President Trump’s budget proposal hurts people, communities, Minnesota

President Donald Trump’s budget proposal hurts our nation’s families, communities, and state and local finances. It undermines basic tenets of the American Dream by taking supports away from people climbing into the middle class, gives tax cuts to the already wealthy, and relies on faulty economic assumptions about economic growth and deficit reduction. Low-income families, people with disabilities, students, and seniors would all bear the brunt of Trump’s budget cuts.

The budget released today would cut about $2.5 trillion in the next decade from what’s called entitlement spending, much of which will come from services that support people who need health insurance, are hungry, or are living with disabilities. For example, Trump’s budget includes harsh cuts that will cause millions of Americans to lose their health coverage. Trump proposes major cuts to Medicaid, which over 1 million Minnesotans currently rely on for health care coverage when they get the flu, break an arm, or need to treat their diabetes. The president’s budget proposal would cut Medicaid by $610 billion over 10 years and shift funding responsibilities to states. These cuts are on top of the harmful changes proposed in the American Health Care Act, which passed in the U.S. House earlier this month. In total, this represents over $1.8 trillion in cuts over 10 years to Medicaid and subsidies from the Affordable Care Act that help low- and middle-income people afford health insurance.

Trump’s budget also undermines the government’s ability to fight hunger through the Supplemental Nutritional Assistance Program (SNAP), also known as food stamps. His proposal cuts SNAP by over $190 billion over the next 10 years. The budget assumes states would pick up some of the cost to ensure that low-income Americans don’t go hungry, including almost 455,000 Minnesotans. Forty-five percent of Minnesota households receiving SNAP benefits include children, and over one-quarter include a senior or someone living with a disability.

Trump’s budget also includes unprecedented cuts to the non-defense discretionary (NDD) portion of the budget, cutting it by $54 billion in Fiscal Year 2018. It eliminates energy assistance for low-income people, job training, and harms many other services that build vibrant communities and a strong economy. (This is done while increasing funding for defense by $54 billion.) Under Trump’s budget, NDD funding would be slashed even further over the next decade, by $1.6 trillion.

Non-defense discretionary funding is already at low levels. And Trump’s proposed budget would bring NDD spending in the coming fiscal year to its lowest level as a share of the economy in six decades. By 2027, NDD would be at its lowest level as a share of the economy since President Herbert Hoover’s administration.

The Trump budget would also dramatically harm essential state services. About 30 percent of the state of Minnesota’s funding comes from the federal government. Federal grants to state and local governments are already at historically low levels, and with both huge reductions in federal funding and multiple proposals for states to take on more funding in areas that are currently shared, poses an extremely serious threat to services that assist families, children and the elderly all across Minnesota.

The president’s proposal also includes huge tax cuts that would benefit the already wealthy. The budget eliminates the estate tax, which plays an important role in creating a level playing field among taxpayers. The estate tax applies to the estates of the wealthiest 0.2 percent of Americans, and only a handful of small businesses or farmers in the entire country will owe any estate tax. At the same time, Trump’s budget cuts the Earned Income Tax Credit and the Child Tax Credit, which reduce taxes for struggling families.

Also troubling is that this budget relies on unrealistic economic assumptions, which hide the real impact of the budget. The budget assumes that his proposals will spur dramatic economic growth rates that most economists find implausible and reduce the federal deficit. For example, Trump’s budget assumes that his $5 trillion in tax cuts will have no negative impact on federal government revenues, when in fact they would increase the deficit.

The president’s budget proposal is deeply troubling and would create profound hardship for people in Minnesota while giving large tax breaks to the wealthy. The president’s budget proposal is just the starting point in the federal budget process. Next, Congress will develop their budget outline, and they will ultimately pass the next federal budget, which may or may not look like Trump’s proposal. Congress should soundly reject the proposals introduced today and the principles behind it.

-Clark Biegler

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Legislature’s Health and Human Services bill makes drastic cuts to health care for families and children, relies on gimmicks

On May 9, the Minnesota Legislature passed a Health and Human Services (HHS) omnibus bill that reduces general fund spending on HHS by $482 million using accounting gimmicks, deep cuts to health care services, and cuts to affordable child care. On May 12, this bill was vetoed by Governor Mark Dayton. At a time when federal policymakers are posing great threats to our state budget, legislators should re-focus their efforts on maintaining Minnesota’s stable financial footing while making smart investments in policies that support some of our most vulnerable neighbors.

Cuts to health care would amplify harmful impact of potential federal policy

The bill proposes to stop paying for inflationary increases in Medical Assistance, which would cut the funding available for health insurance for the state’s lowest-income children and families by $545 million in FY 2020-21. The cuts would grow even larger over time. The bill does not specify how those cuts would be made. It isn’t clear how the state could both reduce funding for Medical Assistance and meet its legal obligation to serve all eligible Minnesotans. Funding reductions of this magnitude could only be achieved through further policy steps to reduce eligibility for Medical Assistance, cut payments to health care providers, or limit what health care services are covered.

The bill also fails to act to maintain Minnesota’s provider tax. A law passed in 2011 would eliminate the provider tax in 2020, knocking out a vital, 25-year-old fiscal pillar from efforts to expand access to Minnesota’s nation-leading health care system. Allowing this repeal to move forward would reduce health care funding by $999 million in FY 2020-21 and put MinnesotaCare and other affordable health insurance options for about 1.2 million Minnesotans at risk.

The bill would threaten health care for Minnesotans at a time when grave threats are already on the horizon. For example, the Affordable Health Care Act (AHCA) passed by the U.S. House of Representatives would cut federal health care funding for Minnesota by $2.5 billion by FY 2021, with even larger cuts in the future.

Unclear policy changes unlikely to deliver promised savings

The bill contains about $250 million per biennium in savings from several provisions that lack evidence to support their claims of anticipated savings. It could put the state’s budget out of balance if the promised savings don’t materialize.

For example, a new eligibility audit program in the Department of Human Services is projected to save $140 million. The savings would supposedly be found by adding additional layers of paperwork to the process people follow to stay eligible for Medical Assistance. Other states following a similar path predicted, but did not find, large savings, and wound with lots of Medicaid-eligible people losing health insurance along the way. Additionally, the state is already in the process of rolling out a similar program due to a law passed in 2015; it is unclear how this new proposal could generate additional savings on top of the savings already accounted for from that proposal.

Two other areas where the bill assumes large savings without providing evidence involve reforms to assessment and support planning for people with disabilities and changes to the state’s health care delivery systems. These proposals may make sense, but without a detailed fiscal analysis, it is unclear how they will result in the assumed $107 million in savings in FY 2018-19.

Budgeting gimmicks obscure real costs of the proposal

Legislators further reduce near term spending in Health and Human Services by employing a simple accounting trick that shifts costs into the future. Here’s how it works: if the state makes a payment on June 30, 2017, it shows up on the balance sheet for FY 2017; if the state makes that same payment on July 1, 2017, it occurs in FY 2018. The bill moves some payments to medical providers forward one fiscal year into the future, creating savings of $173 million in FY 2018-19 and $24 million in FY 2020-21. That lowers costs in the short term, but the state would still be responsible for making those payments in FY 2022-23 — the first years that don’t show up on this year’s budget spreadsheets.

Similarly, the bill makes changes to important services for the elderly and people with disabilities with implications for FY 2022-23, making it difficult to fully understand the fiscal impact of these proposals.

An investment in low-income families offset by unnecessary cuts to child care assistance

The bill would increase the cash assistance available to Minnesota’s most financially vulnerable families for the first time in more than 30 years. Families accessing the Minnesota Family Investment Program would see their monthly assistance increase by $13. That’s still far too low — the maximum grant for a family of three is just $532 — but it is a long overdue step in the right direction.

Unfortunately, even as the bill increases assistance for some families, it would decrease funding for a vital support for others. Parents who use Basic Sliding Fee Child Care Assistance can go to work or school secure in the knowledge that their child has stable, nurturing care. But Basic Sliding Fee is not fully funded, leaving 5,000 families on a waiting list. And the waiting list represents only a fraction of the families who are eligible and go unserved.

Proposed changes to Basic Sliding Fee’s eligibility criteria would allow the state to serve the same number of families for about $3.7 million less per year. But despite the long waiting list, the bill is not reinvesting those savings in affordable child care; instead, they reduce funding for Basic Sliding Fee by an equivalent amount. By doing so, they lose the opportunity to serve about 250 more families per year.

Health and human services are too important for gimmicks and broad cuts

Minnesota has a history of finding innovative ways to ensure many of the most vulnerable Minnesotans receive the health care and other services they need to thrive. Among many other things, the HHS budget pays for critical services for the elderly and people with disabilities, and for programs that connect families with affordable child care options. Minnesota lawmakers should not place Minnesotans’ well-being at risk by making drastic cuts and assuming savings from proposals that have not gone through a rigorous policy-making process. When the state has a large surplus and is facing historic funding threats from the federal government, it’s time to invest wisely and defend the health care and other services that support our neighbors.

-Ben Horowitz

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Balanced tax bill should be the goal; Legislature’s tax bill has a ways to go

There’s more to be done to get to a tax bill that takes a balanced approach between tax cuts and state investments, and is balanced in terms of who is included. The tax bill the Legislature sent to Governor Mark Dayton’s desk earlier this week falls short (House File 4).

Expanding economic opportunity should be a priority for tax and budget decisions this year. House File 4 has taken some steps to include Minnesota workers and families, but there’s more work to do.

On the positive side, the Legislature’s tax bill includes the Child and Dependent Care Tax Credit. The bill would update the size of the maximum tax credit for which families can qualify, and would make the credit available to more families, providing an additional $36 million to families over the two-year FY 2018-19 budget cycle. Expanding this tax credit is an investment in building the state’s workforce for today and tomorrow. A greater ability to afford child care not only allows parents to go to work, but also employers are better able to find and retain the employees they need. The bill takes a good first step; moving further toward the governor’s version would be an even stronger commitment to addressing the child care needs of Minnesota families.

However, the bill’s most glaring omission is its failure to include an expansion of the Working Family Credit. When workers receive this tax credit, they are able to gain traction in the workforce because they can better afford reliable transportation and other things they need to succeed, and they can save a little to deal with temporary setbacks.

The Working Family Credit also provides positive effects for children. Research on similar credits finds they improve children’s chances of success in school and later as working adults. A final strength of the Working Family Credit is that it effectively reaches households all across the state: 48 percent of those receiving the credit live in Greater Minnesota and 52 percent in the seven-county metro area.

House File 4 takes a step forward by addressing barriers to accessing the credit faced by some Native American members of our communities. But policymakers should also enact an expansion like what was in the Legislature’s 2016 tax bill and is proposed in Dayton’s budget. This would benefit an estimated 372,000 Minnesota workers and families by increasing the credit and including more Minnesota workers, particularly by lowering the age requirement for workers and married couples without children from 25 years old to 21.

Fortunately, House File 4 does not include the House’s proposed cuts to the Renters’ Credit, which would have cut into the property tax refunds received by Minnesota seniors and people with disabilities living on fixed incomes, as well as families living paycheck to paycheck.

However, the Legislature’s tax proposal takes up more than two-thirds of the state’s projected surplus for FY 2018-19. This heavy emphasis on tax cuts means that the Legislative budget also cuts funding for affordable health care for Minnesota families and fails to make needed investments. Big tax cuts, and especially ones that grow over time, are particularly unwise given that federal policymakers are considering proposals that could cost the state billions of dollars in funding.

It’s beyond the scope of this blog to look comprehensively at everything in the 385-page bill, but here’s a quick take on the five items with the largest cost in FY 2018-19.

The largest provision would exempt more Social Security income from the income tax, a $218 million reduction in FY 2018-19 and $242 million in FY 2020-21. Over the past several years, we’ve pointed out that such proposals provide no benefit to the lowest-income seniors, whose Social Security benefits are already exempt. In fact, House Research finds that only about 35 percent of Social Security benefits are subject to income tax.

The Social Security provision in House File 4 is more targeted than prior iterations; it provides an exemption that gets smaller at higher income levels. But its cost remains a concern, and will grow in future years as seniors make up a larger share of the state’s population. Policymakers should beware of tax cuts that grow dramatically over time, and thereby threaten the state’s ability to sustainably fund the services that seniors count on, from community-based services to high quality nursing home care.

The second largest item in the bill is a dramatic reduction in the estate tax. This proposal for $162 million in tax cuts in FY 2018-19 and $195 million in FY 2020-21 benefits only a small number of taxpayers – about 1,100 of the highest-value estates. It would be a dramatic reversal from Minnesota’s recent progress toward a tax system that is more equitable across income levels. In addition, it creates further inequities among taxpayers, because it would allow a greater amount of unrealized capital gains in large estates to fully avoid being subject to taxation.

Rounding out the top five are three tax cuts for businesses:

  • Exempting up to $150,000 of each commercial/industrial property’s value from the statewide property tax, and freezing the total amount the tax raises;
  • Expanding Section 179 expensing; and
  • Expanding the Research & Development Tax Credit.

Combined, these three items total up to about $300 million in FY 2018-19 – more than one-quarter of the entire tax bill. Their cost grows to $424 million in the next biennium, particularly because of the freeze on the statewide property tax.

The Legislature’s tax bill is an agreement between the House and Senate majorities, and provides the baseline for their ongoing negotiations with the governor.

Dayton has already vetoed this tax bill, in part because of its provisions related to private schools. One would allow families to include what they pay for private school tuition as eligible expenses towards the K-12 Education Credit, and the other would create a new 70 percent tax credit primarily for donations to organizations that provide private school scholarships to low- and middle-income families. Organizations including the Minnesota Council of Nonprofits have raised concerns about singling out donations to just one kind of organization for special tax benefits, rather than providing equal treatment for all charitable donors and charitable organizations.

There’s not much time left and a ways to go to reach a balanced tax bill, but the way to get there is clear: making everyday Minnesotans a stronger priority within the tax bill, and significantly reducing the size of the tax bill so that we can invest in our schools, our families, and our communities.

-Nan Madden

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Legislature’s higher education budget makes some financial aid investments but misses important opportunity

Policymakers have put together their visions for Higher Education in FY 2018-19. The Legislature’s conference committee report includes $125 million in additional funding, about an even split between the House and Senate’s original proposals of $149 million and $100 million. The conference agreement though is much lower than Governor Mark Dayton’s proposed $318 million in Higher Education investments.

Dayton’s Higher Education budget included $62 million in FY 2018-19 for three improvements to financial aid through the State Grant Program. These changes would:

  • Allow the grant to “fill in” for federal financial aid. Minnesota “Dreamers,” young people who came to the country as children and do not have legal status, are ineligible to receive federal Pell Grants. However, the State Grant formula currently calculates financial aid assuming students receive this federal grant, meaning that Dreamers receive much less financial aid than they need to afford college. The proposal would increase the grant award for these students so that they receive financial aid comparable to their citizen counterparts.
  • Increase the annual living allowance by $550 to better assist students in meeting their basic needs.
  • Reduce the family contribution by $500 to make college more affordable for lower-income families.

The House and Senate agreement allocates $19 million in FY 2018-19 to the State Grant Program. The agreement lowers the amount families contribute for college. It also funds a House provision for a report to estimate post-secondary expenses and what students and their families should contribute in order for the financial aid system “to fully meet the financial aid needs of lower- and middle-income Minnesota college students,” as well as the Senate provision to increase the annual living allowance by about $500 to assist students. However, while the House and Senate increase State Grant funding, they miss the opportunity to improve financial aid for immigrant students.

The legislative agreement also includes some support for the state’s public colleges and universities. The agreement includes $78 million in operations support for Minnesota State Colleges and Universities for FY 2018-19 and directs Minnesota State to freeze tuition, and then lower tuition at colleges and freeze tuition at universities. Originally, the Senate bill included additional assistance to non-metro area Minnesota State two-year colleges. For the University of Minnesota, there is more limited operations support totaling $17 million and the University is “encouraged” to move tuition rates toward the median tuition for public Big Ten universities. The House bill included language making a percentage of state funding for Minnesota State and the University of Minnesota contingent on meeting certain goals, but this language was not included in the Legislature’s bill.

-Clark Biegler

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House Republicans vote to slash more than $1 trillion from federal health insurance while giving giant tax cut to nation’s wealthiest families

Earlier this month, Republicans in the U.S. House of Representatives voted to cut roughly $1 trillion dollars of support for Americans’ health care while giving hundreds of billions of dollars in tax breaks to millionaires and insurance companies. The version of the American Health Care Act (AHCA) that passed the House would also gut many of the Affordable Care Act’s protections for people with “pre-existing conditions,” allowing insurers to charge people more for being pregnant or surviving cancer.

As the AHCA heads to the Senate, lawmakers must re-focus on health reform that improves the health care situation. They should build on the strengths of the Affordable Care Act rather than reversing the historic coverage gains made in the past several years. Health reform that moves us in the right direction must maintain or increase the number of Americans with health insurance, lower health insurance premiums and deductibles, and preserve or strengthen protections for pre-existing conditions and benefit standards.

As it stands, the AHCA would make the country’s health landscape worse. The full impact of the AHCA remains unclear because House Republicans chose to vote before the non-partisan Congressional Budget Office (CBO) could complete an analysis. However, here’s what we know the bill would do:

  • Slash access to affordable health insurance for low-income workers, people with disabilities, seniors, children, parents and others. The AHCA contains $800 billion in cuts to Medicaid over the next 10 years. Medicaid provides quality coverage to the lowest-income Americans, and its costs are growing more slowly than those in private employer plans. No amount of alleged “flexibility” for states regarding their Medicaid programs will counter this dramatic loss in resources. As a result, health care coverage for 1.2 million Minnesotans will be put at risk as Minnesota loses $2.5 billion in federal funding by FY 2021.
  • Dramatically increase the number of uninsured Americans. In March, the CBO estimated that 24 million people would no longer have insurance by 2026 if the original AHCA passed.
  • Gut protections for people with pre-existing conditions. In the new bill, people with pre-existing conditions like hypertension or diabetes could be charged higher premiums by insurance companies, who will once again be allowed to discriminate their pricing based on such factors. This will be particularly hard on older Americans. More than four of every five Americans aged 55 to 64 has at least one pre-existing condition. On top of the higher costs they will face for health conditions that are often beyond their control, the bill also allows older Americans to be charged five times as much for health insurance premiums as their younger neighbors.
  • Inadequately fund high-risk pools, a health care idea that has failed in the past. People with severe medical conditions would be sent into high-risk pools, but these would be underfunded. Because the bill does not allocate enough funding to sustainably support these efforts, such pools would face the same problems such policy interventions faced in the past. Our sickest neighbors will face exorbitant premiums, too-low lifetime limits, and reductions in benefits.
  • Cut taxes for millionaires and the medical industry. Over 10 years, the AHCA provides $275 billion in cuts that will only benefit households earning more than $200,000; the largest cuts will go to households with incomes over $1 million. On top of that, over the same time period, the bill provides $145 billion in tax cuts to insurers and medical device companies while simultaneously allowing insurers to charge sick people higher costs for their care. And these tax cuts would be just the start. As Majority Leader Paul Ryan has said, one goal of the AHCA is making further tax cuts for corporations possible.
  • Weaken and reduce employer-sponsored health insurance. The CBO projected that 7 million fewer Americans would be covered by their employers as a result of the original AHCA proposal. Under the latest version, employees of large companies could face additional risks. Current law allows large employers to choose which state’s health insurance regulations they’d like to follow when they craft their employee benefits. So, if just one state were to use the AHCA’s provision that allows a waiver of the ACA’s requirements that prohibit lifetime limits, large employers everywhere would be allowed to institute lifetime limits within their insurance plans, placing workers at large companies at great financial risk.

We’ll continue to keep you in the loop on the latest developments in the national health care debate here on Minnesota Budget Bites. Stay tuned for an update once the Congressional Budget Office releases their analysis of the version of the AHCA that has already passed the House of Representatives.

-Ben Horowitz

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Estate tax cuts are one of top priorities in Legislature’s tax proposal

We look to our policymakers to best position Minnesota to build on our state’s strengths and expand economic security to every community, while also being prudent given the uncertainty of these times.

Given that, we don’t think big tax cuts for a small number of large estates should take priority over other choices that would have a greater benefit for Minnesotans across the state, such as making child care and college education more affordable, funding services for the elderly and people with disabilities, or expanding the Working Family Credit so that Minnesota workers – including those just starting their work lives – can move up a few rungs on the ladder to the middle class.

Yet an estate tax cut is the second largest component in the proposal adopted by the legislative tax conference committee. If enacted, this would provide large tax cuts to a small number of the wealthiest estates while undercutting a level playing field for Minnesota taxpayers. The proposal would more than double the amount of an estate that is exempt from the estate tax – the exemption amount would go to $5.49 million for one person or nearly $11 million per married couple, and then increase each year with inflation.

That’s $162 million in tax cuts over the two-year FY 2018-19 budget cycle and $195 million in FY 2020-21. Cuts to the estate tax only reach a small number of high-value estates and primarily benefit high-income individuals; only about 1,100 estates paid any Minnesota estate tax in 2014. This highly concentrated tax break would reverse course on the progress Minnesota has made in making our tax system more equitable across income levels.

Another problem with the proposal is that it would undermine the estate tax’s important role in creating a level playing field among taxpayers. The estate tax serves as a backstop to the income tax, as it applies to unrealized capital gains, which is the increased value of appreciated assets – such as stocks – held by the estate. These asset gains would otherwise never be subject to tax. But the more that policymakers erode the estate tax, the more unrealized capital gains in large estates will go untaxed. That’s a tax benefit that isn’t available to Minnesotans with incomes only from wages, or who have capital gains that they realize during their lifetimes.

And the amount of unrealized capital gains in large estates is significant. The Center on Budget and Policy Priorities finds that nationally, unrealized capital gains are about one-third of estates worth between $5 million and $10 million, and are 55 percent of the value of estates worth more than $100 million.

Minnesota has already cut our estate tax. Changes passed in 2014 increased the exemption amount, which will reach $2 million in 2018, and the exemption is already $5 million for certain family-owned businesses and farms. The 2014 changes are expected to reduce the number of estates subject to the Minnesota estate tax by 37 percent and estate taxes paid by 30 percent.

In short, the proposed estate tax cuts would dedicate nearly 10 percent of Minnesota’s budget surplus and benefit a relative few. Those are resources that would be better spent on more balanced and broad-reaching tax and budget decisions that prioritize making Minnesota a place where everyone can thrive.

-Nan Madden

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Minnesota’s FY 2018-19 budget being put together

In these final weeks of this legislative session, policymakers are putting together the state budget for the FY 2018-19 biennium, in which the state has a projected $1.7 billion surplus. Policymakers have laid out their different visions for what the state should prioritize.

There is a lot at stake in these final budget negotiations, including whether Minnesota policymakers will use the surplus to invest in a more durable prosperity that reaches into those communities with less access to opportunity. And whether they will pass a modest tax bill that supports the efforts of Minnesotans across the state working hard to join the middle class – or instead pass an unsustainable, unbalanced tax bill that provides large tax reductions to those who are already doing well. The table below compares Governor Mark Dayton’s budget proposals to the budget targets set by the House and Senate and the joint Legislative targets agreed to on April 28.

General Fund Net Spending (FY 2018-19) Governor House Senate Legislative Agreement
Tax Cuts and Aids to Local Governments  $192 million $1.3 billion $903 million $1.1 billion
E-12 Education  $714 million $271 million $300 million $303 million
Higher Education  $318 million $149 million $100 million $125 million
Health and Human Services  -$412 million -$599 million -$335 million -$505 million
Agriculture, Rural Development  $10 million $0 $0 $0
Environment, Natural Resources $65 million -$21 million -$40 million -$30 million
Jobs, Commerce, Energy $111 million $11 million $11 million $8.8 million
State Government and Veterans $136 million -$90 million -$29 million -$60 million
Transportation -$18 million $343 million $400 million $372 million
Judiciary and Public Safety $253 million $102 million $50 million $76 million
Debt Service, Capital Projects, Other $72 million $0 $19 million $0
Other Bills $0 $140 million $240 million $142 million
Total $1.4 billion $1.6 billion $1.6 billion $1.6 billion

In his budget, Dayton has proposed using more than half of the surplus to invest in E-12 Education and Higher Education. His budget proposal expands voluntary pre-kindergarten and improves the state financial aid program for college students. His Health and Human Services budget proposal expands access to health care and improves child care assistance. He also includes a targeted tax plan that prioritizes the work efforts of Minnesotans living paycheck to paycheck by expanding the Working Family Credit and the Child and Dependent Care Tax Credit. The governor also leaves about $200 million of the current surplus unspent or “on the bottom line,” in order to be better prepared in this time of uncertainty.

In contrast to Dayton’s proposals, the budget proposals passed by the House and Senate allocate a majority of the surplus to tax cuts and transportation. This leaves very little room for additional funding for child care, services for Minnesotans living with disabilities, and basic resources for very low-income families. Their tax bills include estate tax cuts for a small number of the largest estates and tax cuts for businesses, but devote much less to provisions focusing on everyday working Minnesotans. To pay for the tax cuts and still provide limited investments in some budget areas, that means that both the House and Senate propose large cuts to Health and Human Services and several cuts to State Departments.

We’re urging Minnesota policymakers to practice great caution as they finalize these budget decisions. The increased uncertainty around policy changes at the federal level is coupled with the possibility that the next recession could be in the not too distant future. Policymakers should prepare for these uncertainties by not making large and unsustainable tax cuts or weakening the budget reserve.

-Clark Biegler

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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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