Minnesota’s improved economic outlook for the next two years doesn’t appear to have tamped down Democrats’ ambitious plans to invest in education, property tax relief and job growth.
The state’s projected $1.1 billion shortfall for the 2014-15 budget cycle dropped nearly half a billion dollars to $627 million Thursday, when the state announced its latest economic forecast.
The state’s take for the current biennium increased $295 million. That money will be used largely to pay back borrowing from Minnesota’s school system.
Budget officials said the improved outlook is good news but said structural stability is still elusive and that the federal budget stalemate could hurt the state’s economic growth.
“The simple story is that the economy continues to get itself out of the recession,”
Minnesota Management and Budget Commissioner Jim Schowalter said.
“We continue to chug along, but it’s not nearly enough to solve the public policy questions that we have hanging over us from recent years. That’s true at the state level. That’s true at the federal level.”
DFL, GOP disagree on next step
Democrats and Republicans alike agreed that the economic forecast represented good news for the state, but disagreed sharply over where to go from here.
Gov. Mark Dayton, who proposed a $37.9 billion budget last month, would have filled in the then-$1.1 billion deficit and funded new priorities with an overall $2.1 billion tax hike.
Capitol watchers expected Dayton’s budget to be a placeholder until the February forecast was released, giving state lawmakers an updated picture of the economic situation they face.
Dayton called today’s forecast “very good news for Minnesota” and said the executive branch and revenue agencies are revising his proposal to reflect the improved economic picture. He hopes to release updated recommendations the week of March 11.
But the governor didn’t back away from the ambitious tax or spending plan that he released at the end of January, parts of which are generating significant blowback from the business community and Republican lawmakers.
“The result is harm to economic growth, jobs and competitiveness,” state Chamber of Commerce President David Olson said in a statement after the forecast was released.
If Dayton has his way, the short-term economic improvement will serve to fund his long-term aims, rather than take the pressure off of upper-income tax hikes and sales taxes on business-to-business transactions and many consumer services.
Dayton didn’t take any tax increases off the table at a news conference after the budget forecast was released.
In fact, the governor said the $463 million improvement would allow him to move forward with two tax relief priorities that were left “in the queue” when he was crafting his budget proposal – an upfront sales-tax exemption on business capital investment purchases and an increase in the renters’ tax credit.
The cost of those two tax expenditures could reach up to $300 million.
Dayton stresses need for investments
Dayton told reporters that an improved economic climate in the next biennium doesn’t make any of the key investments he’s proposed any less pressing if Minnesota wants to achieve long-term success.
“I believe we have made progress in this state because we have made investments in things like education, and I know … those investments have been declining,” Dayton said.
“If you’re going to say we’re not going to invest anything more in education, we’re not going to do early childhood, we’re not going to do all-day kindergarten. We’re going to just be on this glide path of less commitment and expect better results? I don’t think that’s realistic.”
DFL legislative leaders, for the most part, seemed to match Dayton’s sentiment. Although they have declined to outright endorse the governor’s tax proposals, Senate Majority Leader Tom Bakk and House Speaker Paul Thissen said now is the time for visionary investments in the state.
Bakk told reporters that DFL legislators might support even higher spending targets for education and economic development than the governor has proposed.
Thissen said an income tax hike, which is included in Dayton’s budget, is a likely option for lawmakers but stopped short of endorsing the sales tax expansion that’s the key to the governor’s budget.
Still, Democrats said now is the time to focus on long-term growth and visionary investment rather than on the piecemeal improvement that today’s forecast provided.
Revised budget targets coming
The DFL leaders said they hope to release their budget targets by the Easter legislative break.
“We really have an opportunity even better now to get out of the cycle of continued budget deficits that we’ve suffered over the last 10 years and really restore some structural stability to our state budget,” Thissen said.
“This really is an opportunity for us to look forward for the first time in a long time,” he added. “There are investments that we need to make. We don’t need to just deal with the problem immediately in front of our noses right now. We can look five and 10 years out and start making the kind of investments we need to make in the state of Minnesota.”
Budget officials noted that although current projections show a budget surplus in the 2016-2017 biennium, a lot could change before then.
Current state law also doesn’t account for inflation in estimating expenditures. If it did, the budget surplus would flip to a deficit.
Republicans criticized the DFLers for keeping many of the same policies on the table despite the improved economic outlook. They called for Dayton to go back to the drawing board with his budget.
“I don’t think they’re going to go backwards. I don’t think they’re going to give in and do less spending,” House Minority Leader Kurt Daudt said. “The governor has proposed these taxes, but I’m not certain that those taxes quench the thirst for spending that the Legislature is going to have.”
Sen. Dave Thompson, an assistant minority leader, echoed many Republicans in claiming credit for much of the economic improvement reflected in Thursday’s forecast.
The forecast’s only negative area concerned lackluster electronic pull-tab revenues.
“We are in an awful lot better shape today than we were two years ago because of the policies that have been implemented,” Thompson said.
Current forecasts
The forecast for Pull Tab revenue was very optimistic and history has shown that tax increases can have a negative effect on tax revenue (Laffer Curve), businesses, job creation and more.
True That
Just look at how the economy tanked after the Clinton tax increases. The job machine didn’t hum again until Bush II lowered taxes. And with those Bush tax cuts, it’s been jobs galore ever since. Most of us have so much money we don’t know what to do with it.
Yup, the proof is in the pudding.
#Vikings #Wilfare Stadium Deal
The Real Estate Experts know the Truth here: 1) #Targets VP John D. Griffith was and is the Stadium Real Estate Expert (Daytons BFF) 2) The 49’s structured deal was the Best Deal for the Public which we had Sen. Julie Rosen and Sen. Roger Chamberlain sign 3/27/2012 http://goo.gl/mc5cv 3) All the reporters in MN do not report anything bad about #Target or their request for $200,000,000 which is a MAJOR conflict of interest. 4) Our deal included a Real Peoples Stadium DEAL (Free classes weekly, weekly TV Game Show), as in this market the Dallas Cowboys stadium is 98% empty and we should design buildings to have many more uses than just the 9-10 games a year causing Global Warming Sandy, etc.. 5) The actual bill was voted down by the house 9-6, and commercial interests were able to change the votes (Via NFL Pres. Roger Goodell flying here to get a NEW VOTE motion through) 6) all of these actions are against the spirit of the law and Oath to Office 7) This story will be re-told in our Docudrama movie 8) the new services taxes completely destroy small business in MN so now we have some folks paying attention 9) our deal included #veterans training and #Walmart did respond to our help Wanted Ad on Twitter to help veterans (they will hire 100k or more next 5 years) Target did NOT respond to our requests.
‘Investment’ is such a tricky word
It now looks as if the DFL is going to cater to Dooher and Education Minnesota. Just because we have more money doesn’t mean we have to give it all away again. EA backed the DFL expecting more than just the payback. They have given nothing to help our children except doom and gloom and the crazy “I raise my hand” because all they want is money. The DFL is suggesting no changes of what this ‘investment’ will be, but we get more and more reports of how our schools are doing worse and worse. If the DFL really wanted to invest in education, give everyone more and better school choice than the same old tired hard hand of EA.
The DFL way…
When the economy is bad – we have to raise taxes to keep the special interest employed.
When the economy is good – we have to raise taxes to make needed “investments” because we can afford it.
Either way – the DFL way is to raise taxes.
You are Right!
The Democrats always have to spend to make fixes to the state after the Republicans have been in charge. The Republicans will use anything until it breaks but never want to fix anything. The Republican budget gimmickry, kicking the can down the road, and TPaw wanting to look presidential have all had an adverse effect on the state fiscal problems. When the Republicans were recently in charge in St. Paul, they were more interested in social engineering and sexual escapades than they were in fixing the state’s fiscal problems. Take it to the national level and we are still paying for that most conservative Republican George W. Bush’s two wars, unpaid for, Bush Tax cuts, unpaid for, Medicare Part D, unpaid for. When we have the aftermath before us in an unequivocal display, it is hard to defend the Republican philosophy. The Republicans are currently leaderless and totally out of control at all levels because they don’t know who they are or where they are going. The Republican’s tea party buddies have taken the party right to its knees. While down on their knees the Republicans should be praying that they relearn the word “compromise”. Right now, all they know is that they have to be obstructionists.
another consideration
When they keep saying increase taxes on the rich (top 1%), how can they justify expanding the sales tax to include clothing, hair cuts, piano/swimming/instrument/etc lessons, oil changes and so on? Those are all taxes that everyone pays, certainly not just the top 1%!
I have a question: If the population is declining to the point that some schools are closing for lack of students, doesn’t that mean that the “tax base” is decreasing? Ultimately, there will be fewer people to pay these increased taxes so there will be less money coming in from them. Who will make up the difference?
Wouldn’t it be much better to DECREASE and control the amount being spent every year? Do you realize that when the government talks about budget cuts, they really mean that the amount of increase is cut? So in reality, the drastic cuts that cause people to be laid off is a bunch of hog wash! The number of employees in the police and fire departments won’t decrease unless the government leaders WANT to lay them off; if you could afford to employ 50 police and 50 fire last year, YOU STILL CAN!!!!
Quit lying President Obama and Governor Dayton! Learn to spend within your means, not increasing the budget 20% or more every year.