House Republicans and Democratic legislative leaders are already fighting over a range of tax breaks designed to help middle-class families.
“This is not an issue that should be ignored as tax day is less than two months away,” said Rep. Greg Davids, a Preston Republican who is the GOP lead on the House Taxes Committee.
“After all the wasteful spending projects the Democrats funded during the 2013 session," he said at a news conference Monday, "it’s time for them to spend a portion of our surplus on something that is truly necessary for many Minnesotans: federal tax conformity.”
DFLers who control the House have pushed for a range of tax breaks to match federal tax code for years, even passing a similar package last year that never became law. Democrats noted that they did it without support from Republicans now pressing for many of the same tax breaks now.
“We made tough choices last session to balance our budget honestly and now we have a balanced budget, a growing economy, and an expected surplus,"said House Taxes Committee Chairwoman Ann Lenczewski, DFL-Bloomington. "Middle class tax relief should again be a top priority.”
Both sides are pressing Minnesota to bring its tax code in line with federal tax law, which had reduced taxes for a range of consumers. That has made Minnesota's tax law out of synch. Now Minnesota taxpayers are getting federal breaks for things like adoption costs and company-paid college classes, but not on their state taxes.
Highlighting their priority on the issue, House Democrats scheduled a marathon tax committee hearing Tuesday, the first day of the session, to pour though more than a dozen tax conformity proposals, including a few authored by Republicans.
“This continues to be something the House majority feels very strong about, middle-class tax cuts and simplicity for all Minnesota tax payers,” Lenczewski said.
The proposal has a better chance this year now that DFL Gov. Mark Dayton is also pushing for a similar range of tax breaks.
Democratic and Republican legislative leaders sat down with reporters Wednesday for a sneak peek at what the 2014 session has in store.
For an hour and a half, House Speaker Paul Thissen, Senate Majority Leader Tom Bakk, House Minority Leader Kurt Daudt and Senate Minority Leader David Hann fielded questions on a wide range of topics that might or might not come up when the Legislature returns to work Feb. 25.
At the top of the DFL agenda for the coming session will be a hike in the state minimum wage. How high that increase has yet to be determined -- the House passed a bill that would raise the wage to $9.50 an hour while the Senate passed a bill that would have increased the current $6.15 state minimum to $7.75. The 2013 session ended before the two sides could hammer out a compromise.
Republicans are leery of a wage hike, pointing to a new study by the Congressional Budget Office that found that increasing the federal minimum wage to $10.10 could eliminate as many as 1 million jobs nationwide (or as few as zero) if employers downsized to save on salary costs.
"This is going to unemploy the under-employed," Daudt said.
Bakk countered that the same study found that the same theoretical wage hike could lift as many as 900,000 Americans out of poverty.
Thissen predicted the House and Senate will reach a compromise and pass a wage hike within the first few weeks of the session. Minnesota's economy is strong, he said, and will only get stronger if its workers earn better wages.
"For all the doom and gloom that's been said about 'our economy is going to collapse, businesses are going to flee,' we certainly haven't seen that. In fact, it's going the other direction," he said. "When we last raised the minimum wage in Minnesota, when we last raised it at the federal level, you didn't see that impact on jobs. What the CBO report did say, and what everyone seems to agree with, is that it actually increases economic activity in the nation and the state where that goes into effect."
There was no more consensus about what to do with the expected state budget surplus.
"Our priorities are really to go back and...fix some of the mistakes of the last session," said Daudt,who joined Hann in calling for repeal of the three new business-to-business taxes that passed last session, as well as closing some of the state tax gaps that opened up when the Legislature opted not to bring state tax codes into full conformity with all the new federal tax breaks.
Thissen agreed that the state could probably afford a few tax cuts if the current revenue forecasts hold true. But Bakk wasn't eager to spend any surpluses right away. During the boom times of the 1990s, he said, the Legislature gave back $10 billion in tax cuts and Jesse checks. The result, he said, "plunged us into deficit management for almost a decade."
"We are only one revenue forecast with our head above water," he said. "To immediately run off and try to please everybody...It's very easy to vote for things and just hand off the ramifications of it to the next Legislature. But I am the next Legislature...We don't want to run the risk. This economic recovery still seems pretty fragile to me."
Daudt said the mere existence of a surplus is a sign that the Legislature overreached last session.
"I hope I don't see anybody doing a victory lap about having a small surplus right now," he said. "That money belongs to the taxpayers. What it means is that we overtaxed Minnesotans."
There were a few points of bipartisan agreement. All four leaders said they supported the 5 percent campaign that is working to raise wages of caregivers around the state and the leaders agreed that there are plenty of projects around the state that could find their way into a bonding bill this session, although the exact size of that bill remains in dispute.
Daudt said his caucus would support a "reasonable-sized" bonding bill -- somewhere in the neighborhood of $800 million -- that favors repairs to existing infrastructure infrastructure and funds for higher education over new construction. Thissen agreed that the $800 million number is "a good target for us to head for."
There were a few issues the DFL majority has no interest in revisiting this session. MNsure, the state's new online health insurance marketplace, got off to a rocky launch after it passed the Legislature last year. Nor were lawmakers interested in revisiting the stadium issue -- although Bakk noted that the Legislature might have to make a few tweaks to please the NFL as it scouts the city as a potential Super Bowl host.
A coalition of transportation advocates is seeking more than $700 million in new tax money each year to pay for roads, bridges and transit.
Leaders of the group, Move MN, say the state’s transportation system is crumbling and inadequate, and that the state is falling further behind other economic hubs like Washington State.
“We’re not taking care of what we have – roads and bridges – and we’re not adapting fast enough to meeting growing demand for transit, bicycling and walking options,” said Barb Thoman, executive director for Transit for Livable Communities.
Move MN is seeking a wholesale gas tax hike of 5 cents per gallon and an increase in a metro area sales tax to raise the bulk of the money. The coalition of 150 members also wants to close a tax loophole that would send about $32 million in lease car sales taxes to transportation funding.
The proposal unveiled Tuesday does not have support of legislative leaders as they head into an election year.
“Without the support or involvement of Republicans in the Legislature and leaders in the statewide business community, the legislature will not be in a position to move a comprehensive transportation package in the 2014 session,” said House Speaker Paul Thissen, DFL-Minneapolis.
Republicans immediately criticized the proposed tax hikes, which would put Minnesota among the states with the highest gas tax. They said the proposed tax on wholesale gas would actually amount to a 15 cent per gallon bump at the pump, once the other taxes are layered on top of it.
“We’ve been down this path before,” said state Sen. David Osmek, R-Mound.
Supporters estimate the true cost at the pump would be closer to a dime per gallon, about $2 more per week.
Legislators failed to pass similar gas and transit tax increases last year. DFL Gov. Mark Dayton argued against last year’s gas tax proposal, saying state leaders would endure a firestorm of criticism and not raise enough money to do much good. He is challenging state transportation officials to devise a far more ambitious plan that the public could support, and then find a way to pay for it that taxpayers can live with.
Minnesota Transportation Commissioner Charlie Zelle said the state has fallen billions of dollars behind on transportation finding, and gas tax money is lagging as cars get more fuel efficient.
Minnesota faces "a perfect storm" of reduced funding and increased demand and expectations, he said.
Margaret Donahoe, executive director of the Minnesota Transportation Alliance, pressed legislators to act soon.
“We need greater investment in transportation around the state to promote economic growth,” she said. “We think it is very urgent for the Legislature to take action on this.”
Gov. Mark Dayton is putting his full political weight behind a new proposal that would pay for hot lunches for students who can not pay.
Dayton's move comes after a new report showed that many Minnesota school districts deny a hot lunch to students if they can’t pay for the meal.
“No child in Minnesota should be denied a healthy lunch,” said Dayton, who is at Mayo Clinic recuperating from hip surgery. “We cannot expect our students to succeed on an empty stomach. I look forward to working with the legislature to make this issue a priority in the upcoming legislative session.”
A majority of public school districts in this state deny hot lunch — or any lunch at all in some cases — to children who can’t pay for them, according to a Star Tribune story on a new report by Mid-Minnesota Legal Aid. Some schools take the meals from students in the lunch line and dump them in the trash when the computer shows their account is empty.
The state is likely to have a surplus of close to $1 billion for the rest of the budget cycle and legislators are expected to figure out what to do with the money when they convene later this month.
The $3.5 million needed to pay for the hot lunches would make up a tiny sliver of any larger budget agreement. Deputy Senate Majority Jeff Hayden, DFL-Minneapolis, is a sponsor of the proposal in the Legislature.
According to the report, more than half of Minnesota school districts provide low-income students alternative meals, such as a cold cheese sandwich, if they are unable to pay the 40 cents required for a reduced-price hot lunch.
Education Commissioner Brenda Cassellius contacted all Minnesota school districts this week, urging them to ensure that all Minnesota children have access to a complete lunch.
“For too many of our children, school meals may be the only nutritious meals they receive,” Cassellius wrote to school officials. “We also know that children learn best when they have nutritious meals throughout their days.”
Minnesota state leaders will get the a new economic and budget snapshot at the end of the month, likely leaving legislators with a sizable budget surplus in the upcoming legislative session.
Minnesota Management and Budget Commissioner Jim Schowalter said Monday that the February forecast will be released on Feb. 28.
The forecast will set the budget numbers that will guide much of the upcoming legislative session.
In December, state budget officials predicted a $876 million surplus for the remainder of the two-year budget cycle. Some state officials expect the projected surplus to be even higher by the time the new forecast is unveiled.
DFL Gov. Mark Dayton and many Democratic lawmakers want to use part of the surplus for tax relief. Some are pressing to use a chunk of the money to bolster the state's budget reserves to better insulate state finances during economic downturns.
The budget fight is expected to be a centerpiece issue in the upcoming legislative session, the last regular session before the November election.
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