Senate approves tax bill

The House last week approved a $2.6 billion tax bill.

The Senate tax bill is among several bills that are being prepared for conference committee negotiations.

The House approved a higher education bill April 18 that freezes tuition and increases oversight of spending by the University of Minnesota and Minnesota State Colleges and University. A Senate version of the bill was approved a day earlier.

Sen. Majority Leader Tom Bakk said the Senate tax bill, approved by a slim margin Monday, pays for all state spending.

“There is significant new spending that we’ve already passed, especially in K-12 and higher education,” he said.

Senate Democrats say the revenue raised in the tax bill resolves Minnesota’s $627 million budget deficit and provides future stability by raising the income taxes paid by the seven percent of the highest-income Minnesotans.

This bill also modernizes many provisions in Minnesota’s tax system.

The bill provides, say Senate Democrats, incentives for business growth; lowers the corporate tax rate — the lowest since the 1960s, and closes corporate loopholes. It also provides upfront sales tax exemptions on capital equipment and eliminates cumbersome processes to help employers put money back into their businesses.

In addition, the sales tax rate is reduced to 6 percent — the lowest in 22 years — by expanding the base to clothing and some services. Minnesota consumers will save more than $1.2 billion in the next two years on current purchases because of this reduction, the Senate said in a statement released on the bill.

Up to $450 million in property tax relief is provided by the Senate tax plan. The statement notes that property taxes in Minnesota have increased 86 percent since 2003.

It is estimated that under this bill, metro-area homestead property taxes would drop by 3.7 percent and greater Minnesota property taxes drop by 6.3 percent. These estimates include increased aid to cities through local government aid reform.

Cities and counties also receive relief through state sales tax exemptions on their purchases, currently a cost estimated at nearly $200 million. This is direct relief to middle class homeowners who have carried the property tax burden, said the statement.

Under the K-12 Senate spending plan, International Falls and Littlefork school districts would receive a little more than 7 percent of new state general fund spending, Bakk told The Journal Monday.

“We’re trying to put some state general fund money in to take some of the pressure off voter-approved levies, which are so hard to pass,” he said. Voter approved levies create inequity, he said, because some districts can pass them and others can’t.

The Senate tax bill also calls for an additional $80 million to Minnesota State Colleges and Universities system, of which Rainy River Community College is a member, $80 million to a state grant program, and $80 million to University of Minnesota.

Under the Senate plan, the state would pay for all-day kindergarten, which is now supported by the House and Gov. Mark Dayton. All-day kindergarten would be voluntary, said Bakk. Now, he said the state pays for half-day kindergarten. Schools that already offer all-day kindergarten, such as the International Falls school district, he said, are using other school district resources to pay for the other half day. About 40 percent of school districts now offer all-day kindergarten and about 17 percent are requiring tuition, up to $4,000, to cover the additional costs not paid by the state. Half the districts only offer half-day kindergarten.

“All the research that’s been done about how important early childhood learning is, we thought this would be a good place to start,” he said.

The bill would also reduce voter approved levies by $300 per pupil and give school districts the authority to levy that amount without a referendum, said Bakk. Forty-seven districts do not have voter-approved levies.

“That’s a really good deal for taxpayers in International Falls, for example, because all your cabins don’t pay into the voter approved levy, but they will pay into a general education levy. So when you reduce the voter approved (levies), it all falls on homeowners and businesses, and then you put into place a general education levy that falls on all property owners, the burden will go down for the people currently paying the levy because it’s spread out on a wider tax capacity.”

Bakk said it won’t be new money in all districts because it will be a swap.

Property tax relief would be provided through $80 million in new local government aid to cities and $40 million to counties.

Under the LGA plan, International Falls would get an 8.8 percent increase, or $321,000 more than it would have been allowed under current law; Littlefork would see a 12.2 percent increase or about a $25,000 additional money; and Ranier’s LGA would increase from $20,000 to $45,000.

The formula used by the Senate, said Bakk, is supported by the governor and the House. “Those numbers should hold unless appropriations for government aid is reduced in conference committee,” he said. “When you really get into the end of session negotiations, it could be that number comes down; it won’t go up.”

Bakk said a big provision of the Senate bill would eliminate sales tax on purchases by cities and counties. “That costs us about $100 million to do, but I would argue that it’s $100 million in property tax relief, because the cities and counties have that money versus sending it to the state. They would have the resources so could reduce or not increase the levy.”

But the governor may be reluctant to do that, said Bakk. “We’re bringing it to conference committee, because sales tax is more stable than income tax,” he said. “All the burden doesn’t fall on individual citizens. Some of it is exported.”

The Senate tax bill also includes an upfront exemption on capital equipment purchases by businesses. Under current law, businesses have to pay the sales tax and apply for a refund. Bakk said about 40 percent of businesses don’t end up getting the refund because of the “bureaucratic nightmare” to get through the paperwork.

Among the business yet to be handled at the Senate is a transportation bill, which funds bridges, roads and transit.

“The reason we haven’t passed it, the House passed theirs last week, is there is a pretty strong appetite in the Senate to look at the gas tax and new money for roads and bridges. So far, the governor has been pretty reluctant to go down that path.”

With just three weeks left before the scheduled May 20 adjournment of the Legislature, Bakk said the big question is whether there will be a bonding bill.

Bakk said the Senate is just two votes short of the super majority needed to approve a bonding bill. “I think I can figure that out,” he said.

But he said the House is eight votes short, and he said there doesn’t appear to be much appetite by Republicans for a bonding bill.

The governor has earmarked in his bonding proposal about $8 million for Koochiching County’s Island View sewer extension, and Bakk said the project is important. “If we can put together a bonding bill, there’s a pretty good chance we could get that money to help move that sewer line out,” he said.

This week, said Bakk, discussions will be held between House and Senate leadership and the governor about how much revenue can be raised. The governor’s plan calls for raising $1.7 billion in new revenue, with the first $627 million to be used to fill the deficit. The Senate bill would raise $1.8 billion. The House bill would raise $2.6 billion, which would pay back money borrowed from school funds to pay an earlier deficit.

“All these things get into the mix and you could call it horse trading back and forth. All three parties end up getting some things that are important to them and there are just a lot of balls up in the air at this point,” he said.

While late spring weather has been an unhappy topic for many Minnesotans, Bakk said the long winter is working for Minnesota because spring fever hasn’t yet set into lawmakers.

“This winter keeps dragging on, but I think people are hopeful we can get done on time, or earlier,” he said. “For the last decade we’ve been dragging out into the end of May or June.”