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New spending hinged on ‘tobacco bonds’

Published (8/11/2011)
By Lee Ann Schutz
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New money for spending hinged on passage of two bills during the special session — the omnibus education finance bill, containing the $700 million shift in school aid payment, and the omnibus tax bill. The latter provides language for the state to raise $640 million by issuing state bonds against future tobacco revenues.

Gov. Mark Dayton reluctantly agreed to what many called “kicking the can down the road,” as a means to put an end to the 20-day government shutdown. He gave up his call for raising taxes on Minnesota’s wealthiest residents in favor of the borrowing and shifts proposed by the Republicans.

Discussion on the House floor showcased the party differences to solving the budget deficit.

“We sent a bill to our kids. We are making promises we can’t keep with money we don’t have,” said Rep. Paul Marquart (DFL-Dilworth). “I can’t support the bill because it raises the debt for our kids. Even in this bill with all the borrowing gimmicks, next year, this Republican tax bill gives us a $2 billion deficit in the next biennium. And that doesn’t include the school shifts.”

House Majority Leader Matt Dean (R-Dellwood) chastised Democrats for “mocking” them for wanting to rein in spending. “Guilty as charged,” he said, adding that the DFL had a preoccupation with raising taxes.

Rep. Greg Davids (R-Preston), who sponsors the law with Sen. Julianne Ortman (R-Chanhassen), defended the final product, and praised the governor for his willingness to compromise. “I wanted to avoid all the back stuff. The governor stepped up and is leading. We can play this game all day long. We’ve done some good things in this bill.”

The law appropriates $9 million for fiscal year 2012 to pay the state and local match for federal disaster relief for spring floods in southwestern and western Minnesota, the May 22, 2011, tornado in Minneapolis and Anoka County, and July 1 storms and tornados.

Cities receiving local government aid had the governor’s assurance from the start of the session that it would not be cut. The law retains local government aid at 2010 levels.

The law saves $632.63 million during the 2012-2013 biennium, down approximately $292.6 million from the vetoed bill, largely by softening the reductions to local government aid and by nixing the statewide property tax reduction the Legislature proposed.

Republicans had wanted to use $60 million from the Douglas J. Johnson Fund, an Iron Range economic development fund, to help balance the budget. That fund remains intact.

Credits in the law include:

• a $75 increase of the maximum homeowner property tax refund from $2,460, and the income rate at which the maximum applies is also increased;

• a reduction to the percentage of rent constituting property taxes for renter property tax refund claims from 19 percent to 17 percent starting with fiscal year 2013; and

• extending the suspension of the political contribution refund program for two years.

The market value valuation exclusion for disabled veterans to a family caregiver under certain circumstances is expanded, as is the benefit to the surviving spouse from two years to five years. Surviving spouses of service personnel killed in action also qualify for the benefit for five years.

A new Minnesota Science and Technology Authority will receive $500,000 to provide grants for research projects developed by a college or nonprofit organization or a qualified science and technology company.

The law adopts several federal tax changes enacted in 2010. It also modifies the phase-out range for married joint filers in the working family credit to correspond to the expanded phase-out range in effect for the federal earned income tax credit for tax year 2011 only.

Now that Wisconsin has paid the state the nearly $60 million it owed in back income tax reciprocity payments, Minnesota is ready to move toward a new agreement.

Since 1968, residents crossing state lines for work were able to file their income tax return in their state of residence. However, in 2010, the agreement was nixed because the state lost money and because of the delay in receiving any payment.

The new law authorizes the commissioner of revenue to begin negotiations with Wisconsin with the goal of restoring income tax reciprocity effective for tax year 2012.

Several cities received authorization for a new local sales tax. However, the law prohibits a local government from spending money to promote a local sales tax referendum, and it is limited to spending money only on the vote.

2011 Special Session: HF20*/ SF8/CH7

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