Legislature and Governor reach compromise on tax bill

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.

-Nan Madden

About Nan Madden

Nan Madden is director of the Minnesota Budget Project.
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5 Responses to Legislature and Governor reach compromise on tax bill

  1. Scott Russell says:

    We at the Minnesota Budget Project don’t follow Green Acres closely, but we will attempt to fill in the blanks with the help of a few Internet searches.

    The 2008 legislative changes to Green Acres significantly restricted the program. According to Minnesota Public Radio, many farmers were up in arms over the changes and in 2009, the legislature largely restored the old program.

    The Land Stewardship Project created a fact sheet titled Understanding the 2009 Green Acres ‘Reforms’, which said the most problematic parts of the 2008 bill were either repealed or amended. For instance, a 2008 provision said acres in the Conservation Reserve Enhancement Program or the Reinvest in Minnesota program could not also be in Green Acres. That was repealed. LSP also has an earlier fact sheet describing the problems.

    Minnesota Public Radio’s news report said under the 2009 bill, “farmers will only be allowed to have half of their land in conservation, and they will have to develop a conservation plan. The rules take effect in 2013.”

    For more information, the Department of Revenue has a Green Acres fact sheet, last updated in June 2009.

    –Scott Russell

  2. This is what I wrote for our recent Minnesota Farmers Union paper about Green acres:

    This past legislative session many changes were made to the Green Acres program in Minnesota that is in place to stabilize and equalize property taxes from pressures outside of agriculture. The program has been in place for nearly 40 years in Minnesota. Among the changes made this past session was the creation of a new “rural vacant land” classification that is defined as not being used for agricultural production. The Legislature did insert a “grandfather” clause, which MFU took to mean at the time, if you were in the program, nothing would change, however as the change in the law also requires that when land classified as “rural vacant land” is removed from Green Acres, it will be subject to a 7 year back as opposed to the current 3 year pay back. Many MFU members have voiced concern about this, and feel that it is too stiff a penalty and it is not fair to have the rules changed on them after they have signed up for the program. MFU is also concerned that farmers will have to make very tough choices about conservation land such as sloughs, scrub and wind breaks.

    Farmers enrolled in the program have been getting letters (that differ from county to county) from their county assessors asking them to elect by Jan. 2nd what they would like to do with their non-productive acres. Farmers have many three choices, you can check nothing changes, or you can withdraw some or all of your non-productive acres. After farmers have filled out the form, sometime in the summer they will receive a letter from the county informing them how much they owe. The amount will not be due until November 2009.

    MFU will be working to make changes early in the legislative session so that farmers and counties have an idea what they will be working with before summer. MFU is working with Reps. Rob Eastlund (R-Isanti) and Tim Faust (DFL-Mora) and Sen. Rick Olseen (DFL-Harris) and Tony Lourey (DFL-Kerrick), as well as administration officials to craft legislation to address members concerns, among some of the ideas:

    -Repeal the whole legislation that passed last year regarding Green Acres.
    -Change the 7 year payback to 3 years.
    -Expand the Grandfather clause to transfers as long as the land is remaining in agriculture.
    -Expand the definition of Green Acres program to state that one of the purposes of the program is to preserve farm land.
    -Allow non-productive land to be enrolled in program as long as it is attached to productive land.

    These are just some of the changes MFU is working on for the next legislative session, MFU testified last year that the Green Acres program should actually be expanded (it is not currently offered in over 30 counties), and also that it should be promoted more. Many members have asked me why these changes took place last year, and one of the answers was that the Office of the Legislative Auditor released a report that found many abuses with in the programs. For more information on the program checkout:

  3. Bob Hassett says:

    I would like to know the rational behind:

    “You must payback the average deferred taxes for the current and two previous years times seven for all non-productive acres (not to exceed the actual number of years enrolled in Green Acres):

    Also I would like to know who voted for and against the new requirements.

  4. Nan Madden says:

    This is not an issue that I tracked closely. But House Fiscal’s Summary of the Fiscal Actions of the 2008 Legislature has a summary of Green Acres changes on pages 83 and 84. They say:
    • Rural vacant land located in a township and abutting public waters will be assessed without regard to its public waters access. If the property is developed or platted, the property is assessed at full market value.
    • Farm ownership restrictions are removed from “green acres” provision. Only land used for agricultural production as newly defined continues to qualify for green acres treatment.
    • The relationship between farm homes, buildings, productive land, and wasteland is clarified. Class 2a includes agricultural production land. Class 2b becomes unplatted property not used for agricultural purposes, and timberland. Class 2c is timberland under a forest management plan between 10 and 1920 acres in size. Class 2d becomes private airports. Any of the subclasses may contain homestead property. These definitions also replace the agricultural use provisions in the green acres section.

    The document is available online at http://www.house.leg.state.mn.us/fiscal/files/08budsum.pdfm.

  5. Jim Doll says:

    I have been told there was a big change made in “GREEN ACRES” which defers taxes on property like lakeshore that is not being developed and property owner therefore
    does not pay taxes based on lakeshore property. I was told this Omnibus Bill eliminated this benefit to the property owner if the property was no long being used as part of the farm operation and that the primary purpose was to eliminate this benefit on property being used as hunting land.
    I cannot find anything in this bill regarding this issue altho my County Assessor said it was in this bill. Can you give information as to where I can find it?

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