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Dayton budget devotes $616 million of surplus to tax cuts

Gov. Mark Dayton spelled out $616 million in tax cuts. (Staff photo: Peter Bartz-Gallagher)

Gov. Mark Dayton spelled out $616 million in tax cuts. (Staff photo: Peter Bartz-Gallagher)

Gov. Mark Dayton wants to give up half of Minnesota’s projected $1.23 billion budget surplus in the form of tax cuts to individuals and businesses. Dayton presented a plan for $616 million worth of changes to state tax policy, including the repeal of a number of taxes passed during the 2013 session.

In announcing the package during a Thursday morning conference call, Dayton argued that the state’s positive budget forecast makes the business-to-business taxes unnecessary, and also spoke in favor of conforming Minnesota’s tax code with the federal income tax system, which would add some $200 million in available deductions. Those revenue streams, which were approved as the state faced a projected budget deficit, are less necessary thanks to the growing surplus.

“It’s money we hadn’t anticipated a year ago,” Dayton said.

Dayton reiterated his belief in the urgency of repealing the tax changes before March 14 in order to allow tax filers to take full advantage of federal conformity, and to stop a warehousing service tax that is set to kick in on April 1. Under Dayton’s plan, two other business taxes — one affecting business and farm equipment repair, and a second on telecommunications equipment — would be repealed, though businesses would not be eligible to file for a refund of sales taxes already paid.

A $503 million tax reduction bill has advanced rapidly in the House, which was scheduled to take a floor vote on that legislation just hours after the supplemental budget announcement. Dayton encouraged the Senate to act quickly after the House passage.

“Minnesotans will know, if the Legislature doesn’t act, it’s going to cost them some of the tax savings I’m proposing,” Dayton said.

Dayton also outlined plans for the remaining $617 million in surplus funds, the majority of which would be socked away. The governor wants to add $455 million to the state’s budget reserves, which have not been increased for more than a decade. That amount would take the reserve total above $1 billion, which, he warned, would not necessarily protect the state budget in the event of another severe economic recession.

“It would, however, cushion the blow,” Dayton said.

The remaining $162 million of the surplus would be dedicated toward new spending. Some $20 million has already been spent on heating assistance for lower income residents to help address a propane shortage exacerbated by the brutally cold winter. Another $64 million would go toward a 4 percent rate increase for providers of disability services; a funding increase for that sector is already supported by legislative leaders from both parties.

Other new priorities that would receive funding under Dayton’s proposal:

  • The Department of Corrections budget would be increased by $30 million, which would go toward maintaining staffing levels and operational capacity. Dayton explained that those funds are essential to help the state keep up with a growing prison population, which currently exceeds projections by about 500 inmates.
  • The Minnesota State Colleges and Universities (MnSCU) system would get $17 million, and the University of Minnesota-Duluth would receive $5 million, with both amounts meant to help those schools avoid faculty layoffs.
  • A $3.5 million expense to pay for reduced-price school lunches in 46 different districts across the state, which were recently found to be denying hot lunches to students who could not afford it. Already, a bill to address the lunch issue has been introduced by Rep. Yvonne Selcer, DFL-Minnetonka, and Sen. Jeff Hayden, DFL-Minneapolis.

As for other possible spending options, Dayton acknowledged that his decisions would probably upset some individuals and interest groups, but said he preferred not to add too much to the bottom line during a non-budget year.

“People will say we should have spent every dollar on unmet needs,” Dayton said.

Asked specifically about a plan to spend $100 million on expanding broadband internet access to rural areas, Dayton said he didn’t feel advocates had been specific enough in their request for that funding, and preferred to wait to deal with high-speed internet in the 2015 session.

The absence of broadband funding in Dayton’s supplemental budget was met with a critical statement from Randy Wilson, mayor of Glencoe and the current present of the Coalition of Greater Minnesota Cities (CGMC), who said the exclusion was “perplexing,” given the broad agreement that outstate areas need enhanced access.

“The state can no longer afford to ignore Greater Minnesota’s top economic development priority,” Wilson said.

Wilson also lamented that the budget left out any increase for local government aid (LGA), warning that the progress local governments have made on public safety and infrastructure would “stagnate” without more money.

A more supportive response came from House Speaker Paul Thissen, who praised Dayton’s plan for its focus on economic opportunities for the middle class.

“Gov. Dayton’s supplemental budget has the right priorities to continue growing our economy from the middle out,” Thissen said.

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