What a budget deal might look like

MinnPost photo by Briana Bierschbach
State Rep. Jim Knoblach, Speaker Kurt Daudt and Majority Leader Joyce Peppin speaking to the press on Tuesday on the grounds of the governor's residence.

As we consider the current stare down in state government, it seems like an appropriate time to remember a little story about compromise.

Back in his first term, U.S. Sen. Paul Wellstone was caught in a bind over a question affecting the Boundary Waters Canoe Area (BWCA). At issue was whether some lakes in the BWCA should be opened to motorized boats. Wellstone was, as they say, trying to paddle on both sides of a canoe: His metro base of environmentalists were pushing him to keep the area pristine, while his northeastern Minnesota backers were advocating opening up the BWCA.

In the middle of all this, one of Wellstone’s friends, Frank Hornstein, now a DFL state representative from Minneapolis, ran into Ted Mondale, who’s been around politics his entire life, at a local grocery store.

“What should Paul do?’’ the troubled Hornstein asked Mondale.

Mondale responded without hesitation: “Give ’em a lake.’’ 

Goodbye gas tax?

In the current negotiations among Gov. Mark Dayton, Senate Majority Leader Tom Bakk and House Speaker Kurt Daudt, there have to be some metaphorical lakes to give up in order for the Legislature to finish up its business.

In conversations with legislators, former legislators, lobbyists and just about anyone else hanging out in the Capitol Tuesday, most people talked a lot about “lines in the sand.” But they also mentioned a variety of ways that this session could end with a deal.

Republicans, who control the House, are not going to give up their opposition to a gasoline tax that DFLers want to use to fund an expansive transportation bill. DFLers, on the other hand, are not going to give up their opposition to the GOP’s proposal to cut health and human services spending by $1 billion and phase out Minnesota Care, the subsidized health care program for the poor.

Before the sun sets on this session, then, watch for DFLers to reluctantly give up on the gas tax, and with it, their big plan for a comprehensive transportation bill. That doesn’t mean DFLers will accept the Republican transportation plan, which is essentially held together with duct tape, twist ties and promises. Instead, look for the parties to end up with a transportation bill that includes some motor vehicle fees (which currently end up in the general fund) and, perhaps, a bundle of bonding money.

This would be the lake the Republicans would get this session. It would allow them to go home and say, “Look, we stopped the gas tax!’’ According to polls, that would play well with the majority of Minnesotans — at least for the time being. 

Hello bonding bill?

A concession by the DFL on the gas tax would also be the key piece in solving most other issues. Recall, for example, that House Republicans all but put up a flashing neon sign in the chamber saying “NO BONDING’’ this session. Dayton responded to this by proposing a massive $842 million dollar bonding bill. If the gas tax goes away, however, look for Republicans to accept bonding money for transportation projects. Dayton, after all, loves bonding bills, which he considers jobs bills. 

More important, relenting on the gas tax would put Dayton and Bakk in a position to force Daudt and the Republicans to back off their plan for tax cuts, cuts which — as currently constituted — would primarily benefit businesses.

DFLers will be willing to provide some small income tax breaks for the middle class, but expect any deal to gut the GOP’s hopes of delivering for business. Such a move would also provide the not-insignificant benefit of giving DFLers some campaign rhetoric, i.e. “We stopped the Republicans from giving breaks to rich corporations at the expense of the middle class.” (If nothing else, everybody has to come away from the session with some campaign rhetoric.)

Status quo likely on MinnesotaCare

When it comes to funding health and human services programs, DFLers will probably win more than they lose. House Republicans want to slash funding by $1 billion and phase out MinnesotaCare, the subsidized health care service for the poorest in the state — even while the Senate and the governor are calling for a $300 million increase in health and human service spending. Despite GOP claims that such spending is not sustainable, the end result here is likely to be a relatively small increase in funding and the status quo on policy. 

But, like transportation issues, human service spending issues are always going to be with us. In this case, both Republicans and DFLers will end up kicking any problems — as with transportation issues — down the road. Both issues prove once again that the Legislature is a place where big ideas go to die.

Everybody will claim victory on education …

Education funding will end up with both sides claiming victories. The governor and Senate will get a bigger per-pupil funding increase for K-12 education than Republicans want. (Republicans want to raise the funding formula by 1.2 percent; Dayton and the Senate are pushing for 2 percent.) Look for the sides to settle at 1.5 percent, which still may not be enough to prevent larger class sizes and staff cutbacks.

But this DFL win is likely to come at a loss for the governor. From the beginning of the session, he’s claimed that funding for universal preschool is a top priority (though, to be fair, throughout the session the governor has proclaimed a number of issues as his “top priority”). Not only is he not going to get the whole $343-million loaf for his pre-K plan, he’s barely going to get crumbs. What Republicans might give Dayton are a few million dollars to expand the state’s already existing scholarship program for at-risk preschoolers.

… And nobody will be happy with the final budget number

There will be other gives and takes in the session. There could be a tiny phase-in of those streams, rivers and lakes buffers that Dayton says are “a priority.’’ There also will be vows to do a better job of enforcing laws already on the books regarding pollutants and the state’s waterways. 

Almost certainly there will be some blue-ribbon commissions and panels and task forces formed to study a variety of other issues. (A former legislator, laughing, said that “blue ribbon panels are the most prestigious, much more important than task forces.’’ )

And after all the trades are made, a budget deal finally can be reached. It’s likely to be less than the $42 billion the governor wants, a little less than the $41.5 billion the Senate wants — but certainly more than the $39.9 billion the Republicans want. Nobody will be happy, but everybody will be able to head to the lake of their choice.

Then most of us will muddle on, unaware of how much was — or wasn’t — accomplished.

Comments (15)

  1. Submitted by Dennis Tester on 05/13/2015 - 11:20 am.

    What happened to

    eliminating the tax on Social Security income? Or is that considered “tax cuts for the rich” too?

    The problem is a lack of trust. Dayton said he needed to raise $2 billon in taxes to pay the bills and the next year he announces he has a $2 billion surplus to spend on his friends. Anyone who’s paying attention doesn’t forget little things like that.

    • Submitted by John Appelen on 05/13/2015 - 04:09 pm.

      Please Remember

      The Left are the folks who want to remove the payroll tax cap, keep benefits the same or decrease them for people who are well off, and tax those benefits for anyone with a reasonable income. I still think they should just propose eliminating SS and Medicare, and have everyone go on medicaid and welfare.

      Just think we would eliminate 2 whole systems, it would be paid for by income tax payers and the well to do would get no benefits. Seems perfect.

    • Submitted by Bill Willy on 05/13/2015 - 06:42 pm.

      Social Security update

      Happened to catch part of the tax conference committee this afternoon in which this topic came up. One of the people providing input was the Commissioner of Revenue, Cynthia Bauerly. Besides the idea that I’d pay to see you two (and John) sit down across the table from each other and discuss things (she seems to be sharper than a tack), she pointed out a couple of interesting things:

      A) 54% of Minnesotans receiving SS benefits pay no income tax on them; and

      B) Eliminating the tax would cost the state $500 million per year, or $1 billion per biennium.

      So, like I keep asking, how, specifically, do you, and others advocating for elimination of the tax, suggest that general fund deficit be paid for?

      And, regarding spending that $2 billion surplus on friends, have you, or has anyone else with a similar view, paid attention to and noticed how many different ways and times your Republican buddies have proposed spending that surplus (on THEIR friends)? It’s fairly amazing and makes me think they really ought to hire someone – or have Keith Downey find a volunteer somewhere – to help them count and keep track of stuff like that. Near as I can figure, the total is somewhere up around $5 or $6 billion, at least.

      • Submitted by Tom Anderson on 05/13/2015 - 09:45 pm.

        Ouch!

        46% of Minnesotans receiving Social Security benefits pay $500 million in taxes on those benefits. What is the tax percentage that generates that kind of income?

      • Submitted by Bill Willy on 05/14/2015 - 01:06 am.

        NOTICE MINNESOTANS

        Just “for the record,” notice how neither Dennis or John (who, no doubt, would proudly claim to be card carrying conservatives) have had anything else to say all day yesterday:

        “So, like I keep asking, how, specifically, do you, and others advocating for elimination of the tax, suggest that general fund deficit be paid for?”

        • Submitted by Bob Petersen on 05/14/2015 - 10:16 am.

          The Question is Based on Entitlement

          We have a $2B surplus AFTER the governor and DFL controlled legislature said we had to have $2B more in taxes to cover the state’s needs. It is very clear that the tax increases were NOT needed.
          So why then when one party says let’s give it back…or even some…is that taking back taxes needed to be offset at the higher tax level? It is based on entitlement. Just because the government has things at a certain level of OTHER people’s money does not mean the government gets to stay at that level. At least we have a state constitution that requires a balanced budget unlike the federal government. We are in the elite of high tax states in a country where the debt is killing out future. The government entitlement has to stop.

          • Submitted by Bill Willy on 05/14/2015 - 02:24 pm.

            Surplus and Debt

            If you take a little closer look you may notice that House Republicans have spent that “$2 billion surplus” ($ 1 billion of which is eaten up by inflation) several times over (for just one example, take a close look at the House tax bill).

            As to that national debt that is killing our future, you may want to do a little bit of the same kind of closer looking. If you do, you’ll probably be surprised when you find out the majority of that debt was created by the Republican presidents and administrations of the past 35 years, starting with none other than Ronald Reagan.

            The reality is, after “the worst president ever,” Jimmy Carter, added $350 billion to it (which increased the national debt to $950 billion – just under one trillion), Ronald Reagan made massive (and very popular) tax cuts and began the now-standard “conservative” practice of putting all inconvenient budget shortfalls on the National Debt Credit Card while convincing half the population that “Governent is the problem,” and that taxes can never ever ever be raised because they are evil, etc..

            Meanwhile, he and his administration were busy adding SEVEN TIMES MORE than Jimmy Carter to that debt that is killing us, sending it from just below $1 trillion to right around $2.5 trillion.

            And that was just the start of Republican presidents and their administrations doing the same, or even bigger versions of the same thing. So you may want to check around a little and think about it a little harder about this stuff. It really ISN’T all about “big government eating us alive with other people’s money,” etc.. It’s really all about something else entirely.

            But then, I don’t expect you to believe that, or take my word for it. But I would recommend you take a closer look before you automatically decide which party to not vote for next time around. IF you’re genuinely concerned about lethal national debts, balanced state budgets, and your own and your family’s financial future and general well-being, that is.

      • Submitted by John Appelen on 05/14/2015 - 07:54 am.

        Sorry for the delay, I have customers in country visiting. This source shows much lower number and explains that we are only 1 of 7 states who tax these.

        http://www.startribune.com/senate-gop-eliminate-state-income-tax-on-retirees-social-security/289195101/

        Again, do we want old wealthy baby boomers to leave MN as they are pulling all of those taxable dollars out of their 401Ks and IRAs, or not?

        Does it make sense to tax government paid benefits? (ie taxes on tax funded funds…) Please remember SS and Medicare are not people getting their money back per SCOTUS, they are a program just like medicaid, welfare, farm subsidies, etc.

        • Submitted by Bill Willy on 05/14/2015 - 03:49 pm.

          “It’s like pulling hen’s teeth”

          No problem. Hope all is well with your customers, and they’re enjoying themselves. Tell them I said hello.

          The article “shows a much lower number.” As is getting to be usual, the lower number – “$127 million in the next two years” – is:

          A) presented by state Republicans; and

          B) even if it’s accurate, is just the “up front” cost which would triple as the plan was “phased-in”: “The proposal is projected to cost $398 in 2017, $437 million in 2018 and $477 million in 2019.”

          But my question was not about the precise amount, or baby boomers leaving or not leaving, or grandma or grandpa being unable to escape, who pays how much, or even whether or not the tax is eliminated.

          Let’s pretend we all agree we will eliminate the tax on Social Security benefits.

          But, conscientious and responsible people that we are, we realize that if we no longer have the income, we will either need to find alternative income to replace it, or reduce spending in specific areas of our budget so it will be in balance.

          We need to find $477,000,000 so we look back down at our budget spreadsheet where we see a listing of all the main areas of that budget in the left-hand column. We see words like:

          Education
          Transportation
          Health
          Water
          Land
          Trees
          Fire
          Safety
          Law
          Business
          Et Cetera

          The. Question. Was. And. Still. Is… If we are going to reduce our income by 477 million dollars, in which of the areas should we reduce our spending, and by how much? Or, if we’re not going to “trim the budget,” where will we get the (tangible) replacement income.

          (And remember: “projected growth” is not a legitimate “revenue replacement” because it is not tangible and “increased revenue resulting from the economic growth that will occur as a result of lower taxes” has been proven to not work by the last decade of deficits that followed significant Minnesota tax cuts. You wouldn’t take that approach to your family budget, I’m sure: One of the kids wants an expensive new something or other, to which you say, “We can’t afford that right now,” to which they day, “Don’t worry, the extra money will arrive after we buy it,” to which you say ???)

          As I understand it, a cornerstones of fiscally conservative financial management is keeping income and spending in balance, and any individual, family, business, non-profit, or state government that disregards that basic premise is bound to have significant problems.

          And it seems to me that any individual, family or organization that spends the majority of its time, energy and intelligence focusing on, and justifying, the reduction of income, without providing an equal amount of focus and justification on the spending reductions, or alternative income sources, needed to keep the budget in balance is disregarding that fundamental rule.

          So the question is, what specific spending reductions, or alternative sources of income, would you or anyone else advocating for the reduction of the state’s income by $477 million, suggest?

          And please bear in mind the “$2 billion” surplus has already been spent on inflation and several of the other provisions in the House tax bill alone.

          If you’d like a more “formal” guide than the short rough list of “budget areas” above, you might find this MMB list helpful.

          Statewide Expenditures Summary by Agency and Fund
          Consolidated Fund Statement Funds (2014)

          http://mn.gov/mmb/images/draft-spending-agency-fund-CFS-feb2014.pdf

          • Submitted by John Appelen on 05/14/2015 - 06:37 pm.

            Source

            We would prefer to see your source for the $477 million per year estimate.

            By the way, if enough wealthy baby boomers change their residence to a more tax friendly state due to income and estate tax concerns that are pretty unique to MN… We will need to find these savings or that revenue replacement either way. The irony of course is that older folks who can not afford to change residency will still be here for us to support.

  2. Submitted by John Appelen on 05/13/2015 - 11:53 am.

    Excellent Summary

    I enjoyed that very Centrist summary, now can both sides swallow what needs to happen.

  3. Submitted by john cairns on 05/13/2015 - 12:08 pm.

    Education spending

    It is incorrect to correlate more education spending with higher class size and cuts (i.e., fewer teachers). The reason this is inevitable is that the teacher contracts compel such an outcome as the salary matrices control how money is spent. So long as the legislature disregards how education funds are spent, there is no hope for change in how the system delivers (or fails to deliver) improved education services and better student learning outcomes.

    • Submitted by Thomas Swift on 05/13/2015 - 03:40 pm.

      John, despite the response you may receive here, please know your spot on observations have not gone unnoticed.

    • Submitted by John Appelen on 05/13/2015 - 03:58 pm.

      My Thoughts Exactly

      The question is when is ED MN, Legislature and the School Bureaucracy going to change to be more cost effective with the money they are given while increasing quality, putting the children’s needs first and closing the gap? Doing the same thing the same way and expecting different results certainly does not make sense.

      Let’s tweak the school systems so the Administrators can:
      – terminate poor Teachers quickly so the kids will not lose learning progress
      – place Teachers in positions that are the best for the kids in the district
      – pay the best Teachers and those in the most challenging classrooms the most
      – layoff Teachers based on recent performance when necessary
      – enable new Teachers to teach in MN quickly

      If these logical things were in place, the Teacher’s license would not be as critical. If the Teacher is not performing, they are terminated. Most degreed engineers that design the things you use everyday are not licensed… They either perform well or they need to find a different career.

      And if the Administrators fail to deliver good Teacher engagement and Student results, let’s make it easy to replace them. I am happy to give the Public schools more money if they start putting the student’s needs before the wants of the adults.

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