Minnesotans are weary of lurching from one state budget crisis to another, so Gov. Mark Dayton’s key commissioners are crafting tax and spending reforms they hope will be built to last.
Sustainable is a word that was uttered repeatedly Tuesday by Revenue Commissioner Myron Frans and Jim Schowalter, commissioner of Minnesota Management and Budget, during a St. Paul forum in which they made the case for a sweeping overhaul of Minnesota’s budget and revenue policies.
“Where we’re trying to go is certainly not where we’ve been,” Schowalter said, emphasizing that one-time solutions approved by previous Legislatures have led to short- and long-term budget woes.
The newly-elected Legislature is facing a projected $1.1 billion biennial deficit and Schowalter added the state has accumulated a $2.4 billion debt to school districts.
“We need a different approach,” Schowalter said to a group of about 65 Twin Cities leaders drawn from the public, private and nonprofit sectors. Schowalter talked about performance-based or outcome-based budgeting, an approach that features a hard look at what state agencies are accomplishing with tax dollars and targets state spending to programs designed to make the greatest impact.
Using two three-legged stools to highlight the challenges linked to the current tax mix, Frans stressed that income, property and sales taxes used to play roughly equal roles in paying for state and local government. From 1999 to 2010, the portion of revenue coming from property taxes jumped from 30.4 percent to 39.8 percent. Meanwhile, the portion of state and local government costs paid for by sales taxes slipped from 34.7 percent to 26.6 percent.
Broadening the sales tax base is one major reform option under consideration by the Dayton administration. While the governor has talked about raising the income tax rate on wealthy Minnesotans, Frans didn’t reveal a specific proposal on Tuesday.
The DFL governor and the GOP-controlled Legislature failed to reach common ground in 2011, which led to a three-week government shutdown.
In the Nov. 6 election, unhappy voters handed the governor DFL majorities in the House and Senate, which gives him a reasonable probability of enacting some tax and budget reforms.
Schowalter said the governor’s reforms need to support his top three priorities: creating jobs and improving Minnesota’s competitiveness, improving how state government works to deliver the best services at the best price, and producing sustainable budget and tax policies.
In constructing a tax reform package, Frans said, the Dayton administration is looking for changes that will make the system “fair, simple and support a strong and growing economy.”
Complexity in the tax code has grown dramatically over the past two decades. In 1987, there were nine adjustments or credits available to Minnesota taxpayers on the M1 form. By 2010, there were 50 adjustments or credits that could be made by taxpayers.
Louis Jambois, president of the St. Paul Port Authority, asked, “How bold are you willing to be?” He told the commissioners he believes they understand the problems and know what the solutions are, so he urged them to get about the business of unveiling and selling their plans.
Details final in January
Frans, who has visited 48 cities to conduct listening sessions across Minnesota, said the details of the reform package will be finalized by January.
The revenue commissioner said he is trying to determine what taxpayers want vs. what they would view as overreaching.
Kathy Tunheim, Dayton’s adviser on business issues, said in a MinnPost interview that just one week after the election that she is still “sorting through” the messages sent by voters.
In building political will for a comprehensive tax and spending reform package, she stressed that the business community will be consulted broadly for input.
“Business leaders face tough decisions all the time,” Tunheim said, while acknowledging that there will be difficult tradeoffs to make in reforming the tax code.
“How much government do we need and how are we going to pay for it,” she said, will be a key question of the Dayton administration and the Legislature.
Former Sen. Ember Reichgott Junge, who was at Tuesday’s forum, told the commissioners, “I would really like to see this happen.” But she predicted resistance to any reforms from certain political interests. “How can we help you?”
Others in the room also expressed support for a budgeting process that places greater weight on using data to analyze the effectiveness of programs and on setting goals for program outcomes.
While Minnesota politicians will be grappling with ways to streamline Minnesota’s tax system, Frans noted that his job could become even more complicated if President Obama and Congress simultaneously attempt to alter the federal tax code.
When the prospect of federal tax reform was broached Tuesday, Frans simply said: “It could happen.”
That comment drew sustained laughter from the forum audience based on the likelihood of a Democratic president and Republican House forging a tax reform deal.
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