Global budget deal reached Sunday; more work needed to pass final budget

On Sunday evening after weeks of negotiations, legislative leaders and Governor Tim Walz announced a global budget deal. This deal is a compromise in many ways between their original proposals. While there are many details of the final budget to be worked out, we hope that the final budget will build shared prosperity for Minnesotans, regardless of who they are or where they live. Here’s what has been reported so far.

Global Budget Agreement (General Fund net changes) FY 2020-21 FY 2022-23
E-12 Education $540 million $716 million
Higher Education $150 million $150 million
Public Safety $125 million $150 million
Transportation $93 million $1.4 million
State Government $63 million $61 million
Agriculture, Housing, Broadband $60 million $14 million
Vulnerable Adults $31 million $24 million
Capital Investment, Debt Service $27 million $49 million
Environment $14 million $7.9 million
Economic Development $10 million -$5.9 million
Health and Human Services -$358 million -$557 million
Other Bills $4.5 million $4.3 million
Taxes $0 $0
Total  $760 million $615 million

The final budget agreement allocates over half of the $1.1 billion projected surplus for FY 2020-21 to E-12 and higher education. As part of their agreement, policymakers will increase funding for school districts through the basic student formula by 2.0 percent in FY 2020 and another 2.0 percent in FY 2021.

We were relieved to see that policymakers agreed to not threaten affordable health care for over one million Minnesotans. The health care provider tax will continue to support funding for Medicaid and MinnesotaCare, although at a slightly lower rate (1.8 percent versus the 2.0 percent currently.)

On the other hand, Health and Human Services faces a negative $358 million general fund target. Not all of this will actually result from cuts to services that Minnesotans count on. The deal includes shifting $270 million in FY 2020-21 and $514 million in FY 2022-23 from the Health Care Access fund, and $142 million from the Premium Security Account.

Policymakers announced that their tax proposal would have a $0 target for both biennia. Leadership indicated that the final tax bill will raise money through federal conformity and use those revenues to provide an equal amount of tax cuts. Two tax cuts specified in the budget agreement are a cut to the 2nd income tax rate and further cuts to the state property tax paid by businesses. Nearly half of all Minnesotans see no benefit from the rate reduction, especially low- and middle-income households, and the largest tax cuts go to higher-income households. As policymakers agree to the details of the tax bill, expanding the Working Family Credit and Renters’ Credit should be included so that more everyday Minnesotans are included.

The final budget deal also does not include an increase to the gas tax to fund state transportation needs. Both the governor and House budget proposals included an increased gas tax to fund overdue improvements for Minnesota’s roads, but the final transportation budget will rely on existing revenues.

A troubling component of the agreement takes money from the state’s budget reserve to balance the budget in the next biennium. A robust budget reserve is a critical part of adequately preparing for the next economic downturn, and after years of sound fiscal policy to build up the reserve, the state’s budget reserve is just shy of Minnesota Management and Budget’s recommendation. In the same way a family saves to withstand an unexpected serious illness or job loss, Minnesota builds this reserve so that when a recession hits, the state can avoid drastic cuts in critical services and continue to serve Minnesotans’ needs. However, the budget agreement would withdraw $491 million in FY 2022-23, weakening the reserve.

Conference committees were expected to put together their final budget bills and leadership expressed hope they would be ready in time for a special session to be called on Thursday to pass the final budget. However, only one budget bill had passed by the time the session officially ended on Monday night, so there’s more work to do to fill out the details and pass the budget agreement into law. Stay tuned for the details as they come out.

-Clark Goldenrod

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All tax plans on the table raise revenues: the difference is how much and who benefits

The negotiations to reach a budget deal this session have at times been characterized as a debate between raising taxes or not raising taxes. But in fact, all the plans on the table raise revenues. The real differences are in how much revenues they raise and whether those revenues are spent on building a prosperous future for all Minnesotans.

Budget decisions are being made in the context of a projected state budget surplus that does not continue beyond the next two years, a state economy in which prosperity does not reach all communities and parts of the state, and against the backdrop of a 2017 federal tax bill that provided the largest benefits for profitable corporations and high-income households.

Governor Tim Walz’s budget proposal and the House tax and budget plan raises revenues needed to meet current commitments and fund investments in broader economic security. Their general fund tax increases are paid largely by those who saw the most benefit from federal tax cuts, and by reversing past state tax cuts that have proven unaffordable. Their tax plans also include tax cuts focused on everyday Minnesotans, including those who aren’t yet taking part in Minnesota’s economic success.

The Senate, on the other hand, raises less general fund revenue overall, and instead of using those revenues to fund essential services, they pay for tax cuts that leave out many Minnesotans. Not raising enough revenue in the Senate’s tax plan translates into falling short in their budget bills. For example, the Senate budget includes only a 0.5 percent per year increase in funding for schools through the general education formula – not enough to even keep up with inflation. In contrast, Walz’s and the House budgets provide a 3 percent increase in FY 2020 and another 2 percent in general education funding in FY 2021.

This blog takes a closer look at how the different tax plans raise general fund revenues and who benefits from proposed tax cuts.

Tax conformity on businesses

The House, Senate, and Walz tax plans all have a substantial focus on “tax conformity,” which is when the state decides how to update the tax code in response to federal law changes. Policymakers need to respond to the 2017 federal tax bill, which goes by the acronym TCJA. The federal tax bill provided large, permanent tax cuts for corporations – including a 40 percent cut in the corporate tax rate – and at the same time, it also “broadened the base” by expanding the share of business profits that are taxable.

All three tax plans raise state revenues by adopting some of these base broadeners. Given that businesses received substantial federal tax cuts, it makes sense at the state level to recapture a portion of the federal tax cuts through conformity. When combined with TCJA conformity items that cut taxes for businesses, Walz’s tax conformity plan raises $945 million from corporations and pass-through businesses in FY 2020-21, the House raises $1.1 billion, and the Senate $458 million.

The fact that the Walz and House tax plans raise much more from business conformity than the Senate is explained by their different approaches to multinational corporations. The TCJA sought to address the issue of untaxed corporate profits held in overseas subsidiaries, and both Walz and the House follow the TCJA’s lead by adopting provisions that tax foreign income. The Senate does not have any provisions to address untaxed profits held overseas or other kinds of foreign income.

Reversing past state tax cuts

Walz and the House also raise revenues by reversing tax cuts made in Minnesota’s 2017 tax bill whose cost is growing over time. The Walz and House tax plans contain similar provisions that reverse or freeze these cuts: by undoing the freeze on the statewide property tax paid by businesses, reinstating inflationary adjustments on tobacco taxes, and freezing the amount of an estate that is exempt from tax at current levels, rather than allowing it to rise further. These provisions raise about $76 million in FY 2020-21 and over $231 million in FY 2022-23.

In contrast, the Senate does not include these reversals and instead would cut the statewide property tax further, reducing taxes on businesses and cabins by $78 million in FY 2020-21 and $100 million in FY 2022-23.

Tax changes for individuals and families

In terms of changes for individuals and families, another key area of contrast between the tax plans is who benefits from proposed tax cuts and who pays more from proposed tax increases. Below are some examples.

On net, the governor’s tax plan would cut income taxes on individuals and families by $136 million in FY 2020-21. His tax plan includes a roughly $50 million per year increase in the Working Family Credit, a tax credit for low- and modest-income workers and families. He would create a long-overdue expanded Working Family Credit for families with three or more children, as well as boost the credit for workers and families that currently qualify for the credit.

The House bill includes $336 million in tax reductions for individuals and families in FY 2020-21. That includes expanding the Working Family Credit by about $41 million a year; their expansion proposal is particularly strong for the two family types that are less well-served by the credit as it is currently structured: workers with no dependent children, and families with three or more children. Modest- and middle-income Minnesotans are among those who would see tax reductions from House provisions creating a higher standard deduction and increasing the size of the first tax bracket. And the House would increase property tax refunds for renters by $22 million and for homeowners by $23 million in FY 2021.

In addition to these tax cuts, the House also includes a targeted tax increase on higher-income households. It raises $381 million in FY 2020-21 and $319 million in FY 2022-23 by assessing an additional 3 percent income tax on net long-term capital gains and dividends over $500,000, on top of the existing income tax rate. These kinds of income are primarily received by high-income households and often subject to a special lower federal tax rate.

The Senate also has a combination some provisions that raise taxes and some that cut them. The Senate is unique among the three tax plans in that it raises significant revenues ($146 million in FY 2020-21) in its conformity plan for individuals and families – primarily from limiting itemized deductions (such as union dues, uniforms, and other work-related expenses) and through adopting chained CPI. Chained CPI is a slower-growing measure of inflation, and adopting it reduces the value of exemptions, credits, and other features of the tax code over time.

The Senate tax bill also cuts taxes, primarily by lowering the income tax rate in the second tax bracket from its current 7.05 percent to 6.8 percent in 2019 and to 6.67 percent in 2022. But nearly half of all Minnesotans, especially low- and middle-income households, would see no benefit from this rate cut, according to analysis from the Institute on Taxation and Economic Policy. For example, only about half of middle-income Minnesotans (incomes $50,000 – $79,000) would see any benefit, receiving an average $44 tax cut in the first year of the proposal. In contrast, nearly all households with incomes above $259,000 would benefit, and they receive a much higher average tax cut of more than $250.

While in total the Senate tax bill cuts taxes for individuals and families by $301 million in FY 2020-21, that doesn’t mean that everyone benefits. Those who pay more from its approach to conformity won’t necessary benefit from the tax cuts. Lower-income Minnesotans, for example, will pay more in income taxes because of the change to chained CPI, but see no benefit from the Senate income tax rate cut. The House also includes chained CPI, but avoids this outcome because lower-income people are included in tax cuts like Working Family Credit expansion.

Policymakers also face key questions about dedicated funding sources

This blog has focused on the general fund tax changes contained in the omnibus tax bill proposals. Other important questions are whether the state will maintain the provider tax, which is an essential funding source for affordable health care, and raise the gas tax and other dedicated funding sources to boost funding for roads, bridges, and transit.

The harm caused by not maintaining dedicated funding sources is clear. For example, the Senate’s health and human services (HHS) budget allows the health care provider tax to expire, leading to a loss of about $700 million a year in health care funding. Even before the full impact of the loss of the provider tax is felt, the Senate’s HHS budget would cut dental and vision coverage for lower-income Minnesotans.

It’s not a question of whether to raise taxes or not. It’s whether we are raising the revenues needed to invest in our common future, and whether our tax decisions also support the goal of building prosperity that reaches all Minnesotans.

-Nan Madden

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New data tool allows everyone to find local data about impact of health care, provider tax

The Minnesota Department of Human Services (DHS) rolled out powerful new web-based tools chock-full of data about health care. The dashboards are user-friendly and provide visuals like maps and charts, as well as an option to download the raw data. Now everyone can find their inner health care wonk.

The Investments in Health Care dashboard helps illustrate the economic impact of Medicaid and MinnesotaCare, including number of claims, total payments in dollars, number of health care providers, and average payment per provider. The Who Medicaid and MinnesotaCare Serve dashboard includes county-level data about number of enrollees, percentage of enrollees, and type of participant. The dashboards build on DHS’s Medicaid Matters report.

Some statewide takeaways: Medicaid enrollment is about evenly split between the metro area and Greater Minnesota, but Greater Minnesota has a higher portion of residents who use Medicaid (Medical Assistance). Kids, elderly folks, and people with disabilities are the main groups that get affordable health care through Medicaid. And, Medicaid has lower health care spending per enrollee in Minnesota compared to 2012.

In addition to being interesting for the nerds among us, this data provide incredibly useful numbers to help explain why Medicaid and MinnesotaCare are so important. For example, in Anoka County, 17.4 percent of the population uses Medicaid to access health care, while that percentage is much higher in Cass and Wadena counties where it is over 30 percent. The tools also show that in Morrison County, 105 providers received Medicaid reimbursements and countywide Medicaid payments totaling over $51 million. That’s a huge economic impact!

Medicaid and MinnesotaCare are a vital source of affordable health care for more than one million Minnesotans. However, the health care provider tax – which provides about $700 million in revenue to help fund these health care programs and other health care investments – is set to expire at the end of this year. Add your voice and tell your legislators to repeal the sunset on the provider tax and maintain affordable health care in Minnesota.

-Betsy Hammer

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Affordable child care: good for all

At this point in the legislative session, there’s a lot of attention to the negotiations about budget numbers. Those are important, but we can’t lose sight of what the decisions at the Capitol are really about. And that’s how we, through our public investments, build a state where all Minnesotans – regardless of who they are or where they live – can get ahead and provide bright futures for their children.

Our friends with the Kids Can’t Wait coalition have been hearing from our Minnesota neighbors about the importance of child care assistance. We’ve heard from moms for whom child care assistance made the difference in being able to stay in the workforce, go to school, and advance in their careers. We’ve heard how child care assistance made it possible for their kids to learn and grow in child care that supported their developing minds. And we’ve heard from child care providers and other business owners about why it’s so important for Minnesota parents to be able to afford the cost of child care.

But too many Minnesota families struggle to find and pay for child care. Child care is hard to find: Minnesota has over 222,000 child care spaces, but over 300,000 kids under age 6 who might need a child care spot. Families of color and families living in certain regions of the state have an even more difficult time finding care. And child care is expensive: the average cost for enrolling a Minnesota infant in a child care center is $310 per week, or over $16,000 per year. That’s a real struggle for many families.

More than ever, we can’t afford to have parents leaving the labor market just because they can’t find child care. Minnesota’s unemployment rate is 3.2%; that is historically low, and recently the Department of Employment and Economic Development (DEED) noted that they hear “from many sources that employers are indeed having increasing difficulty finding available workers.”

Investing in the Child Care Assistance Program (CCAP) would support families and employers to keep our economy strong. Child care assistance covers a portion of a family’s child care bill on a sliding scale based on family income. Child care assistance covers kids up to age 12, is available in every county, and covers the hours parents are working. Parents have the freedom to choose a provider that best fits their family’s needs and preferences.

Unfortunately, Minnesota’s investment in child care assistance hasn’t kept up with the needs. Since FY 2003, state funding for child care assistance has dropped by 37 percent (after adjusting for inflation). As a result, about 2,000 families are on waiting lists. And, the state’s reimbursements to child care providers are woefully out of date so that it can be a financial hardship for providers to serve families participating in CCAP. This limits the options for family choices.

Governor Tim Walz and the Minnesota House have proposed investing in child care assistance, including additional funding to reduce the waiting list, updated provider reimbursement rates, and changes to meet federal requirements. These measures would make meaningful steps toward making child care assistance work better for families, kids, and child care providers, and for the state’s economy overall. In contrast, the Senate plan puts care for 30,000 kids at risk by eliminating CCAP with the promise of reinstated but reduced funding levels if the Department of Human Services redesigns the program.

The May 20 end of session is approaching quickly. Policymakers must focus on strategies to make Minnesota a place where all can thrive; child care assistance is a time-tested approach to do so that lets working parents afford child care, children to thrive, and businesses to have a reliable workforce.

Add your voice – contact your legislators and ask them to make funding for affordable child care for Minnesota families a priority in this year’s budget decisions.

-Betsy Hammer

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Provider Tax: why now is the time to repeal the sunset

Minnesota’s health care provider tax raises nearly $680 million annually for affordable health care and investments in healthy communities across the state. This essential funding source will expire at the end of this year unless policymakers take action during this legislative session. The urgency is real: without an extension of this vital funding, the state’s Health Care Access Fund will quickly run out of money – threatening the future of essential health care services in Minnesota.

The provider tax is a major funding source for health care initiatives that reach more than one million Minnesotans. It was instituted in 1992 to expand access to affordable health care. The dollars raised go to the Health Care Access Fund (HCAF), which funds health care through Medicaid and MinnesotaCare for lower-income Minnesotans and investments in healthy communities. Though there are other revenues that feed into the HCAF, the provider tax produces about 80 percent of the HCAF’s revenue.

As part of a deal to end the 2011 state government shutdown, policymakers added a 2019 “sunset” to the provider tax law. As Mary Krinkie, Vice President of Government Relations for the Minnesota Hospital Association, put it: “there’s always a tendency to kick the can down the road, and at that time 2019 seemed a long way away.”

If the provider tax sunsets, revenues will disappear but needs will persist. A look at the projected balance of the HCAF, assuming the provider tax does sunset, shows that the HACF quickly runs out of money needed to fund essential health services.

Projected HCAF Balance (numbers in 000s)
FY 19 FY 20 FY 21 FY 22 FY 23
Balance $670,233 $602,218 $61,213 ($416,149) ($918,959)

Some might be tempted to kick the can down the road again, but Minnesotans’ access to affordable health care is too important to risk, especially as we grapple with challenges like shortages of providers in rural areas, persistent racial inequality in access to health care and health outcomes, and uncertain federal funding. Introducing risk and uncertainty to Minnesotans counting on Medicaid and MinnesotaCare is an unacceptable burden to place on our neighbors. Policymakers must act to extend the provider tax and ensure affordable health care will continue to be available without disruption.

We shouldn’t wait until we get into trouble before finding a solution: we need to repeal the sunset this year, before it expires. There would be substantial administrative hurdles involved if we turned the tax “off,” even for a short period of time, and then tried to go back to it later when alternatives don’t pan out. Allowing the provider tax to continue will ensure a smooth experience for both the providers who remit the tax and the Minnesotans who rely on the services it funds.

The future of affordable health care for one million Minnesotans is at stake. Policymakers must act now to repeal the sunset, and ensure stable and adequate funding to support affordable, equitable health care for Minnesota.

-Betsy Hammer

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Real people, real communities: why maintaining the provider tax is so important

It’s hard to avoid news about the health care provider tax if you follow politics in Minnesota. Our state’s provider tax raises about $680 million each year for affordable health care and healthy communities from International Falls to Itasca to Inver Grove Heights. But policymakers must take action this session because this important revenue is slated to expire at the end of this year.

The legislative session is scheduled to end on May 20. That’s just a few short weeks away. Failure to act would have disastrous consequences for our Minnesota neighbors and communities around the state. Here’s what’s at stake:

Affordable health care for more than one million Minnesotans

Over one million Minnesotans – or, nearly 20 percent of us – have affordable health care funded in part by the provider tax. These include Minnesotans who access care through Medicaid and MinnesotaCare, and include seniors, people living with disabilities, and families earning lower wages. Kids make up 45 percent of all Medical Assistance enrollees.

Revenue from the provider tax goes into the Health Care Access Fund (HCAF). In FY 2019, the HCAF provided $439 million for Medical Assistance.

Healthy communities in every county

Minnesotans in rural communities can face more hurdles in getting affordable health care. The provider tax funds essential services to connect rural Minnesotans to health care and contributes to the health of their communities.

Rural Minnesota counties tend to have a greater portion of their residents who get health care through Medicaid or MinnesotaCare compared to urban areas. And, 46 percent of all Minnesotans who get their health coverage through Medicaid live in Greater Minnesota.

The importance of the provider tax to rural communities has been highlighted by the Minnesota Hospitals Association, which has stated it “supports the elimination of the sunset, given that the provider tax is a dedicated, sustainable funding source for insurance coverage for low-income, working families.” The Minnesota Hospital Association’s Vice President of Government Relations Mary Krinkie said that “over the past two decades, hospitals have come to appreciate the many good things that have been accomplished because of having the provider tax in place.”

The provider tax helps fund other efforts to address the health challenges of Greater Minnesota, whether that is the higher prevalence of child poverty or the lower ratio of primary care physicians to people. For example, the provider tax supports University of Minnesota initiatives focused on primary care, and the Statewide Health Improvement Partnership (SHIP) supports for community solutions for healthy lifestyles to reduce future health care costs.

Policymakers must act to extend the provider tax

As the end of session and the provider tax cliff loom large, policymakers must take action to extend the provider tax. The provider tax funds essential health care coverage for one in five Minnesotans and makes important investments in healthy communities across the state. Lack of reliable funding to support these activities would threaten the health of our Minnesota colleagues, neighbors, and friends.

-Betsy Hammer

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Driver’s licenses regardless of immigration status is good for Minnesotans, good for the economy

Last week, the Minnesota House passed expanded access to driver’s licenses regardless of immigration status as part of their omnibus transportation budget bill (House File 1555.)

This provision would allow Minnesotans to apply for driver’s licenses regardless of their immigration status, acknowledging the immigrants who call Minnesota their home and are working, learning, and living in our communities.

For a large number of Minnesotans, the daily activities we do to support our families – like getting to work safely, dropping children off at school, or buying groceries – require driving. But for about 95,000 Minnesotans, doing these basic activities without a driver’s license could result in potentially life-altering consequences, including being separated from their families or losing their livelihoods.

Minnesota is increasingly relying on all members of our communities to fill critical jobs. With a driver’s license, these community members are able to reliably get to their jobs, have more flexibility for scheduling, and can fill a broader range of job openings. Having a driver’s license can open a door to increased earnings, creating a boost in consumer spending that’s good for our local economies.

Last week’s House vote was an important step toward giving all Minnesotans – regardless of who they are or where they were born – a fair shot in today’s economy and allowing everyone to more fully and safely be a part of our economy and communities. This provision is not included in the Senate’s omnibus transportation bill, but we strongly urge policymakers to pass this provision in the final budget this year.

-Clark Goldenrod

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A tale of two HHS omnibus bills: House and Senate offer dramatically different visions

The Minnesota House and Senate have wrapped up committee work on their omnibus budget bills. They present starkly opposed visions for Minnesota – and this is reflected in two very different health and human services (HHS) budget targets and bills.

In the House, Representative Tina Liebling’s omnibus HHS bill includes important investments in healthy people and thriving communities, and is balanced with sustainable revenue sources. The Senate’s goals are focused on limiting spending, and their health and human budget slashes services, such as child care assistance and some health care coverage, and would result in significant harm to Minnesotans.

Provider tax

Minnesota’s provider tax is a proven and time-tested way to ensure Minnesotans have affordable health care. This crucial source of revenue raises about $700 million per year for affordable health care and healthy communities across Minnesota. However, the provider tax will sunset this year unless policymakers take action. The House HHS bill includes a repeal of the provider tax sunset, whereas the Senate HHS bill allows the sunset to go forward, putting the future of affordable health care for Minnesotans at risk.

Affordable child care

Minnesota’s Child Care Assistance Program (CCAP) puts affordable child care in reach for about 30,000 Minnesota kids. Safe and affordable child care allows parents to work while kids are in a supportive environment, and helps employers to find and keep the workers they need. The House bill includes funding to reduce the waiting list ($26 million for FY 2020-21), implement family-friendly provisions ($8.2 million for FY 2020-21), and update provider rates ($11 million for FY 2020-21). The House also includes program integrity provisions to make sure that CCAP dollars go to help families and kids.

In contrast, the Senate bill eliminates CCAP, putting the well-being of 30,000 Minnesota kids at risk. Under this proposal, the Department of Human Services would propose a new child care assistance system by January 2020. After legislative approval, the newly designed program could operate, but the Senate only provides one-time funding – creating real questions about how families’ child care needs would be met.

Minnesota Family Investment Program (MFIP)

The House budget proposal includes $45 million for a $100 per month increase for families participating in Minnesota’s welfare-to-work program. The basic cash grant amount has not changed since 1986, and the long-overdue increase will allow Minnesota’s most struggling families to live with greater dignity as they work towards economic security. The Senate does not include an increase in cash assistance.

Health care

The House includes Governor Tim Walz’s OneCare plan, a set of proposals to ensure that more Minnesotans have access to affordable health insurance at a coverage level that works for them. In contrast, the Senate does not include any of the OneCare provisions, and it eliminates dental and vision coverage for people who have affordable health care through MinnesotaCare and Medical Assistance while also increasing the out of pocket costs for Minnesotans with coverage through Medicaid.

The Senate also proposes limiting projected growth for some health care costs. While this reduces projected spending on the budget tracking spreadsheets, it fails to recognize the true cost of providing existing services and is unlikely to be approved by the federal government.

Long-term care and vulnerable adults

Both bills respond to concerns about caring for elderly and vulnerable Minnesotans. Some of the few budget increases in the Senate are for electronic monitoring in long-term care facilities. The House includes funding for the Ombudsperson for Long-Term Care as well as to support civil and criminal coordination for the protection of vulnerable adults, an assisted living report card, and increased protections for vulnerable adults.

Workforce

The House includes $34 million to increase pay for workers who care for people living with disabilities, and Senator Jim Abeler’s bill includes $40 million for this purpose. The House also includes $37 million for approval of the self-directed worker union contract to support personal care attendants (PCAs). The Senate does not include the increase for these workers, and actually reduces spending on PCAs by limiting the number of people and conditions that would qualify for PCA help.

Transfers

The House bill transfers unused dollars from health care reinsurance back to their original funds. This results in nearly $400 million reverting back to the Health Care Access Fund (HCAF) and $142 million back to the general fund. The Senate bill does not include these provisions. However, by shifting over $73 million in spending from the HCAF to the general fund and juggling other transfers, the Senate bill is able to keep the HCAF solvent for a few years after the scheduled expiration of the provider tax. Without the sustainable revenue from the provider tax, the long-term result will be a shortage of health care funding.

Other issues of concern

The House bill includes funding to expand community behavioral health clinics, mental health standards, children’s intensive services reform, school-linked mental health, improvements to substance abuse treatment, and a reform of behavioral health financing. Of these, the Senate includes only timely access to substance abuse treatment and the reform of behavioral health financing. Additionally, the governor, House, and Senate all include a proposal for substance abuse disorder treatment waivers to improve services.

Liebling’s bill includes funding for a child welfare training academy, tribal child welfare initiatives, and additional protections for kids in foster care, including background studies and affordable health care. The Senate proposal does not include these provisions.

The Senate proposal includes a 9.8 percent reduction (about $20 million per year) for the Department of Human Services and a 15 percent reduction (about $1.5 million per year) for the Minnesota Department of Health. These cuts are undefined and would be up to the departments to implement.

Looking forward

The House and Senate bills present dramatically different visions. With the House and governor investing in healthy people and thriving communities, the Senate’s insistence on limiting spending fails to meet the needs of many Minnesota neighbors, colleagues, and friends. An additional wonky point of concern: the Senate HHS proposal uses shifts and savings that are unlikely to materialize in order to balance their bill.

As legislators and the governor work to create a budget for the upcoming biennium, we urge a focus on expanding access to affordable health care, child care, and other services that make Minnesota a place where all can thrive.

-Betsy Hammer

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Minnesota’s April Economic Update shows small improvements

The recently released April Revenue and Economic Update gave us good news about the state’s economic and budget landscape. The quarterly report from Minnesota Management and Budget (MMB) showed that the most recent state revenues have come in slightly above projections, and that the national economy is now expected to grow a little more slowly this year and slightly faster next year.

Some of the top takeaways from the Update include:

1. State revenues are coming slightly above projections. The state’s revenues for February and March came in $84 million above projections; that’s 3.2 percent more than projected in the state’s February 2019 Economic Forecast. The slight increase is primarily due to higher income taxes received. The Update notes that the state will have a fuller picture of total tax year 2018 income tax payments later in April.

2. Overall, future national economic growth is expected to be just above February forecast projections. For this year, economic growth is expected to be slightly slower than earlier predicted. The economic forecasters predict 2.3 percent national GDP growth for 2019. In 2020 and beyond, national economic growth is still expected to grow at a slow pace – but it is now expected to grow slightly faster than predicted in February.

april-economic-update-gdp

3. National unemployment rate expected to remain low. The U.S. unemployment rate has been holding steady at 3.8 percent. It is expected to drop to 3.6 percent in 2019, before creeping back up in 2020. The Update reports that labor force participation has increased very slightly since a year ago, and recent job growth has been above the monthly average.

4. Forecasters are fairly confident in their projections, but give higher likelihood that things will be worse rather than betterThe forecasters assign a 60 percent chance that their baseline forecast is correct. They also give a 30 percent chance for a more pessimistic scenario and assign a 10 percent probability to a more optimistic scenario.

This new Update tells us some good news, but not much has changed since the February forecast. With such slow projected economic growth, the national economy is less resilient, and any sudden shocks to the economy could turn into a recession. This Update points to the importance of the budget reserve the state has built up to prepare for the next economic downturn. It also demonstrates the importance of protecting funding sources for services that Minnesotans count on, including by maintaining the provider tax. This major funding source for affordable health care will expire on January 1, 2020, if policymakers don’t act, resulting in the loss of about $700 million per year in funding for affordable health care and healthy communities.

This is the last quarterly revenue update that policymakers will get before the legislative session ends in May. As they work toward the tax and budget decisions they will enact this year, they should prioritize sustainable revenues that fund quality education, health care, child care, roadways, and transit that reach every community across the state.

-Clark Goldenrod

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Governor Walz’s FY 2020-21 budget proposals in E-12 education and higher ed invest more in Minnesota’s students

Governor Tim Walz’s FY 2020-21 budget proposal includes provisions that support students across the state, as well as more targeted funding intended to narrow the opportunity gaps that students of color face in particular. Overall, Walz’s budget proposes $718 million in additional general fund resources for E-12 education and $165 million for higher education.

An educated Minnesota is critical for the state’s economic success. The state plays an important role in the funding of Minnesota’s schools, and local property taxes often factor heavily into whether the schools have the resources that they need to support children’s learning. Districts with less property wealth often aren’t able to raise the additional funds needed to support their students. A long history of discriminatory housing policies in the United States has limited the ability of people of color to build wealth through homeownership. And for those who do own homes – their homes are often assessed at lower values than homes of their white peers, affecting the district’s tax base.

Minnesota has taken some important steps to help equalize the funding that districts receive, but it is still the case that districts with a high concentration of students of color living in poverty receive less money per pupil than districts with a high concentration of white students living in poverty.

E-12 Education

The governor proposes $718 million in additional funding for E-12 education. He proposes increasing funding for school districts through the basic student formula by 3.0 percent in FY 2020 and another 2.0 percent in FY 2021. That’s an increase of $189 per student the first year and another $130 the second year.

The governor stresses the importance of early learning programs to address gaps in educational achievement and opportunity so that all children can thrive in school. Walz also recommends $47 million in FY 2020-21 to restore the number of slots available for voluntary pre-kindergarten. Without action, a cap currently in place would cut the number of pre-schoolers who can participate in FY 2020 and beyond by more than half. Walz’s funding would lift this cap and make it possible for 7,160 students, or about one-eighth of eligible 4-year-olds, to participate in pre-kindergarten and school readiness programs.

The governor also proposes to increase funding for special education by $91 million. Walz’s proposal would increase student subsidies through the special education formula to create more stable funding for schools to provide services and help reduce the portion of unfunded costs that schools have to address.

Walz proposes $18 million in FY 2020-21 for school districts and charter schools to be used for school safety, including security improvements and counselors. For this funding increase, the governor cites the increase in school shootings and violence in the U.S., and the need to protect students in Minnesota.

The E-12 budget proposal also includes a number of targeted initiatives to make sure that all students, including students of color and students in rural areas, have a high quality education:

  • Levy equalization to better fund schools serving communities with low tax bases to meet the needs of their students;
  • Full service community schools that provide wraparound services that serve primarily low-income and rural communities;
  • A multi-pronged approach to support and recruit teachers of color and American Indian teachers in the classroom; and
  • Funding for tribal contract schools. Currently state per pupil aid for tribal schools is set to decrease by about 50 percent; the governor’s budget would prevent this decline and instead maintain the current formula funding.

Higher Education

In higher education, Walz proposes to make college more affordable through an additional $43 million in FY 2020-21 for financial aid through the State Grant Program. His financial aid proposal contains several components, including:

  • Increasing the annual living allowance for students, equal to about $300 per year for full-time students.
  • Reducing the family contribution in order to make college more affordable for lower-income families. This would effectively increase state grants by about $100 per student.
  • Better integrating child care so that students who have children can receive the supports they need while they complete their education.
  • Adjusting the State Grant amount for students who aren’t eligible for federal 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 that students receive this federal grant, meaning that Dreamers receive much less aid than they need to afford college. The proposal would increase the grant award for these students, making college education more in reach for all of Minnesota’s young people.

The governor also proposes investments that go directly to colleges and universities to improve higher education for students. Over the FY 2020-21 biennium, the University of Minnesota and Minnesota State would receive $51 million and $65 million respectively. These funding increases are expected to help these institutions keep up with the costs involved with educating their students. In return, the University of Minnesota and Minnesota State are expected to maintain the quality of education they provide while minimizing any increases in tuition.

Stay tuned for more analysis as the final FY 2020-21 budget comes together.

-Clark Goldenrod

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