Minnesota’s November budget forecast shows good news for right now, but the future’s looking iffy

Today’s forecasted surplus gives policymakers an opportunity to build toward shared prosperity that reaches Minnesotans across the state, whether in the Twin Cities or Greater Minnesota, or whether black, white, or brown.

Minnesota Management and Budget released the state’s November Budget and Economic Forecast. The November forecast estimates what the state would spend on schools, roads, and other public services under existing laws and current economic projections, and compares it to how much revenue the state would expect to bring in. This forecast is our first full look at Minnesota’s budget landscape since the end of the 2018 Legislative Session, and sets the stage for budget and tax decisions in 2019.

Many budget decisions made over the past eight years put Minnesota in a better financial position: balancing the books, crafting a more equitable tax system, and making investments in those Minnesotans who face the greatest barriers to thriving in today’s economy. Governor-elect Tim Walz and the 2019 Legislature should build on this momentum as they respond to the major fiscal issues of the upcoming session, including the scheduled expiration of the health care provider tax and updating the state’s tax code.

Here are our top takeaways from the forecast:

  1. With a surplus in the current biennium, the state was able to contribute to Minnesota’s budget reserve. One-third of the FY 2018-19 surplus plus other statutory allocations totaling $491 million were automatically transferred to the state’s budget reserve.
  2. The forecast projects a $1.5 billion surplus for the upcoming FY 2020-21 biennium. This includes the positive balance for FY 2018-19. Policymakers’ primary task in the upcoming legislative session will be to set a budget for the FY 2020-21 biennium, which starts on July 1, 2019.
  3. The November forecast also projects a future structural balance. Today’s report shows a $456 million positive balance for the upcoming FY 2022-23 biennium. However…
  4. …The future balances do not take into account what it takes to maintain current levels of state services. Keeping up with inflationary costs on Minnesota’s current commitments would cost another $1.2 billion in FY 2020-21 and $2.9 billion in FY 2022-23. In other words, these projections are built on the assumption of flat funding for most areas of the budget.
  5. The forecast documents start to show the potential impact of letting the provider tax expire. By FY 2023, the Health Care Access Fund will have a deficit of almost $1 billion if the provider tax is allowed to expire.This fund primarily goes to health care for one million Minnesotans.
  6. The forecast expects weaker long-term economic growth than projected in the February 2018 forecast. Every forecast includes a best guess at what the national economy will do over the next few years, and today’s report expects the economy to continue growing. But national GDP growth is expected to be more sluggish than earlier anticipated, slowing down substantially to 1.4 percent by 2023.
  7. There are a number of sources of uncertainty. IHS Markit, Minnesota’s economic consultant, assigns a 60 percent probability to their baseline economic forecast, a 25 percent probability to a more pessimistic scenario, and a 15 percent probability to a more optimistic scenario.
  8. This is one-time good news. The surplus is largely due to temporary, not ongoing, factors. The short-term economic boost from the federal tax bill last year begins to fade late next year, and global economic growth is expected to weaken.

What do these numbers mean for the tax and budget choices that policymakers will be facing during the 2019 Legislative Session?

This economic recovery is only weakly boosting living standards for everyday Minnesotans. In the upcoming session, we expect lawmakers to consider policies such as expanding access to earned safe and sick leave and paid family leave, which make a big difference in family economic security and require only a very modest financial investment from the state.

Policymakers also face key questions about how to maintain funding for essential services. They should take action this session to reverse the scheduled expiration of the health care provider tax, which is a critical source of funding for health care for more than one million Minnesotans, as well as investments in healthier communities. Allowing the provider tax to expire would leave a $680 million annual revenue shortfall. Policymakers are also likely to consider increasing the gas tax – which has lost about one-third of its buying power since 2000 – and other ways of meeting the state’s transportation and transit needs.

And, policymakers will again take up the challenge of maintaining Minnesota’s values in our tax code in the wake of a federal tax bill that violates principles of fairness and fiscal responsibility. Last session, although they were not able to agree to a broader tax package, Minnesota policymakers appeared to reach consensus that the state should update our tax code in ways that protected Minnesotans – including families with children, seniors, and people with disabilities – from the tax increases they would see if the state simply conformed to federal tax law changes. Today’s forecast numbers underscore that Minnesota cannot afford to enact additional permanent tax cuts for profitable corporations and the highest-income households, who got the biggest windfalls from the federal tax bill.

Finally, considering the forecast’s warnings about a weaker future economy, now is still a good time to continue to strengthen our state’s budget reserve. After today’s transfer, the current reserve is about 93 percent of the $2.2 billion recommended by Minnesota Management and Budget. Any additional transfers to the reserve will better enable Minnesotans to get through most recessions that might come our way. This is a responsible way to use one-time funding to better ensure Minnesotans get the supports they need to make it through tough times.

-Clark Goldenrod

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Minnesota Ranks High for Tax Fairness in 50-State Study

In an era of income inequality and growing concentration of wealth, a new 50-state study released today analyzes whether state tax systems make income inequality better or worse. The Institute on Taxation and Economic Policy (ITEP) finds that nearly every state fails basic measures of fairness, but Minnesota is among a small number of states where income inequality is reduced by state tax policy.

In their Who Pays? report, ITEP highlights a number of things that Minnesota does right to build a fairer tax system. These include:

  • A graduated personal income tax;
  • Targeted tax credits including the Working Family Credit, Property Tax Refunds for homeowners and renters, and the Child and Dependent Care Credit;
  • Having an estate tax; and
  • Excluding groceries from the sales tax.

In addition to their tax inequality index, ITEP evaluates states on what share of their incomes households of different income levels pay in taxes. It finds that nearly every state has an upside-down tax system in which low- and middle-income families pay a higher share of their incomes in state and local taxes than the wealthy. In other words, their tax systems are regressive.

Minnesota does a lot of things well, and the ITEP report points out ways we can build on this momentum. This would include expanding the Working Family Credit, with particular attention to improving the credit for workers without dependent children, who benefit much less from the credit as it is currently structured.

As policymakers debate whether and how to conform our state’s tax laws to the 2017 federal changes, they should make smart decisions that protect Minnesota’s tax fairness. For example, they should not conform to federal tax changes that would mean smaller state Property Tax Refunds for seniors, people living with disabilities, and families with dependents.

Policymakers should also reject lopsided tax cut proposals that would provide little benefit to struggling families while doing more for high-income households. For example, the 2018 legislative tax proposal included income tax rate reductions that would do nothing for an estimated 1 in 5 Minnesota households with lower incomes. As the ITEP report reminds us, while Minnesotans at all income levels pay roughly similar shares of their incomes in total state and local taxes, income taxes have a smaller impact on low- and moderate-income households. For these Minnesotans, sales taxes and property taxes make up a larger share of their total tax responsibility.wpv6-minnesota-table

ITEP’s report also paints a picture of what happens on the other side of the spectrum, in the “Terrible Ten” states with the most regressive tax systems. In states such as Washington, Texas, Florida, and South Dakota, low- and middle-income residents pay substantially higher shares of their incomes in state and local taxes than the wealthy.

ITEP notes that, in addition to exacerbating income inequality, unfair tax systems are unsustainable. When much of the income growth goes to high-income households, state tax systems that rely more heavily on taxing low- and middle-income residents struggle to raise enough revenue to fund their children’s education, parks and public spaces, infrastructure, and other basic services.

Minnesota has taken another path, one that has paid off for the residents of our state and that other states could follow. As Meg Wiehe, deputy director of ITEP and an author of the study notes, “Inequitable state tax systems don’t have to be a foregone conclusion…Tax policy should be used as a tool to help mitigate income disparities rather than to drive a wider divide.”

-Nan Madden

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October economic update shows higher state revenues, but mixed news on economic growth

The recently released October Revenue and Economic Update gave us mixed news about the state’s economic and budget landscape. The quarterly report from Minnesota Management and Budget (MMB) showed that the state revenues have come in higher than anticipated. It also reports that the national economy is expected to grow in the near term, but then that growth will taper off over the next few years.

Some of the top takeaways from the Update include:

1. State revenues for the most recent quarter came in above projections. The state’s revenues for July to September came in $282 million above projections; that’s 5.9 percent more than projected in the state’s February 2018 Economic Forecast. The increase is a result of a variety of factors, including higher income and corporate taxes received, as well as a higher than expected surplus in a state workers’ compensation fund.

2. State revenues for the past fiscal year came in slightly above projections. The state’s revenues for FY 2018, which ended on June 30, came in $376 million above projections, or 1.7 more than was projected in the February forecast.

3. Long-term economic growth is expected to be lower. The national economic forecasters predict stronger national GDP growth for 2018. The October update predicts 2.9 percent growth in 2018, up from the 2.7 percent predicted in February. In 2019, growth is projected to be 2.8 percent, very similar to the 2.7 percent anticipated in February. However, growth is then expected to slow to 1.6 percent by 2021. The slower growth in 2020 and beyond is due to several factors, including the effects of the new tariffs between the U.S. and China.

october-economic-update-gdp

4. National unemployment rate expected to remain low. Nationally, unemployment was 3.7 percent in September, and is expected to drop to 3.5 percent on average in 2019. Job growth has slowed slightly, with the economy adding around 134,000 jobs in September, compared to the average of 200,000 jobs per month earlier this year. This slowdown is expected to be a temporary effect of Hurricane Florence, which hit the Southeast coast in September.

5. Forecasters are fairly confident in their projections. The forecasters assign a 60 percent chance that their baseline forecast is correct. They also give a 25 percent chance for a more pessimistic scenario in which there’s a recession starting next year, and assign a 15 percent probability to a more optimistic scenario.

The next legislative session starts in just a few months, and policymakers will need to put together the state’s next two-year budget. In early December, we’ll see the state’s November Budget and Economic Forecast, which will give us an updated and more complete picture of what resources will be available as policymakers and the public engage in next year’s budget debate.

After the conclusion of this past legislative session, we estimated that the state could expect a surplus of about $300 million for FY 2020-21. The increased revenues measured in this week’s economic update suggest that number could get larger by the time the November economic forecast comes out. However, the lower expected economic growth in the longer term could also dampen future revenues.

-Clark Goldenrod

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Now is the time to say no to a new rule that would increase hardship for New Americans

A proposed federal rule would make it harder for New Americans on their path to citizenship and folks moving to the country to thrive and to fully contribute to our communities. This proposal doesn’t match our Minnesota values, and it is important to make your voice heard.

Today begins a 60-day public comment period on the rule that would greatly expand how “public charge” is determined in the future, and would ultimately harm families trying to put a roof over their head or buy groceries to feed growing kids.

This rule would judge the value of New Americans by how much money they have, rather than how they live their lives and contribute to their communities.

Federal policymakers need to hear from you that this isn’t the direction we want for our country. See our action alert with directions on how to add your voice.

For more details about the proposed rule and the damage it would do, read our earlier blog.

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We’re Hiring a Policy Advocate and a Communications Intern

For more than 20 years, the Minnesota Budget Project has worked toward a vision for Minnesota in which a fair tax system raises enough revenue to fund our priorities as a state, and economic policies ensure opportunity is available to all. We do it through analysis, advocacy, and strategic communications, and currently have two open positions on our team.

Policy Advocate:

The Minnesota Budget Project is seeking a Policy Advocate to work on economic security issues, including affordable health care and child care.

This an exciting opportunity for anyone interested in producing compelling analysis, exploring policy solutions, and engaging with state and national partners in support of policies that expand opportunity and economic security to all Minnesotans, particularly Minnesotans with low incomes.

Applications will be reviewed on a rolling basis; apply by October 23 for the strongest consideration. Learn more about the position and how to apply here.

Communications Intern: 

You: Inspired to create change in your community, and looking to contribute your skills and gain experience in promoting public policies that impact Minnesotans with low incomes and communities of color.

Us: The Minnesota Budget Project is a leading voice advocating for affordable health care, affordable child care, and progressive tax policy in Minnesota.

We’re hiring a part-time communications intern for the 2019 Minnesota Legislative Session. This is a paid position focused on creating digital and public engagement strategies for our current policy agenda. Learn more about the job, and submit your cover letter and resume online by Friday, October 26.

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New federal rule would increase hardship among New Americans

This weekend, draft language for a new “public charge” rule was released by the U.S. Department of Homeland Security (DHS). This rule would make it harder for New Americans on their path to citizenship and folks moving to the country to thrive and to fully contribute to our communities and the economy.

This draft rule judges the value of New Americans by how much money they have, rather than how they live their lives and contribute to their communities. Currently, when people apply to adjust their immigration status, like applying for a “green card” that allows New Americans to live and work in the U.S., the government determines whether that person has “public charge” status. This status is based on a number of factors, including age, health, family status, financial status, and skills, but also includes use or potential use of public supports. Under current policy, only two types of supports are counted to determine “public charge” status: cash assistance (like Temporary Assistance for Needy Families, or TANF) and use of long-term care facilities. The same process occurs when people apply to move to the U.S. Having “public charge” status can make individuals ineligible to come to the United States or receive a green card.

The new rule would greatly expand how “public charge” is determined in the future and would harm families trying to put a roof over their head or buy groceries to feed growing kids. The draft rule proposes adding supports like the Supplemental Nutrition Assistance Program (SNAP), housing assistance, and Medicaid health insurance to the list of services considered in evaluating “public charge” status. Additionally, while it is not in the current rule, DHS has expressed interest in also including the Children’s Health Insurance Program (CHIP).

The new rule also would require that New Americans earn at least 125 percent of the poverty line to not be negatively affected by the “public charge” determination. The rule would also adopt a threshold of 250 percent of the poverty line (or almost $63,000 for a household of four) for a family to receive a favorable consideration. For context, around 40 percent of people living in the United States earn less than this standard. People often move to the United States in search of greater economic opportunity, but the rule sends the message that only New Americans who already have money and resources are welcome.

The new rule goes against our country’s basic values. Our government has long held that certain supports, such as those that improve health, should be available to everyone who needs them. The rule also ignores how New Americans are contributing to our communities, as our neighbors who work, pay taxes, and learn alongside us. But the new rule abandons this logic and explicitly recognizes that it may “increase the poverty of certain families and children, including U.S. citizen children.”

This rule would likely create confusion around who can access basic supports that many of us turn to in times of need. Those harmed include the New Americans who are unsure whether they can still qualify for basic services, like food and housing assistance, as well as many children who might not get the supports they need to remain healthy and succeed in school. And New American families are already dropping off certain supports in response to concerns about these changes.

This new proposed rule further continues a pattern of federal lawmakers prioritizing those who are already doing well in today’s economy. For example, late last year federal policymakers passed a large tax bill that overwhelmingly benefited the wealthy and profitable corporations. These tax cuts have increased the federal deficit, and since then, purportedly in response to the increased deficit, President Donald Trump and the U.S. House have proposed funding cuts that would increase hardship and poverty across the nation. The new proposed rule is the latest step that would further pull out the rug from families who are trying to make ends meet. Additionally, the rule would disproportionately affect people of color, who are more likely to come to the United States through the primary process subject to public charge determination.

This proposed rule is a mistake. New Americans are vital contributors to our communities, and they should be able to receive basic supports so that they can thrive and build our economy. The draft rule is expected to be included in the Federal Register in the next few weeks, perhaps as early as tomorrow. You will have an opportunity to have your concerns heard by making a comment on this proposal; we’ll post information about how to do so once the comment period is open.

-Clark Goldenrod

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Plans to cut federal economic security programs take aim at wrong target

Federal investments in family economic security – including stable housing, nutritious food, affordable health care, education and training, and boosting family incomes through tax credits, among other things – keep millions of families out of poverty and reduce the severity of poverty for millions more. But calls by some to cut these investments in the name of deficit reduction are off the mark. Aside from health care, federal spending in these areas is declining compared to the overall economy, according to a recent report from the Center on Budget and Policy Priorities.

Many supports for lower-income people and families are designed to grow when the economy is doing poorly and more Americans fall on tough times, and then shrink when the economy is doing well. The Center on Budget and Policy Priorities took a look at spending that supports family economic security, and found that during the Great Recession, federal spending on these services grew to meet the needs of more people who were struggling to find work and make ends meet.

The spending bubble from the recession has disappeared. Compared to the economy as a whole, federal spending on nutritious food, stable housing, cash assistance, and more is shrinking.

The exception is health care, where growth reflects broader health care trends. Health care investments, such as in Medicaid, the Children’s Health Insurance Program, and others, allow kids, people with disabilities, and workers who don’t get health insurance through their job to see doctors and get medication they need to be healthy. While public health care costs are projected to continue to rise over the next 10 years, the increase will be slower than previous decades.

Since 2010, overall spending on investments in family security has been falling as a percentage of the economy. The increase in health care spending has been more than cancelled out by the decreased fed-spending-on-entitlementsspending for other low-income supports. This year, federal spending on these investments, as a share of the economy, will be below what it was before the recession started, and almost equal to the 40-year average level of spending. Federal spending on investments in family security is projected to continue to fall over the next 10 years.

The proposed cuts to these investments, including in President Donald Trump’s budget and the recently approved House Budget Resolution, would create increased hardship and poverty across the nation. Their arguments that cuts to these investments is needed to address the growing federal deficit ignores the fact that federal investments in these areas are declining. Instead, what has contributed to the recent steep increase in the federal deficit is the federal tax bill passed late last year. Lawmakers failed to fully pay for the bill’s tax cuts, which went predominantly to profitable corporations and wealthy individuals and families. The resulting drop in revenues harms the nation’s ability to fund essential services and respond to future economic downturns. And cutting supports for struggling families isn’t going to fill the budget gap caused by the federal tax bill.

For many people, investments in economic security can make the difference between hunger and healthy meals, or between a roof over their heads or a life on the street. Blaming these important investments for the growing national debt has to stop.

-Sarah Orange

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More new Census data shows Minnesota’s prosperity isn’t reaching all Minnesotans

The U.S. Census released more new data today indicating that the economic recovery continues to boost Minnesotans’ incomes. But the strides Minnesota has made in prosperity isn’t reaching all Minnesotans. Communities of color, workers earning lower wages, and others who face barriers to work are being left out of the broader economy’s success.

Minnesota continues to outperform the national figures in terms of economic well-being. In 2017, the income of the median Minnesota household increased to $68,388, more than $8,000 above the national level. The share of Minnesotans living in poverty, 9.5 percent, is also well below the national figure of 13.4. Today’s figures show how far Minnesotans have come since just after the Great Recession in 2011, when the median household income was $62,210 in today’s dollars.

Minnesota’s poverty rate is fourth lowest in the nation. Minnesota’s higher incomes and lower poverty come in part because of our investments in policies that lift up more Minnesotans and allow them to thrive in today’s economy. These policies include boosting the income of workers and families struggling to make ends meet through the Working Family Tax Credit, expanding opportunities for affordable health care through Medicaid and MinnesotaCare, and increasing Minnesota’s minimum wage. However, more needs to be done to break down barriers and make sure all Minnesotans, no matter their race or ethnicity, can participate in Minnesota’s economic prosperity.

This year’s Census data shows that Minnesotans of color are more likely to be left out of the economic gains that the topline numbers show. Communities of color face systemic barriers that make it harder to get ahead. In many communities of color, parents have limited access to the affordable child care they need to work, or reliable transportation to get to work on time or even get groceries back home. The historical roots of these barriers, such as restricting people of color to live in particular geographic areas and then failing to invest in those neighborhoods, means it’s all the more important to address these barriers and ensure all Minnesotans have the ability to succeed.

new-table

The Census data reflects these structural challenges: while 9.5 percent of Minnesotans lived below the federal poverty line in 2017, Minnesotans of color experienced poverty at much higher rates. One in four Black Minnesotans had incomes below the poverty line; for a family of four with two children that means living on less than $24,858. But only one in 15 white, non-Hispanic Minnesotans faced that same situation, highlighting the fact that some in our state don’t have the same opportunities to succeed.

The good news is that there are policies that can help more Minnesotans share in our state’s economic success. Investments in policies that break down the structural barriers many communities of color face and boost the incomes of everyday Minnesotans will move our state toward greater economic prosperity.

-Sarah Orange

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New Census data highlights Minnesota’s long-term progress in health coverage and the need to continue to invest

All Minnesotans deserve the opportunity to live healthy lives and get the treatment they need for asthma, diabetes, or a broken bone. According to new U.S. Census data, in 2017 fewer Minnesotans had health insurance, meaning more Minnesotans were not able to get the care they need to thrive. Minnesota has been a national leader in health care, even prior to Medicaid expansion and the Affordable Care Act (ACA), because of state investments in affordable health care and the well-being of our residents. However, this decline in coverage comes at a time when investment in health care is under threat at both the state and federal levels.

In 2017, 4.4 percent of Minnesotans went without health insurance at some point during the year, compared to last year when 4.1 percent of Minnesota were uninsured. This is substantially lower than the 8.2 percent of Minnesotans who didn’t have health insurance for at least part of the year in 2013, the year before the total roll out of the Affordable Care Act. While Minnesota’s uninsurance ranking is fourth best in the nation, we need to build on this progress.

Affordable health care allows Minnesotans, their families, and their communities to thrive. Children with health care coverage perform better in school. Health insurance allows workers to stay healthy and succeed at work. More people with health coverage also reduces strains on the health care system: fewer people struggle with medical debt and health care providers see a reduction in uncompensated care.

Unfortunately, over the past two years, Congress has considered multiple proposals to cut federal funding and consumer protections in health care. These proposals would threaten the health coverage of over one million Minnesotans who are able to see doctors and get their prescriptions filled through Medical Assistance, Minnesota’s Medicaid program, or MinnesotaCare, which provides affordable coverage for Minnesotans paid low wages. Cutting affordable health care options would move Minnesota backward.

Looming cuts to health care are also threatened at the state level. In 2019, policymakers must act to extend the Provider Tax, a significant funding source for affordable health care options and other important programs that help Minnesotans stay healthy. If not, this funding will disappear and many Minnesotans’ health coverage could come under threat. Now is not the time to cut state investments in Minnesotans’ health.

Importantly, investments through the ACA and Minnesota’s smart policy choices have allowed folks who traditionally have been left on the fringes of the health care system such as people of color, low-wage and part-time workers, people with pre-existing conditions, and others struggling to make ends meet, to see doctors and get the care they need to stay healthy. Despite the progress Minnesota has made, these communities still face significant barriers to getting treatment for their critical health needs.

Today’s Census data reflects Minnesota’s strong historical investment in health care. Now is the time to build on these successes.

-Sarah Orange

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New U.S. House budget proposal gives peek into policymakers’ vision for the future

How do you spend your money? It’s a deeply personal question – in a world of limited resources, what you choose to buy or forgo is often a reflection of what you value, how much you value it, and where you want to see yourself in the future. This principle holds true in Washington D.C. as well. When policymakers come out with budget proposals, it reflects their values and priorities for the nation, and their vision for the future. So in June, when the House Budget Committee passed a Budget Resolution to cut $6.5 trillion over 10 years, with significant cuts to important supports for families trying to make ends meet, policymakers gave their constituents a preview of what they value and where they see the nation in the future.

Budget Resolutions are intended to create a blueprint for federal government spending and revenue over a particular time period. While Budget Resolutions are not binding decisions, they can set the stage for significant changes in tax or spending laws.

Take last year for example. Congress passed the Concurrent Budget Resolution for Fiscal Year 2018, which ultimately set the stage for the federal tax bill. That Resolution allowed the tax bill to move with only partisan support on an expedited timeline. The bill resulted in substantial changes in the U.S. tax code, largely favoring profitable corporations and high-income individuals and families. But it left out provisions that would have prioritized the millions of Americans struggling to make ends meet and failed to pay for the tax cuts contained in the bill.

The recently proposed House Budget Resolution would pay for those tax cuts through reductions to important programs that make it possible for people to have food on the table or go to the doctor. The proposal includes:

  • $2.1 trillion over 10 years in cuts to health care that will harm people who see doctors through Medicaid, individuals who buy health insurance on the individual market, seniors who rely on Medicare, and folks with pre-existing conditions;
  • $17 billion over 10 years in cuts through the elimination of the Social Services Block Grant that funds child and adult care services, home-delivered meals, employment supports, and adoption services;
  • $923 billion over 10 years in cuts to income security programs including food assistance that helps keep nutritious food on the table for kids, parents, seniors, and others who can’t afford basic necessities; and cash assistance that helps people buy diapers or fill up their tank with gas so they can make it to work; and
  • An expansion of paperwork requirements in food assistance, cash assistance, and Medicaid, making it harder for folks to get food, stay healthy, and afford the basics.

Our communities are stronger and more prosperous when we and our neighbors are succeeding. Investments that provide breakfast for growing kids and doctors’ visits for people fighting cancer matter to all of us. But the vision put forward in the Budget Resolution creates a false choice between supporting our friends and neighbors when they hit a rough patch and protecting our economy. Let’s not fall into that trap. Let’s instead make the choice to invest in our communities so that everyone has a chance to succeed.

-Sarah Orange

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