Legislature’s higher education budget makes some financial aid investments but misses important opportunity

Policymakers have put together their visions for Higher Education in FY 2018-19. The Legislature’s conference committee report includes $125 million in additional funding, about an even split between the House and Senate’s original proposals of $149 million and $100 million. The conference agreement though is much lower than Governor Mark Dayton’s proposed $318 million in Higher Education investments.

Dayton’s Higher Education budget included $62 million in FY 2018-19 for three improvements to financial aid through the State Grant Program. These changes would:

  • Allow the grant to “fill in” for federal financial 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 students receive this federal grant, meaning that Dreamers receive much less financial aid than they need to afford college. The proposal would increase the grant award for these students so that they receive financial aid comparable to their citizen counterparts.
  • Increase the annual living allowance by $550 to better assist students in meeting their basic needs.
  • Reduce the family contribution by $500 to make college more affordable for lower-income families.

The House and Senate agreement allocates $19 million in FY 2018-19 to the State Grant Program. The agreement lowers the amount families contribute for college. It also funds a House provision for a report to estimate post-secondary expenses and what students and their families should contribute in order for the financial aid system “to fully meet the financial aid needs of lower- and middle-income Minnesota college students,” as well as the Senate provision to increase the annual living allowance by about $500 to assist students. However, while the House and Senate increase State Grant funding, they miss the opportunity to improve financial aid for immigrant students.

The legislative agreement also includes some support for the state’s public colleges and universities. The agreement includes $78 million in operations support for Minnesota State Colleges and Universities for FY 2018-19 and directs Minnesota State to freeze tuition, and then lower tuition at colleges and freeze tuition at universities. Originally, the Senate bill included additional assistance to non-metro area Minnesota State two-year colleges. For the University of Minnesota, there is more limited operations support totaling $17 million and the University is “encouraged” to move tuition rates toward the median tuition for public Big Ten universities. The House bill included language making a percentage of state funding for Minnesota State and the University of Minnesota contingent on meeting certain goals, but this language was not included in the Legislature’s bill.

-Clark Biegler

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House Republicans vote to slash more than $1 trillion from federal health insurance while giving giant tax cut to nation’s wealthiest families

Earlier this month, Republicans in the U.S. House of Representatives voted to cut roughly $1 trillion of support for Americans’ health care while giving hundreds of billions of dollars in tax breaks to millionaires and insurance companies. The version of the American Health Care Act (AHCA) that passed the House would also gut many of the Affordable Care Act’s protections for people with “pre-existing conditions,” allowing insurers to charge people more for being pregnant or surviving cancer.

As the AHCA heads to the Senate, lawmakers must re-focus on health reform that improves the health care situation. They should build on the strengths of the Affordable Care Act rather than reversing the historic coverage gains made in the past several years. Health reform that moves us in the right direction must maintain or increase the number of Americans with health insurance, lower health insurance premiums and deductibles, and preserve or strengthen protections for pre-existing conditions and benefit standards.

As it stands, the AHCA would make the country’s health landscape worse. The full impact of the AHCA remains unclear because House Republicans chose to vote before the non-partisan Congressional Budget Office (CBO) could complete an analysis. However, here’s what we know the bill would do:

  • Slash access to affordable health insurance for low-income workers, people with disabilities, seniors, children, parents and others. The AHCA contains $800 billion in cuts to Medicaid over the next 10 years. Medicaid provides quality coverage to the lowest-income Americans, and its costs are growing more slowly than those in private employer plans. No amount of alleged “flexibility” for states regarding their Medicaid programs will counter this dramatic loss in resources. As a result, health care coverage for 1.2 million Minnesotans will be put at risk as Minnesota loses $2.5 billion in federal funding by FY 2021.
  • Dramatically increase the number of uninsured Americans. In March, the CBO estimated that 24 million people would no longer have insurance by 2026 if the original AHCA passed.
  • Gut protections for people with pre-existing conditions. In the new bill, people with pre-existing conditions like hypertension or diabetes could be charged higher premiums by insurance companies, who will once again be allowed to discriminate their pricing based on such factors. This will be particularly hard on older Americans. More than four of every five Americans aged 55 to 64 has at least one pre-existing condition. On top of the higher costs they will face for health conditions that are often beyond their control, the bill also allows older Americans to be charged five times as much for health insurance premiums as their younger neighbors.
  • Inadequately fund high-risk pools, a health care idea that has failed in the past. People with severe medical conditions would be sent into high-risk pools, but these would be underfunded. Because the bill does not allocate enough funding to sustainably support these efforts, such pools would face the same problems such policy interventions faced in the past. Our sickest neighbors will face exorbitant premiums, too-low lifetime limits, and reductions in benefits.
  • Cut taxes for millionaires and the medical industry. Over 10 years, the AHCA provides $275 billion in cuts that will only benefit households earning more than $200,000; the largest cuts will go to households with incomes over $1 million. On top of that, over the same time period, the bill provides $145 billion in tax cuts to insurers and medical device companies while simultaneously allowing insurers to charge sick people higher costs for their care. And these tax cuts would be just the start. As Majority Leader Paul Ryan has said, one goal of the AHCA is making further tax cuts for corporations possible.
  • Weaken and reduce employer-sponsored health insurance. The CBO projected that 7 million fewer Americans would be covered by their employers as a result of the original AHCA proposal. Under the latest version, employees of large companies could face additional risks. Current law allows large employers to choose which state’s health insurance regulations they’d like to follow when they craft their employee benefits. So, if just one state were to use the AHCA’s provision that allows a waiver of the ACA’s requirements that prohibit lifetime limits, large employers everywhere would be allowed to institute lifetime limits within their insurance plans, placing workers at large companies at great financial risk.

We’ll continue to keep you in the loop on the latest developments in the national health care debate here on Minnesota Budget Bites. Stay tuned for an update once the Congressional Budget Office releases their analysis of the version of the AHCA that has already passed the House of Representatives.

-Ben Horowitz

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Estate tax cuts are one of top priorities in Legislature’s tax proposal

We look to our policymakers to best position Minnesota to build on our state’s strengths and expand economic security to every community, while also being prudent given the uncertainty of these times.

Given that, we don’t think big tax cuts for a small number of large estates should take priority over other choices that would have a greater benefit for Minnesotans across the state, such as making child care and college education more affordable, funding services for the elderly and people with disabilities, or expanding the Working Family Credit so that Minnesota workers – including those just starting their work lives – can move up a few rungs on the ladder to the middle class.

Yet an estate tax cut is the second largest component in the proposal adopted by the legislative tax conference committee. If enacted, this would provide large tax cuts to a small number of the wealthiest estates while undercutting a level playing field for Minnesota taxpayers. The proposal would more than double the amount of an estate that is exempt from the estate tax – the exemption amount would go to $5.49 million for one person or nearly $11 million per married couple, and then increase each year with inflation.

That’s $162 million in tax cuts over the two-year FY 2018-19 budget cycle and $195 million in FY 2020-21. Cuts to the estate tax only reach a small number of high-value estates and primarily benefit high-income individuals; only about 1,100 estates paid any Minnesota estate tax in 2014. This highly concentrated tax break would reverse course on the progress Minnesota has made in making our tax system more equitable across income levels.

Another problem with the proposal is that it would undermine the estate tax’s important role in creating a level playing field among taxpayers. The estate tax serves as a backstop to the income tax, as it applies to unrealized capital gains, which is the increased value of appreciated assets – such as stocks – held by the estate. These asset gains would otherwise never be subject to tax. But the more that policymakers erode the estate tax, the more unrealized capital gains in large estates will go untaxed. That’s a tax benefit that isn’t available to Minnesotans with incomes only from wages, or who have capital gains that they realize during their lifetimes.

And the amount of unrealized capital gains in large estates is significant. The Center on Budget and Policy Priorities finds that nationally, unrealized capital gains are about one-third of estates worth between $5 million and $10 million, and are 55 percent of the value of estates worth more than $100 million.

Minnesota has already cut our estate tax. Changes passed in 2014 increased the exemption amount, which will reach $2 million in 2018, and the exemption is already $5 million for certain family-owned businesses and farms. The 2014 changes are expected to reduce the number of estates subject to the Minnesota estate tax by 37 percent and estate taxes paid by 30 percent.

In short, the proposed estate tax cuts would dedicate nearly 10 percent of Minnesota’s budget surplus and benefit a relative few. Those are resources that would be better spent on more balanced and broad-reaching tax and budget decisions that prioritize making Minnesota a place where everyone can thrive.

-Nan Madden

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Minnesota’s FY 2018-19 budget being put together

In these final weeks of this legislative session, policymakers are putting together the state budget for the FY 2018-19 biennium, in which the state has a projected $1.7 billion surplus. Policymakers have laid out their different visions for what the state should prioritize.

There is a lot at stake in these final budget negotiations, including whether Minnesota policymakers will use the surplus to invest in a more durable prosperity that reaches into those communities with less access to opportunity. And whether they will pass a modest tax bill that supports the efforts of Minnesotans across the state working hard to join the middle class – or instead pass an unsustainable, unbalanced tax bill that provides large tax reductions to those who are already doing well. The table below compares Governor Mark Dayton’s budget proposals to the budget targets set by the House and Senate and the joint Legislative targets agreed to on April 28.

General Fund Net Spending (FY 2018-19) Governor House Senate Legislative Agreement
Tax Cuts and Aids to Local Governments  $192 million $1.3 billion $903 million $1.1 billion
E-12 Education  $714 million $271 million $300 million $303 million
Higher Education  $318 million $149 million $100 million $125 million
Health and Human Services  -$412 million -$599 million -$335 million -$505 million
Agriculture, Rural Development  $10 million $0 $0 $0
Environment, Natural Resources $65 million -$21 million -$40 million -$30 million
Jobs, Commerce, Energy $111 million $11 million $11 million $8.8 million
State Government and Veterans $136 million -$90 million -$29 million -$60 million
Transportation -$18 million $343 million $400 million $372 million
Judiciary and Public Safety $253 million $102 million $50 million $76 million
Debt Service, Capital Projects, Other $72 million $0 $19 million $0
Other Bills $0 $140 million $240 million $142 million
Total $1.4 billion $1.6 billion $1.6 billion $1.6 billion

In his budget, Dayton has proposed using more than half of the surplus to invest in E-12 Education and Higher Education. His budget proposal expands voluntary pre-kindergarten and improves the state financial aid program for college students. His Health and Human Services budget proposal expands access to health care and improves child care assistance. He also includes a targeted tax plan that prioritizes the work efforts of Minnesotans living paycheck to paycheck by expanding the Working Family Credit and the Child and Dependent Care Tax Credit. The governor also leaves about $200 million of the current surplus unspent or “on the bottom line,” in order to be better prepared in this time of uncertainty.

In contrast to Dayton’s proposals, the budget proposals passed by the House and Senate allocate a majority of the surplus to tax cuts and transportation. This leaves very little room for additional funding for child care, services for Minnesotans living with disabilities, and basic resources for very low-income families. Their tax bills include estate tax cuts for a small number of the largest estates and tax cuts for businesses, but devote much less to provisions focusing on everyday working Minnesotans. To pay for the tax cuts and still provide limited investments in some budget areas, that means that both the House and Senate propose large cuts to Health and Human Services and several cuts to State Departments.

We’re urging Minnesota policymakers to practice great caution as they finalize these budget decisions. The increased uncertainty around policy changes at the federal level is coupled with the possibility that the next recession could be in the not too distant future. Policymakers should prepare for these uncertainties by not making large and unsustainable tax cuts or weakening the budget reserve.

-Clark Biegler

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Renters pay for others’ tax cuts in House bill

It may come as a surprise that the House omnibus tax bill, which has over $1 billion in tax breaks for everything from high-value estates to tickets for Super Bowl-related events, includes what’s essentially a $41 million tax increase on lower-income renters.

Minnesota has long had tax policies that limit how big a share of a household’s budget can go toward paying property taxes. For renters, that is the Property Tax Refund for Renters, more commonly known as the Renters’ Credit or Renters’ Rebate, which refunds a portion of the property taxes that renters have paid through their rents.

We recently updated our analysis of who receives the Renters’ Credit, which looks at information for each Minnesota county. About 336,000 Minnesota households received the Renters’ Credit in 2014, about 27 percent of which included senior citizens or people with disabilities. This percentage tends to be higher in Greater Minnesota, and in fact, in eight Greater Minnesota counties, at least one-half of participating households included seniors or people with disabilities.

Minnesotans already saw their Renters’ Credits get smaller in 2015, after a one-time boost in 2014 went away, and the House tax plan (House File 4) would mean a further roller-coaster ride. For Tax Year 2017, there are multiple changes in the formula for calculating the Renters’ Credit, which net out to a small $1.8 million increase. However, that disguises the fact that there are winners and losers. About 184,000 households would benefit by an average of $77, but another 190,000 would see an average $65 cut in their Renters’ Credits, according to analysis by the Minnesota Department of Revenue.

Starting in Tax Year 2018, there are no winners. The bill would cut the Renters’ Credit by about $41 million per year for more than 340,000 households. These Minnesotans would see a roughly $115 reduction in their property tax refunds on average; the hardest hit would be residents of Greater Minnesota and the city of St. Paul.

It can be really hard for people living paycheck to paycheck, and elders or people with disabilities on fixed incomes, to cover the most basic necessities. About 70 percent of the households who would be harmed by the cuts to the Renters’ Credit have incomes roughly $31,000 or less.

Our friends at Prepare+Prosper, who assist low- and moderate-income Minnesotans in filing their taxes, recently shared some insights with us. They asked some of their customers how they use their Renters’ Credits, and the answers are sobering. We heard about delayed dental work and other health care expenses not covered by insurance. We heard about how the property tax refund arrives just in time for Minnesota families to afford needed school supplies and clothes.

Policymakers will soon begin negotiations to develop a final tax bill. Rejecting cuts to the Renters’ Credit should be one of the first decisions that they make.

-Nan Madden

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New state data highlight increasing importance of investing in child care assistance

The Child Care Assistance Program (CCAP) makes child care affordable for about 30,000 Minnesota children all across the state, including 12,000 toddlers and infants. The state recently released new data that demonstrate both the vital importance of CCAP and the deleterious impact of funding cuts from more than a decade ago.

Thousands of Minnesota families are eligible for child care assistance, but don’t receive it, and thousands of other Minnesota families receive child care assistance only to find that their assistance doesn’t cover the cost of care at many of the providers in their area.

State funding for the Basic Sliding Fee portion of CCAP has decreased by 25 percent since FY 2003, adjusting for inflation. The new state data emphasize the way these cuts have reduced the number of families with affordable child care and undercut families’ ability to find child care providers when they do have access to CCAP.

  • In FY 2016, 5,000 fewer families participated in Basic Sliding Fee Child Care Assistance relative to FY 2003. Due to a lack of funding, roughly 5,000 families are now on a waiting list for Basic Sliding Fee. The state estimates that about 8,400 additional families would access affordable child care through Basic Sliding Fee if it were adequately funded.
  • The state reimbursement rates paid to child care providers serving CCAP families have deteriorated over time. In 2016, the rates paid through CCAP would have covered less than 29 percent of providers’ prices in child care centers, and less than 22 percent of prices in a family child care setting.

ccap-provider-ratesWhen communities lack affordable child care options, parents struggle to succeed at work or school, employers have a harder time filling important job openings, and children are less likely to have stable, nurturing child care environments in which to thrive. CCAP connects families with that affordable child care. And yet, for over a decade fewer and fewer eligible families have been able to use this vital resource. As they make budget decisions this legislative session, policymakers should take a bold step and reinvest in Minnesota’s commitment to a bright future for our families, our children and our local economies.

-Ben Horowitz

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Will Real ID conference committee pass “clean” bill?

When legislators come back to the capitol next week, a conference committee will work to determine what path Minnesota will take to comply with federal Real ID rules. Real ID compliant driver’s licenses are already required to gain access to certain federal facilities and nuclear power plants, and early next year they will be needed to board airplanes. Most Minnesota driver’s licenses currently do not allow Minnesotans to access these facilities and airplanes.

The Real ID bills passed by the House and Senate would create a tiered system under which three kinds of Minnesota driver’s licenses would be available: Real ID compliant, non-compliant, and enhanced. Enhanced driver’s licenses are currently available in Minnesota at select DMVs and allow Minnesotans to board airplanes, but meet different criteria than the federal Real ID specifications.

Importantly, the Senate bill (Senate File 166) does not contain unnecessary language regarding non-compliant licenses for unauthorized immigrants. In contrast, the House version (House File 3) requires applicants to demonstrate lawful status even to obtain a non-compliant license. This language is unnecessary to implement Real ID and is duplicative: unauthorized immigrants are already unable to receive driver’s licenses in Minnesota due to an administrative rule made in 2003.

Driver’s licenses are often necessary for Minnesotans to have reliable transportation to a wider range of jobs and to work more hours, but the administrative rule restricting driver’s license access means that about 82,000 Minnesotans are unable to reach their full economic potential. Given the state’s tightening labor market, policymakers should have instead taken steps to expand access to driver’s licenses regardless of immigration status.  With wider access to jobs, people can more easily find employment that matches their qualifications and pays competitive wages. The Real ID debate disappointingly missed an opportunity to allow unauthorized immigrants access to driver’s licenses and the ability to more fully contribute to the state’s economy.

As the bill goes into conference committee, legislators should agree to language bill similar to the Senate’s, which does not include duplicative restrictions against unauthorized immigrants receiving driver’s licenses. And in the future, policymakers should expand access to driver’s licenses to all Minnesotans regardless of their immigration status.

-Clark Biegler

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Minnesota’s April economic update shows higher revenues, economic growth on track

This week’s April Revenue and Economic Update gave us some good news about the state’s economic and budget landscape. The quarterly report from Minnesota Management and Budget (MMB) showed that state revenues have come in above projections and national economic growth is expected to be on track with earlier projections for the next few years.

1. Recent revenues are above projections. February and March 2017 revenues came in $23 million above projections; that’s 0.9 percent more than projected in the February 2017 Economic Forecast. This is due primarily to higher than expected income tax receipts, which the Update notes could be a timing issue that evens out as the filing season progresses.

2.  Continued national economic growth projected for 2017 and onward. In 2017, the U.S. economy is growing about as predicted in the February forecast, at 2.4 percent. The Update expects 2.6 percent growth in 2018, then settle to a little over 2.0 percent yearly growth from 2019 to 2021.


3. The national economy is improving. The latest jobs numbers show that the U.S. labor market continues to improve, and nationally, unemployment is expected to drop to 4.0 percent by 2019.

4. Significant areas of uncertainty remain. The Update notes there is not enough information to incorporate the potential impact of federal policy changes to health care, immigration, trade, and business investment incentives into their economic model. These caveats aside, the forecasters assign a 60 percent chance to their baseline forecast. They also give a 25 percent chance for a more pessimistic scenario where the U.S. sees a brief recession in 2018 as trade relations worsen and businesses delay investment. They assign a 15 percent probability to a more optimistic scenario where economic growth is strengthened due to business investment in productivity.

5. Policymakers should be cautiousThis week’s Update continues the trend of good budget news for Minnesota. But policymakers should practice great caution as they make budget decisions in the closing weeks of the Legislative Session, as there is considerable uncertainty around policy changes at the federal level. And given the relatively unprecedented length of the current economic recovery, it’s likely that the next recession is not too far away. President Donald Trump has proposed and the U.S. House has considered deep cuts to the safety net and to state funding. For example, for the upcoming federal fiscal year Trump proposes about $18 billion in cuts to grants to states and local governments that support critical services, such as housing and poverty-reduction efforts. Minnesota policymakers should prepare for an uncertain future by not making large and unsustainable tax cuts or weakening the state’s budget reserve.

-Clark Biegler

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We’re hiring a summer research intern

The Minnesota Budget Project seeks a research intern who will make a significant contribution to our work on state immigration policy and economic trends affecting immigrants in Minnesota. This intern will conduct research and work with Minnesota Budget Project staff to produce analytic materials. The ideal candidate will have strong quantitative, qualitative and data analysis skills.

The Minnesota Budget Project is an initiative of the Minnesota Council of Nonprofits that combines sound research and analysis with advocacy, engagement and communications strategies to support policies that expand opportunity and economic security to all Minnesotans.

This is a paid internship. More information, including how to apply, is available on the Minnesota Council of Nonprofits website. The application deadline is Friday, April 21.

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Governor Dayton’s supplemental budget makes additional investments, primarily in pre-k

Earlier this month, Governor Mark Dayton released his supplemental budget for FY 2018-19, which makes a number of changes to the comprehensive budget proposal he released this January.

We’ve reported on the tax, health and human services, education, economic development, housing, and transportation parts of Dayton’s January budget proposal. The February forecast showed a larger projected surplus for FY 2018-19, $1.7 billion instead of $1.4 billion, so the governor was able to propose a few increased investments in his supplemental budget. His supplemental budget leaves $202 million in FY 2018-19 and $643 million in FY 2020-21 unallocated, or “on the bottom line.” This is critical as dramatic changes in federal funding to the state are under consideration.

The governor’s largest additional investment in the supplemental budget is $100 million in FY 2018-19 to expand access to voluntary pre-kindergarten. He also proposes $10 million for Pathways to Prosperity, which connects workers to education and training for in-demand jobs, as well as $10 million to local governments to protect water quality.

The supplemental budget also includes investments in health and human services; the largest ones would change pharmacy reimbursements and change the way federal funding is allocated for certain hospitals. Dayton also raises $42 million of non-general fund spending to address the opioid crisis.

This is an important time in the budget-setting process. The Senate and House released their targets earlier this month. Legislators are expected to put together their budget bills by March 31, and then will need to work out their differences in conference committee.

-Clark Biegler

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