Renters pay for others’ tax cuts in House bill

It may come as a surprise that the House omnibus tax bill, which has over $1 billion in tax breaks for everything from high-value estates to tickets for Super Bowl-related events, includes what’s essentially a $41 million tax increase on lower-income renters.

Minnesota has long had tax policies that limit how big a share of a household’s budget can go toward paying property taxes. For renters, that is the Property Tax Refund for Renters, more commonly known as the Renters’ Credit or Renters’ Rebate, which refunds a portion of the property taxes that renters have paid through their rents.

We recently updated our analysis of who receives the Renters’ Credit, which looks at information for each Minnesota county. About 336,000 Minnesota households received the Renters’ Credit in 2014, about 27 percent of which included senior citizens or people with disabilities. This percentage tends to be higher in Greater Minnesota, and in fact, in eight Greater Minnesota counties, at least one-half of participating households included seniors or people with disabilities.

Minnesotans already saw their Renters’ Credits get smaller in 2015, after a one-time boost in 2014 went away, and the House tax plan (House File 4) would mean a further roller-coaster ride. For Tax Year 2017, there are multiple changes in the formula for calculating the Renters’ Credit, which net out to a small $1.8 million increase. However, that disguises the fact that there are winners and losers. About 184,000 households would benefit by an average of $77, but another 190,000 would see an average $65 cut in their Renters’ Credits, according to analysis by the Minnesota Department of Revenue.

Starting in Tax Year 2018, there are no winners. The bill would cut the Renters’ Credit by about $41 million per year for more than 340,000 households. These Minnesotans would see a roughly $115 reduction in their property tax refunds on average; the hardest hit would be residents of Greater Minnesota and the city of St. Paul.

It can be really hard for people living paycheck to paycheck, and elders or people with disabilities on fixed incomes, to cover the most basic necessities. About 70 percent of the households who would be harmed by the cuts to the Renters’ Credit have incomes roughly $31,000 or less.

Our friends at Prepare+Prosper, who assist low- and moderate-income Minnesotans in filing their taxes, recently shared some insights with us. They asked some of their customers how they use their Renters’ Credits, and the answers are sobering. We heard about delayed dental work and other health care expenses not covered by insurance. We heard about how the property tax refund arrives just in time for Minnesota families to afford needed school supplies and clothes.

Policymakers will soon begin negotiations to develop a final tax bill. Rejecting cuts to the Renters’ Credit should be one of the first decisions that they make.

-Nan Madden

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New state data highlight increasing importance of investing in child care assistance

The Child Care Assistance Program (CCAP) makes child care affordable for about 30,000 Minnesota children all across the state, including 12,000 toddlers and infants. The state recently released new data that demonstrate both the vital importance of CCAP and the deleterious impact of funding cuts from more than a decade ago.

Thousands of Minnesota families are eligible for child care assistance, but don’t receive it, and thousands of other Minnesota families receive child care assistance only to find that their assistance doesn’t cover the cost of care at many of the providers in their area.

State funding for the Basic Sliding Fee portion of CCAP has decreased by 25 percent since FY 2003, adjusting for inflation. The new state data emphasize the way these cuts have reduced the number of families with affordable child care and undercut families’ ability to find child care providers when they do have access to CCAP.

  • In FY 2016, 5,000 fewer families participated in Basic Sliding Fee Child Care Assistance relative to FY 2003. Due to a lack of funding, roughly 5,000 families are now on a waiting list for Basic Sliding Fee. The state estimates that about 8,400 additional families would access affordable child care through Basic Sliding Fee if it were adequately funded.
  • The state reimbursement rates paid to child care providers serving CCAP families have deteriorated over time. In 2016, the rates paid through CCAP would have covered less than 29 percent of providers’ prices in child care centers, and less than 22 percent of prices in a family child care setting.

ccap-provider-ratesWhen communities lack affordable child care options, parents struggle to succeed at work or school, employers have a harder time filling important job openings, and children are less likely to have stable, nurturing child care environments in which to thrive. CCAP connects families with that affordable child care. And yet, for over a decade fewer and fewer eligible families have been able to use this vital resource. As they make budget decisions this legislative session, policymakers should take a bold step and reinvest in Minnesota’s commitment to a bright future for our families, our children and our local economies.

-Ben Horowitz

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Will Real ID conference committee pass “clean” bill?

When legislators come back to the capitol next week, a conference committee will work to determine what path Minnesota will take to comply with federal Real ID rules. Real ID compliant driver’s licenses are already required to gain access to certain federal facilities and nuclear power plants, and early next year they will be needed to board airplanes. Most Minnesota driver’s licenses currently do not allow Minnesotans to access these facilities and airplanes.

The Real ID bills passed by the House and Senate would create a tiered system under which three kinds of Minnesota driver’s licenses would be available: Real ID compliant, non-compliant, and enhanced. Enhanced driver’s licenses are currently available in Minnesota at select DMVs and allow Minnesotans to board airplanes, but meet different criteria than the federal Real ID specifications.

Importantly, the Senate bill (Senate File 166) does not contain unnecessary language regarding non-compliant licenses for unauthorized immigrants. In contrast, the House version (House File 3) requires applicants to demonstrate lawful status even to obtain a non-compliant license. This language is unnecessary to implement Real ID and is duplicative: unauthorized immigrants are already unable to receive driver’s licenses in Minnesota due to an administrative rule made in 2003.

Driver’s licenses are often necessary for Minnesotans to have reliable transportation to a wider range of jobs and to work more hours, but the administrative rule restricting driver’s license access means that about 82,000 Minnesotans are unable to reach their full economic potential. Given the state’s tightening labor market, policymakers should have instead taken steps to expand access to driver’s licenses regardless of immigration status.  With wider access to jobs, people can more easily find employment that matches their qualifications and pays competitive wages. The Real ID debate disappointingly missed an opportunity to allow unauthorized immigrants access to driver’s licenses and the ability to more fully contribute to the state’s economy.

As the bill goes into conference committee, legislators should agree to language bill similar to the Senate’s, which does not include duplicative restrictions against unauthorized immigrants receiving driver’s licenses. And in the future, policymakers should expand access to driver’s licenses to all Minnesotans regardless of their immigration status.

-Clark Biegler

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Minnesota’s April economic update shows higher revenues, economic growth on track

This week’s April Revenue and Economic Update gave us some good news about the state’s economic and budget landscape. The quarterly report from Minnesota Management and Budget (MMB) showed that state revenues have come in above projections and national economic growth is expected to be on track with earlier projections for the next few years.

1. Recent revenues are above projections. February and March 2017 revenues came in $23 million above projections; that’s 0.9 percent more than projected in the February 2017 Economic Forecast. This is due primarily to higher than expected income tax receipts, which the Update notes could be a timing issue that evens out as the filing season progresses.

2.  Continued national economic growth projected for 2017 and onward. In 2017, the U.S. economy is growing about as predicted in the February forecast, at 2.4 percent. The Update expects 2.6 percent growth in 2018, then settle to a little over 2.0 percent yearly growth from 2019 to 2021.


3. The national economy is improving. The latest jobs numbers show that the U.S. labor market continues to improve, and nationally, unemployment is expected to drop to 4.0 percent by 2019.

4. Significant areas of uncertainty remain. The Update notes there is not enough information to incorporate the potential impact of federal policy changes to health care, immigration, trade, and business investment incentives into their economic model. These caveats aside, the forecasters assign a 60 percent chance to their baseline forecast. They also give a 25 percent chance for a more pessimistic scenario where the U.S. sees a brief recession in 2018 as trade relations worsen and businesses delay investment. They assign a 15 percent probability to a more optimistic scenario where economic growth is strengthened due to business investment in productivity.

5. Policymakers should be cautiousThis week’s Update continues the trend of good budget news for Minnesota. But policymakers should practice great caution as they make budget decisions in the closing weeks of the Legislative Session, as there is considerable uncertainty around policy changes at the federal level. And given the relatively unprecedented length of the current economic recovery, it’s likely that the next recession is not too far away. President Donald Trump has proposed and the U.S. House has considered deep cuts to the safety net and to state funding. For example, for the upcoming federal fiscal year Trump proposes about $18 billion in cuts to grants to states and local governments that support critical services, such as housing and poverty-reduction efforts. Minnesota policymakers should prepare for an uncertain future by not making large and unsustainable tax cuts or weakening the state’s budget reserve.

-Clark Biegler

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We’re hiring a summer research intern

The Minnesota Budget Project seeks a research intern who will make a significant contribution to our work on state immigration policy and economic trends affecting immigrants in Minnesota. This intern will conduct research and work with Minnesota Budget Project staff to produce analytic materials. The ideal candidate will have strong quantitative, qualitative and data analysis skills.

The Minnesota Budget Project is an initiative of the Minnesota Council of Nonprofits that combines sound research and analysis with advocacy, engagement and communications strategies to support policies that expand opportunity and economic security to all Minnesotans.

This is a paid internship. More information, including how to apply, is available on the Minnesota Council of Nonprofits website. The application deadline is Friday, April 21.

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Governor Dayton’s supplemental budget makes additional investments, primarily in pre-k

Earlier this month, Governor Mark Dayton released his supplemental budget for FY 2018-19, which makes a number of changes to the comprehensive budget proposal he released this January.

We’ve reported on the tax, health and human services, education, economic development, housing, and transportation parts of Dayton’s January budget proposal. The February forecast showed a larger projected surplus for FY 2018-19, $1.7 billion instead of $1.4 billion, so the governor was able to propose a few increased investments in his supplemental budget. His supplemental budget leaves $202 million in FY 2018-19 and $643 million in FY 2020-21 unallocated, or “on the bottom line.” This is critical as dramatic changes in federal funding to the state are under consideration.

The governor’s largest additional investment in the supplemental budget is $100 million in FY 2018-19 to expand access to voluntary pre-kindergarten. He also proposes $10 million for Pathways to Prosperity, which connects workers to education and training for in-demand jobs, as well as $10 million to local governments to protect water quality.

The supplemental budget also includes investments in health and human services; the largest ones would change pharmacy reimbursements and change the way federal funding is allocated for certain hospitals. Dayton also raises $42 million of non-general fund spending to address the opioid crisis.

This is an important time in the budget-setting process. The Senate and House released their targets earlier this month. Legislators are expected to put together their budget bills by March 31, and then will need to work out their differences in conference committee.

-Clark Biegler

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House targets bring déjà vu – similar to Senate’s targets, they focus on huge tax cuts, big cut to health and human services

This post was updated on March 29 in response to updated targets. 

Last week the Minnesota House of Representatives released their budget targets, which tell us how they would allocate the state’s projected $1.7 billion surplus for FY 2018-19. Like the Senate targets released earlier in the month, the House targets put the bulk of the surplus to tax reductions and tax aids and credits, and propose a stark decrease in general fund dollars for Health and Human Services.

The targets are an important milestone in the budgeting process. They set the size of the omnibus budget bills that the House budget committees need to put together by March 31.

House General Fund Targets (net) FY 2018-19
Tax Cuts and Aids to Local Governments $1.8 billion
K-12 Education $258 million
Higher Education $149 million
Other Bills* $141 million
Public Safety $102 million
Jobs Growth and Energy Affordability $11 million
Agriculture $0
Capital Investment $0
Environment and Natural Resources -$21 million
State Government and Veterans -$90 million
Transportation -$107 million
Health and Human Services -$599 million
Net Changes  $1.6 billion
*Includes the state reinsurance program.

Similar to the Senate’s priorities, the House designates most of the expected surplus to tax cuts and aids to local governments. The House allocates $1.8 billion for tax cuts in FY 2018-19 while the Senate sets aside $900 million. The House targets focus their increased general fund investments primarily in their education budgets. The House allocates $258 million for the K-12 Education target and $149 million for Higher Education. For comparison, the Senate proposes $300 million for E-12 Education and $100 million for Higher Education.

And disappointingly, the House’s target for Health and Human Services (HHS) is even lower than the Senate’s. While the Senate targets would cut $335 million in general fund spending for HHS, the House cuts general fund spending by $599 million. And Health and Human Services isn’t merely a wedge in the state’s budget pie, so this target leaves very little room for additional funding for child care assistance, services for Minnesotans living with disabilities, health care for the elderly, and basic resources for very low-income families.

Déjà vu targets call for déjà vu advice. As state policymakers decide how to build the state’s FY 2018-19 budget, we’ve argued they should be cautious. The budget landscape is likely to change significantly as federal policymakers are expected to enact large-scale changes over the next year. State policymakers should maximize the state’s ability to respond by:

  • Avoiding large tax cuts, and especially large cuts that grow over time, that would compromise the state’s ability to provide essential services and respond to federal funding cuts, and
  • Maintaining a strong budget reserve to be sure the state is equipped to respond to future economic downturns.

We will be watching closely as the details are filled in, but neither the House nor Senate targets seem to put us on this path.

-Clark Biegler

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Senate budget targets call for tax cuts, cuts to health and human services, some investments

The Minnesota Senate recently released its budget targets, which describe how they propose using the state’s projected $1.7 billion surplus in the FY 2018-19 budget. The Senate targets allocate $900 million of the surplus to tax cuts, $742 million to net additional general fund spending, and leave $96 million unallocated in FY 2018-19. The targets indicate a similar level of spending and tax cuts in FY 2020-21.

The targets are an important milestone in the budgeting process, and they set the size of the budget omnibus bills that the Senate finance divisions need to put together by March 31.

Senate General Fund Targets (Net) FY 2018-19 FY 2020-21
Tax Cuts and Aids to Local Governments $900 million $1.0 billion
Transportation $400 million $500 million
E-12 Education $300 million $435 million
Other Bills $265 million $25 million
Higher Education $100 million $100 million
Judiciary, Public Safety $59 million $68 million
Debt Service, Capital Projects $12 million $28 million
Jobs, Economic Growth $10 million $0
Veterans, Military Affairs $1.0 million $1.0 million
Agriculture, Rural Development, Housing $0 $0
Commerce, Consumer Protection $0 $0
Energy, Utilities $0 $0
State Government -$30 million -$30 million
Environment, Natural Resources -$40 million -$50 million
Health and Human Services -$335 million -$335 million
Net Changes $1.6 billion $1.8 billion

Most of the state’s projected surplus, $900 million, is designated for tax cuts and aids to local governments. Senate fiscal staff indicate that only $40 million of this target will go toward aids and credits.

The targets indicate increased investment primarily in Transportation and E-12 Education.

The Senate’s increased spending in these areas are funded in part by the surplus, but also through a large cut in Health and Human Services. This is disappointing, as the surplus creates an opportunity to invest in Basic Sliding Fee Child Care Assistance after more than a decade of decreased state funding, or boost the Minnesota Family Investment Program’s cash grant, which hasn’t increased in over 30 years. These investments will be much harder to achieve with such a small target.

As policymakers decide how to build the state’s FY 2018-19 budget, we’ve argued they should be cautious because the budget landscape is likely to change significantly as federal policymakers enact large-scale changes over the next year. They should do this by:

  • Avoiding large tax cuts that would compromise the state’s ability to provide essential services and respond to federal funding cuts, and
  • Maintaining a strong budget reserve to be sure the state is equipped to respond to future economic downturns.

We will be watching closely as the details are filled in, but the Senate targets don’t seem to put us on this path.

-Clark Biegler

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Trump’s budget proposes cuts in services for most vulnerable and in funding to states

Earlier this month, President Donald Trump released his budget outline for federal discretionary spending. (That’s a fancy name for spending that Congress authorizes funding for each year.) It is lacking some key details, but here’s what we know: it proposes dramatic cuts for services that support low-income people and it would drastically reduce funding for state and local services. The budget also includes $54 billion in increased funding for defense.

It’s important to remember that the president’s budget proposal is just the starting point in the federal budget process. The executive branch starts off the budgeting process with a proposal. Congress will next develop their budget outline, and they will ultimately pass the next federal budget, which may or may not look like Trump’s proposal.

Cuts would harm low-income Americans and services provided at the state and local levels. The president’s budget includes $15 billion in unspecified cuts in domestic discretionary spending for the current fiscal year (FY 2017), which ends on September 30, and $54 billion in cuts for FY 2018. The proposed cuts include:

  • $2.5 billion, or 21 percent, from the U.S. Department of Labor, including cuts to several job training programs that help workers get better jobs;
  • $9 billion, or 13 percent, from the U.S. Department of Education, including cuts to college student aid and work study programs for low-income students; and
  • eliminating funding for the Corporation for National and Community Service, which oversees the AmeriCorps program.

In addition, the budget cuts about $18 billion in grants to state and local governments, including:

  • $3.9 billion in cuts to K-12 education grants, including after-school programs;
  • $4.2 billion from the Community Development Block Grant and the HOME program, which are crucial to funding affordable housing initiatives; and
  • $4.2 billion from the Low Income Home Energy Assistance Program (LIHEAP) which helps low-income families pay for heat, and the Community Services Block Grant, which funds state, local and nonprofit programs to fight poverty.

In addition, the president’s budget proposal includes severe cuts to many other services that help build vibrant communities, like arts and humanities, and a 31 percent cut to the Environmental Protection Agency.

Cuts at this order of magnitude push a lot of tough choices on the states, which will be extremely challenged in funding crucial services, including those to meet the needs of their most vulnerable residents.

The proposed budget leaves us with many questions. The president’s budget outline provides much less information than prior presidential budgets, analysis from the Center on Budget and Policy Priorities finds. Budgets from the past five administrations have included estimates of total revenues, spending and deficits for at least four fiscal years, and the two most recent administrations have covered 10 years. These past administrations also included information on how their budget proposals would affect mandatory and entitlement spending (like Social Security, Medicare, Medicaid and SNAP food assistance), and four of the five provided details for more than the current year. In sharp contrast, Trump’s budget only includes details for FY 2018 and only for discretionary programs. There is no information on spending on mandatory and entitlement spending, revenues, interest payments, or deficits. It is also unclear where the budget cuts for the current fiscal year will come from. The president’s budget document notes that the administration will release information on a tax plan and entitlement spending later this spring. Stay tuned.

-Clark Biegler

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Congressional Budget Office: Republican health care plan would do little to resolve Minnesota’s insurance market woes and would mean 24 million more uninsured

On Monday, the nonpartisan Congressional Budget Office (CBO) released an analysis detailing how the American Health Care Act (AHCA) would cut $1.2 trillion in federal funding for affordable health care while giving the wealthiest Americans and insurance companies the bulk of $600 billion in tax cuts. The CBO’s report details several important ways these radical funding changes would result in lost health care coverage for 24 million Americans and high health care costs for many others.

The CBO predicts 24 million more people would lack health insurance in America by 2026, including 14 million by 2018. Notably, less than 10 percent of this decrease is explained by fewer individuals buying coverage on the individual market. There are several ways the bill would increase the ranks of the uninsured:

  • Roughly 7 million fewer people would receive health insurance coverage through their employer.
  • Roughly 14 million fewer people would be enrolled in Medicaid.
  • Roughly 2 million fewer people would purchase coverage through the individual market.

The AHCA would also fail to curtail premium increases in a meaningful way, and would not address the high out-of-pocket costs for Americans shopping for health insurance on the individual market. In fact, under the AHCA, the federal government would provide much less assistance for either than is done under current law. By the CBO’s calculations, the federal assistance that helps people afford health insurance premiums and other out-of-pocket costs would be cut by $312 billion, or 46 percent, by 2026.

When discussing premiums, it is important to note the difference between the “sticker price” of premiums that shoppers see in the market and the out-of-pocket premium shoppers actually pay after taking any available premium assistance into account. At the same time that federal premium assistance decreases — causing out-of-pocket premium prices to increase — the CBO predicts that the sticker price of insurance premiums will also rise 15 to 20 percent in 2018 and 2019. It is important to note that this is a 15 to 20 percent increase on top of the sticker price premium increases that would already occur without any law changes.

Under the AHCA, the sticker price of premiums is predicted to start falling in 2020, but the out-of-pocket price that many Minnesotans pay will be higher because of cuts in assistance. These lower average sticker prices come at a high price for older Americans: the CBO writes that the reduction in average sticker price premiums will partially occur because so many shoppers aged 50-64 will drop out of the market altogether. That’s partially because under the AHCA, insurers will be allowed to charge these older people five times as much as their younger neighbors. That is a big change from today, when they are only allowed to charge them three times as much. In other words, one reason the average sticker price premium will be lower because many older Americans simply won’t have insurance.

With the AHCA, many people will be paying more for less coverage. That’s because higher out-of-pocket premiums will pay for lower-quality insurance as measured by actuarial value. “Actuarial value” describes the share of medical costs covered by an insurance plan, as opposed to the share paid by patients. The CBO projects that typical plans under the AHCA will carry lower actuarial values. That’s bad news for the roughly 9 percent of Minnesotans under age 65 who find insurance on the individual marketplace. The following chart from the report lays out an illustrative example:


Source: Congressional Budget Office report on the American Health Care Act. See it in the report here.

In the example above, only the 21-year-old would actually pay less in out-of-pocket premiums relative to current law. The 64-year-old would see a staggering $12,900 increase in their out-of-pocket premium costs. Meanwhile, all three people would see a 22 percentage point decrease in their actuarial value, meaning that when they actually need to purchase health care, they’ll be paying even more out-of-pocket.

The damage that would be done by the AHCA becomes more clear with each new report analyzing its impact. Federal policymakers must put the brakes on this legislation and go back to the drawing board to find solutions that will help more Minnesota families afford health care, instead of increasing the number of uninsured and raising costs for many.

-Ben Horowitz

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