota Senate File SF1972. Since there are differing measures within each proposal, it means they are going to go to a conference committee to work out the differences. A conference committee is composed of members from the Minnesota House and the Senate who come together to produce a single piece of legislation that can hopefully be passed by each body and signed by the governor.


The House bill relies on cuts to Minnesota’s renter’s credit. This credit helps low and moderate-income renters with their housing expenses. This reduction in renter’s credit is being used to fund other tax cuts helping different populations in Minnesota.

The Minnesota House bill provides significant cuts in taxes.  These, according to the Minnesota Budget Project (MBP), would add significant increases to the state’s deficit, ranging from $228 million to $1.1 billion in revenue shortfalls by FY 2014-2015. The bill further creates future problems because it would gradually eliminate business property taxes through 2025. MBP estimated if property taxes were cut it would cost $1.7 billion by FY2014-2015.

The Senate bill passed out of the tax committee includes $104 millionin tax cuts in FY 2012 – 2013 and $195 million FY 2014 – 2015 (information located below House projections). As with the House version of the bill, this tax bill attempts to phase out certain property taxes paid and would fully eliminate business property taxes by 2026. At the same time, this bill freezes local government aide at the 2012 level, putting cities in a difficult place with their budgets. For instance, this brief summary of the city of Minneapolis’s budget shows that a significant portion of the city’s budget revenues come from property taxes. Eliminating a large portion of taxable property could have a very large impact on the way cities finance their services.

James Schowalter, The Commissioner of Minnesota's Office of Management and Budget has expressed his concerns about the impacts that the Senate bill could have on Minnesota's overall financing. He has said he is worried this bill will take the state in the wrong direction after it is starting to recover after the tough economic times of the last few years.

This current fight over what the correct mixture of revenue raisers is constantly a hot button issue in politics in Minnesota and efficiency, equity, sustainability, and feasibility all are changing based on the proposals being pushed through the legislature. Although the proposals passed through the committees are sure to change in conference committee and with the Governor’s input. This battle will always highlight that smart long-term revenue planning is not always a guiding principle when a legislature figures out their revenue raising strategy.

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