Earlier this week, I wrote about the omnibus tax bill agreed to by the tax conference committee. The Governor responded with a list of 13 items that he said were “unacceptable or problematic and may jeopardize signature of the bill.”
Before addressing the Governor’s concerns, the omnibus tax bill shaved $101 million off the deficit in the next biennium. As a consequence of responding to the Governor’s requests for fewer tax increases and more tax cuts, the omnibus tax bill now increases the FY 2010-11 deficit.
Here are some of the major components of the bill (HF 3149).
- The net impact of the bill is $141 million in additional general fund revenues in FY 2008-09 but a $49 million reduction in revenues in FY 2010-11.
- The two major revenue increases remain the same: $109 million this biennium from tightening up the rules for Foreign Operating Corporations and Foreign Royalty Subtraction and $32 million from the June Accelerated Sales Tax.
- Several provisions that raised revenues were removed, including an increase in the state property tax levy as well as initiatives to reform business tax incentives. The provision to end any new business subsidy agreements under JOBZ was removed and replaced with other provisions to tighten up JOBZ but leave it in place. Incentives for the Mall of America expansion are still in the bill.
- There are new tax exemptions for veterans and military personnel.
- The Homestead Credit State Refund is no longer in the bill, but there is a $46 million increase in FY 2010-11 in the Property Tax Refund, or Circuit Breaker, through two changes. First, the maximum credit is increased by about 28% for all income levels. Second, those homeowners who currently only qualify for the Circuit Breaker when their property taxes exceed 4% of their incomes will see that threshold drop to 3.5%. On the House floor tonight, Rep. Marquardt said 70,000 homeowners will benefit from these changes. There is also increased funding for volunteer tax assistance services to help low-income homeowners apply for the Circuit Breaker.
- Local units of governments will see an increase in state aids: $42 million in FY 2009 for cities and $22 million for counties. These are smaller increases than in the previous version of the bill, and townships will not get any aid.
- There is a levy limit that will apply to local governments for three years. Levy limits put a limitation on how much local governments can raise through property taxes. This limit is more restrictive and longer-lasting than in the previous bill. Look for more analysis in the days ahead to understand the implications for the ability of local governments to fund needed services.
- Items important to nonprofits are in the bill, including the moratorium on implementation of the Rainbow case and the non-itemizer charitable deduction under the AMT.
- There is funding for the Voss database.
The omnibus tax bill passed the House earlier tonight and the Senate just moments ago. Given that this compromise legislation addresses all the concerns he raised, the Governor should be able to sign the bill.