New budget bill raises revenues to fund education and health care

Just when you thought you knew what was going on…the Legislature introduced a curve ball on Thursday afternoon. The House and Senate passed a bill, HF 885, to act as a placeholder for a combined tax, education, and health and human services bill. Apparently, this bill is not meant to substitute for the work currently going on in the already formed conference committees, but to supplement it.

The House and Senate immediately appointed a new conference committee to work out the details. The committee met and passed the bill late Thursday night/Friday morning. The committee chairs – Representative Lenczewski and Senator Bakk – noted that the Governor raised just under $1 billion through his proposal to issue bonds. This bill is an effort to raise a similar amount of revenue but not through borrowing. It raises $992 million in revenue using proposals based on the House and Senate tax bills:

  • A 4th tier income tax rate of 9.0 percent on taxable income above $250,000 for married filing joint households – raises $516 million in FY 2010-11.
  • Increases in alcohol taxes of $241 million.
  • The Senate’s provision for a surtax on income raised through excess interest rates, which raises $216 million.
  • Increased tax compliance initiatives to raise $19 million.

These revenues go into three new accounts in the general fund. In FY 2010-11, the revenues are distributed as follows:

  • $586 million to the E-12 education account.
  • $288 million to the nursing homes and long-term care account.
  • $114 million to the hospital account.
  • $5 million is appropriated to pay for the tax compliance activities.

This bill is an attempt by the legislative majorities to help make their priorities clear.

The 4th tier income tax would blink off in 2014 if the February 2013 forecast shows that there would be a $500 million balance. (This would mean $500 million is left after refilling the budget reserves and cash flow account. Also, any shifts that may be enacted this year would have to be paid off first as well.)

Obviously, some issues are not resolved. It was specifically mentioned that it is not yet determined whether the legislature will pass an education funding shift, nor does this bill necessarily establish the targets for the remaining budget conference committees. Committee members noted that cuts in these priority areas will still occur, but they will be mitigated by raising these revenues.

More details and next steps will be more clear in the days ahead…and any mistakes made while blogging at 12:35 in the morning will be corrected as well.

As a side note – the House and Senate both amended the joint rules to eliminate the 5th deadline which said conference committees were to finish up by midnight on Thursday (as we reported yesterday).

-Christina Wessel and Nan Madden

About Nan Madden

Nan Madden is director of the Minnesota Budget Project.
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