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Senate budget seeks to bridge gulf between Dayton and GOP

MinnPost photo by Briana Bierschbach
“You have to be careful that you don’t over commit,” Bakk said. “We have a pretty strong economy right now in Minnesota, but it won’t hold indefinitely.”

In the negotiations to craft Minnesota’s next two-year budget, Democrats in control of the state Senate are casting themselves as the wise old sages of state government.

That was the dominant theme of a Friday morning press conference revealing the DFLers blueprint for a $42.7 billion budget, which will cut taxes less than Republicans in control of the House want and spend less than Gov. Mark Dayton wants. With a nearly $1.9 billion budget surplus to spend, Senate Majority Leader Tom Bakk said the key ingredient in their budget is pumping $250 million into the state’s budget reserve to help provide a buffer from future budget deficits.

As he has many times since the 2015 session convened, Bakk offered a warning: The last time lawmakers had healthy budget surpluses, they gave them back in tax cuts and rebate checks. The decade that followed featured near-constant budget deficits.

Overall spending, 2016–17: House, Senate and Governor’s proposals
The DFL Senate’s overall department spending target (excluding reserves and tax cuts) of $42.3 billion sits between the governor’s and House GOP proposals, though closer to the administration.
Source: Minnesota Management and Budget, Minnesota GOP and Senate DFL

“There are only 39 of us in the Legislature that were here in the 1990s — when we cut taxes year, after year, after year — that were then here in the 2000s, when we managed deficits for more than a decade,” Bakk, a Democrat from Cook, said. “We want to make sure we don’t repeat some of the mistakes that were made. Everyone would like to spend more money, everybody would like to have a tax cut, but the budget is critically important to the delivery of all the services that our state and local governments provide.”

The $250 million Bakk proposes adding to the reserves is more than the $100 million Republicans are proposing to put away in the state’s rainy day fund, and far more than Dayton, who hasn’t proposed putting any money into the reserves this session. Bakk said their plan offers fiscal restraint and suggested Senate Democrats aren’t interested in “trading nickels” with Republicans in budget negotiations.

“We are laying out a proposal here that says, this is a budget that they should consider enacting into law. This is a good final product,” he said. “To get them there, there’s just a pretty significant educational process that has to happen, because they just weren’t here.”

The Senate DFL budget blueprint is the third and final piece needed to start negotiations, after House Republicans unveiled their budget targets earlier this week. Their plan included $1 billion in spending cutbacks and more than $2 billion in tax cuts. Dayton is proposing to spend nearly every penny of the surplus on childcare tax credits, universal pre-kindergarten education and college tuition freezes on campuses across the state.

Bakk said Senate Democrats are positioned somewhere in the middle of the other plans, even though their numbers align more closely with Dayton’s budget.

They want to spend an additional $555 million on early through postsecondary education, a number higher than what Republicans want but significantly lower than Dayton’s proposal. It wouldn’t fully fund the tuition freezes and universal pre-kindergarten education in the governor’s plan, but Bakk said they could accomplish smaller versions of those proposals in their target. “I don't think it’s sustainable going down the road to think that [Minnesota State Colleges and Universities system] and the University of Minnesota can come here every two years and say, ‘Give us X and we’ll freeze tuition,’” Bakk said.

2016–17 spending by category: Projected, GOP and Governor’s proposals
The Senate’s budget proposal not only rejects the House GOP’s steep cuts to Human Services, it actually exceeds what the governor proposed for the department.

*The number reported for the House and Senate budgets is for "E-12 Education", the current name of the House committee, while the numbers for the the governor’s budget are taken from the "K-12 Education" line in the February forecast, so the numbers might not be exactly comparable.

Source: Minnesota Management and Budget, Minnesota GOP and Senate DFL

He said the Senate education plan will also likely include loan forgiveness for doctors who chose to set up shop in rural Minnesota, as well as their plan to reduce tuition at vocational schools to get more students into job-training programs.

Sen. Katie Sieben, DFL-Newport, acknowledged their education target isn’t as high as some advocates — or even DFL senators — might have wanted. “I’m hopeful that throughout the end of the legislative process that that target in particular will continue to improve,” she said.

The Senate DFL tax committee has a $459 million target to hit, but Bakk made it clear they won’t be sending rebate checks out to Minnesotans. They will, however, consider lowering property taxes, and senators say they want to balance out some accounting shifts that were put in place in the past.

How to spend $43 billion
Overall, Minnesota will take in about $43 billion in revenue, after reserves. Here's how the House, Senate and governor have proposed to allocate that money.

*The deficiency bill is $15 million in emergency spending for 2015 on the Minnesota Zoo, the St. Peter Security Hospital, Ebola preparedness and other areas. It was agreed to as part of the compromise on commissioner pay raises.

Source: Minnesota Management and Budget, Minnesota GOP and Senate DFL

“If there truly are one-time monies, we should use them for one-time expenses,” Senate Taxes Chairman Rod Skoe said. “They are probably more appropriate than some of the ongoing tax changes that could be problematic in the future.”

Senators aren’t financing a bonding bill in their budget, because Republicans have said they aren’t interested in passing a construction package this year. But Dayton plans to pitch an $850 million bonding bill this session, and there are already $30 million in additional costs related the ongoing Capitol restoration project that need to be covered, Bakk said. Bakk has directed Senate Capital Investment Chairman LeRoy Stumpf to craft a smaller bonding bill that could cover those costs as well as some “non-member specific” projects, like repairs at college campuses.

The Senate also has little appetite for a proposal from House Republicans to change MinnesotaCare, a state-based health care program for the working poor. Bakk pointed out that disagreements over the program led to a brief government shutdown in 2005. Republicans are trying to reduce government spending by about $1.1 billion, and much of that will be targeted in health and human services.

“If that’s where they find a majority of their savings, we are going to have a bumpy road,” Bakk said. “A lot of those people on the program are in rural Minnesota.”

Senate Republicans were quick to criticize the majority party for not trying to cut back on state expenses, like House Republicans did in their budget. “Keep in mind, these are the same politicians who are building themselves a new $90 million office building in St. Paul, and now they want you to start paying for it,” Senate Minority Leader David Hann said in a statement.

But Bakk’s continuing theme throughout the press conference was that surpluses have their risks, and even Democrats can have too healthy an appetite to spend them.

“You have to be careful that you don’t over commit,” he said. “We have a pretty strong economy right now in Minnesota, but it won’t hold indefinitely. We are probably closer to the next recession than we are away from the last one, and building up our budget reserves and having some discipline on spending will be important.”

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Comments (5)

  1. Submitted by Mike Downing on 03/28/2015 - 07:49 am.

    Very good article but….

    This is a very good article and it makes Senator Bakk to be sane one compared to Governor Dayton. But even Senator Bakk exaggerates the “tax cuts” of the 1990s and 2000s. All one needs to do is look at the state budget from 1990 to today and you will see remarkably large increases in state spending. You will never see cuts in state spending.

    Governor Dayton had a $34 billion budget to manage and now he is proposing a $43 billion budget. How many of us have had a 30+% increase in 4+ years?!

    Governor Dayton reminds me of the joke “How do you know when a politician is lying? When his/her lips are moving.”.

    • Submitted by Bill Willy on 03/28/2015 - 01:18 pm.

      Exaggeration

      “Senator Bakk exaggerates the ‘tax cuts’ of the 1990s and 2000s.”

      Really…

      “Between 1997 and 2001, one-time tax rebates were enacted each year, at a total cost of $3.7 billion.

      “A total of $1.0 billion in property tax rebates was enacted in 1997 and 1998.

      “Those cuts were followed by a total of $2.7 billion of sales tax rebates enacted in 1999, 2000, and 2001.

      “Permanent tax cuts were also enacted each year:

      “Permanent property tax reductions were enacted in 1997, 1998, 1999, and 2001;

      “Permanent income tax rate reductions were enacted in both 1999 and 2000; and

      “Motor vehicle registration taxes were reduced in 1999.”

      http://www.house.leg.state.mn.us/fiscal/files/02taxcuts.pdf

      If you don’t mind me asking, what makes you think and say Tom Bakk is exaggerating?

      “All one needs to do is look at the state budget from 1990 to today and you will see remarkably large increases in state spending.”

      Looking at one area of the state budget over that time period we see:

      “Human services spending, driven primarily by increases in health care costs has increased from just under 21 percent of general fund spending in fiscal year 1990 to nearly 30 percent expected in fiscal year 2015.”

      http://www.mn.gov/mmb/budget/state-budget-overview/faq/
      (How has the share of the general budget for major areas changed over the last decade?)

      Looking one area of the Private Sector health care industry directly related to that HHS increase we see:

      “Rapidly rising health insurance premiums and higher cost-sharing continue to strain the budgets of U.S. working families and employers. Analysis of state trends in private employer-based health insurance from 2003 to 2011 reveals that premiums for family coverage increased 62 percent across states—rising far faster than income for middle- and low-income families. At the same time, deductibles more than doubled in large and small firms. Workers are thus paying more but getting less-protective benefits. If trends continue at their historical rate, the average premium for family coverage will reach nearly $25,000 by 2020.”

      http://www.commonwealthfund.org/~/media/files/publications/issue-brief/2012/dec/premiums/1648_schoen_state_trends_premiums_deductibles_2003_2011_1210.pdf

      So when the Health and Human Services portion of state spending increases from 21% to 30% in 25 years, creating an overall increase in cost to the Consumers of state services classified as “taxpayers,” that’s a terrible thing.

      But when the costs imposed on Consumers of private industry health insurance increase 62% from 2003 to 2011 – in just an EIGHT year period – that has nothing to do with anything and need not be mentioned, examined, or decreased in any way.

      And, apparently, to your way of thinking, whatever’s going on in terms of Private Sector ineffieciencies, mismanagement, maybe even a little price-gouging here and there, and the resulting price increases has nothing whatsoever to do with growth in government spending because everything the government does happens in some kind of vacuum.

      And, I assume, you agree with the House proposal that says the best way to deal with the “out of control government spending crisis” is to implement a $2 billion tax cut and pay for it with a $1+ billion funding cut in Health and Human Services.

      Presumably, that’s because you think the people running and working in the Department of Health and Services are inefficient and incompetent and can easily make do with less.

      HHS increase in charges to consumers/taxpayers over 25 years = 9%

      Private Sector health care insurance increase in chargers to consumers/taxpayers over 8 years = 62%

      It would seem that if you’re serious about fiscal responsibility and accountability, and serious about keeping costs down and helping taxpayers save money, you’re looking in the wrong place and making demands of the wrong people.

  2. Submitted by Ray Schoch on 03/28/2015 - 09:01 am.

    Seems about right

    My opinion doesn’t carry any particular weight under the capitol dome, but, while I’ve disagreed with Mr. Bakk on occasion, he’s pretty much on-target regarding the budget.

    It’s a significant surplus, but there’s no guarantee that it will repeat itself, so I like the idea of putting a hefty chunk of it into the state’s reserve fund. “Permanent” tax cuts are the Republican answer to every problem that comes up, and can therefore usually be dismissed out of hand. Not always, but more often than not. Lowering taxes rather than doing away with them entirely makes more sense to me, given the volatility of fiscal reality. I also like the fact that the Senate hasn’t abandoned the state’s most vulnerable to the less-than-tender mercies of mean-spirited ideologues in both business and the legislature.

    The Senate proposal doesn’t fund everything to the degree that I’d like – state support for higher education has dropped by 2/3 in the past generation, which ought to be an embarrassment to a lot of elected officials – but that’s pretty much the case for my own situation, and that of most of the people I know. It’s only the 1% who don’t have to worry about budgets…

  3. Submitted by Paul Udstrand on 03/29/2015 - 10:30 am.

    We cut taxes and revenue, but not spending….

    Which is why we ended up with deficts…. duh. This is a mathematical fact that republicans just cannot bring themselves to comprehend. Turns out government costs what it costs and 50% of the budget isn’t waste and inefficiency. You can’t actually cut spending enough to balance budgets, you have to resort other accounting tricks. To the extent that we did cut spending tens of thousands of people ended up without health insurance… which ended up cost us more… and thousand of people lost their jobs… which made our economy worse… and then bridges collapsed.

    Also note that all that privatizing didn’t save any money in the end either, the cost of government still increased.

    The idea that good government just manifests itself as long as you hold down the cost of government is simply magical thinking. The idea that cheap government is good for the economy was always economic fantasy pretending be financial wisdom. The notion that tax revenue is a drag on the economy rather than an investment that pays dividends is simply a stupid accounting decision. If any of these ideas made sense or had any basis in reality Somalia would be a paradise of freedom and wealth and Mississippi would be the crown jewel of our republic.

  4. Submitted by Paul Udstrand on 03/29/2015 - 10:35 am.

    The real question…

    Is who will Bakk support, the governor or the republicans? Last time he went with the republicans and Dayton got the high approval ratings while the pay raises that supposedly threatened the elections have gone “poof” never to be thought of again.

    The problem is we have trust the democrats will figure out who’s being “reasonable” here… the republicans or Dayton? Good luck with that.

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