Tax talks: Miles to go before they sleep

Shortly before 5 p.m. on Thursday, Rep. Ann Lenczewski, DFL-Bloomington, strode into Room 15 of the Capitol and approached the conference committee table. The House Taxes Committee chair smiled at members of the Senate, who were already seated, extending a hand.

“Hi,” Lenczewski said. “It’s nice to see you again.”

Moments later, Rep. Greg Davids, R-Preston, the Republican lead on Lenczewski’s committee, made his own trip to the table and, after exchanging pleasantries with Senate acquaintances, introduced himself by name to Sen. Kari Dzeidzic, DFL-Minneapolis. That the two legislators apparently had not met before was incidental to the proceedings, but likewise a reminder that the two chambers of the Legislature tend to operate independently and, as seen in the two tax bills, can sometimes arrive at very different conclusions.

Thursday’s meeting, brief and perfunctory as it was, at least gave the two sides a chance to signal their broad priorities heading into the negotiation.

“The House really wants property tax relief,” Lenczewski said. “We’re very serious about that.”

Her Senate counterpart, Sen. Rod Skoe, DFL-Clearbrook, said his chamber was focused on “cleaning up some of the issues dealing with local governments,” pointing by way of example to a county program aid measure to combat aquatic invasive species.

As passed, the House and Senate bills have only a few major elements in common, leaving conferees the onerous task of combining fundamentally different bills that stand to have substantial impact on this budget cycle and the next.

Property tax measures

The House approach on property tax relief comes via a one-time expansion of aids and credits available for renters and homeowners, with a separate provision to enact a new homestead credit for agricultural land. Those pieces of the bill would come at a cost of more than $40 million to the state’s bottom line during this budget; the agricultural credit program would be worth an additional $30 million during the next biennium.

The Senate, meanwhile, has passed a package that contains the county aid program for the state’s bodies of water, income tax breaks for parents of children with disabilities and a broader version of the sales tax exemption for local units of government than exists in the House version. That proposal, which would cost more than $11 million for the remainder of this budget period and $56 million during the 2016-17 cycle, is one of the few instances in which the Senate bill comes at a greater cost than the House, where a more modest variation would not go into effect until fiscal year 2016.

Some of the largest disparities between the two sides emerged late in the process, thanks to a pair of Republican amendments offered on the House floor. One, brought by Rep. Ron Kresha, R-Little Falls, could add a student loan income tax credit specifically geared toward students who are the first in their family to attend college. Kresha acknowledged that the $67.5 million loss in revenue during the coming budget was substantial, but said it would be worth the cost.

“Because of what we’re doing with it,” Kresha said, “and the return we’re going to get on getting these first-gen people into secondary education, that to me outweighs the fiscal [impact].”

Another Republican amendment, brought by Rep. Sarah Anderson, R-Plymouth, would restore a previously existing refundable credit for research and development costs. Anderson was confident that the measure had broad support, pointing to the fact that the Department of Employment and Economic Development (DEED) still advertises the refund on its website, despite its having lapsed. If passed, the refund program would cost an estimated $67 million in business tax receipts during 2016-17.

“If DEED thinks it’s a good idea and they’re using it to attract businesses in the state, I think that’s a pretty good indication of how important it is,” Anderson said.

That idea also has strong support from the Minnesota Chamber of Commerce. Chamber lobbyist Beth Kadoun said the program’s reinstatement could be a boon for the state’s small businesses and innovative startups. But she acknowledged that legislators would probably proceed with caution on measures such as the refund, as leaders are wary of spoiling the projected surplus for the next biennium, which had stood at $2.5 billion as of the February forecast.

“When you look at what’s going to be left, it’s the tails issue,” Kadoun said. “They’re quickly using those surplus dollars, and I think that’s going to be a concern for many people.”

Conferees set agenda

Thursday’s proceedings began with a round of introductions for the key players. Skoe and Lenczewski are flanked by their respective deputies, Sen. Ann Rest, DFL-New Hope, and Rep. Jim Davnie, DFL-Minneapolis, who carried many of the smaller elements of the chambers’ overall packages. Aside from Davids, the House conferees include Rep. Paul Torkelson, R-Hanska, while the Senate Republican caucus is represented by Sen. Paul Gazelka, R-Nisswa.

Lenczewski eschewed a full walk-through of the bill’s details — “we can all read,” she joked — and instead mapped out the next few days of proceedings with Skoe. The two sides planned to meet again on Monday, and hoped to begin immediately dispensing with technical changes such as those put forth in Gov. Mark Dayton’s “unsession” proposals.

After the hearing, Davids, in keeping with the genial tone of the initial interaction, said he was enthusiastic about finding a compromise package. While he favors the property tax measures seen in the House bill but not the Senate’s, he is also generally supportive of some of the local government and income tax relief passed by the upper chamber.

“They’re kind of talking our language right now,” Davids said, referring to the committee’s Democrats. “And we like that.”