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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House targets bring déjà vu – similar to Senate’s targets, they focus on huge tax cuts, big cut to health and human services

This post was updated on March 29 in response to updated targets. 

Last week the Minnesota House of Representatives released their budget targets, which tell us how they would allocate the state’s projected $1.7 billion surplus for FY 2018-19. Like the Senate targets released earlier in the month, the House targets put the bulk of the surplus to tax reductions and tax aids and credits, and propose a stark decrease in general fund dollars for Health and Human Services.

The targets are an important milestone in the budgeting process. They set the size of the omnibus budget bills that the House budget committees need to put together by March 31.

House General Fund Targets (net) FY 2018-19
Tax Cuts and Aids to Local Governments $1.8 billion
K-12 Education $258 million
Higher Education $149 million
Other Bills* $141 million
Public Safety $102 million
Jobs Growth and Energy Affordability $11 million
Agriculture $0
Capital Investment $0
Environment and Natural Resources -$21 million
State Government and Veterans -$90 million
Transportation -$107 million
Health and Human Services -$599 million
Net Changes  $1.6 billion
*Includes the state reinsurance program.

Similar to the Senate’s priorities, the House designates most of the expected surplus to tax cuts and aids to local governments. The House allocates $1.8 billion for tax cuts in FY 2018-19 while the Senate sets aside $900 million. The House targets focus their increased general fund investments primarily in their education budgets. The House allocates $258 million for the K-12 Education target and $149 million for Higher Education. For comparison, the Senate proposes $300 million for E-12 Education and $100 million for Higher Education.

And disappointingly, the House’s target for Health and Human Services (HHS) is even lower than the Senate’s. While the Senate targets would cut $335 million in general fund spending for HHS, the House cuts general fund spending by $599 million. And Health and Human Services isn’t merely a wedge in the state’s budget pie, so this target leaves very little room for additional funding for child care assistance, services for Minnesotans living with disabilities, health care for the elderly, and basic resources for very low-income families.

Déjà vu targets call for déjà vu advice. As state policymakers decide how to build the state’s FY 2018-19 budget, we’ve argued they should be cautious. The budget landscape is likely to change significantly as federal policymakers are expected to enact large-scale changes over the next year. State policymakers should maximize the state’s ability to respond by:

  • Avoiding large tax cuts, and especially large cuts that grow over time, that would compromise the state’s ability to provide essential services and respond to federal funding cuts, and
  • Maintaining a strong budget reserve to be sure the state is equipped to respond to future economic downturns.

We will be watching closely as the details are filled in, but neither the House nor Senate targets seem to put us on this path.

-Clark Biegler

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Senate budget targets call for tax cuts, cuts to health and human services, some investments

The Minnesota Senate recently released its budget targets, which describe how they propose using the state’s projected $1.7 billion surplus in the FY 2018-19 budget. The Senate targets allocate $900 million of the surplus to tax cuts, $742 million to net additional general fund spending, and leave $96 million unallocated in FY 2018-19. The targets indicate a similar level of spending and tax cuts in FY 2020-21.

The targets are an important milestone in the budgeting process, and they set the size of the budget omnibus bills that the Senate finance divisions need to put together by March 31.

Senate General Fund Targets (Net) FY 2018-19 FY 2020-21
Tax Cuts and Aids to Local Governments $900 million $1.0 billion
Transportation $400 million $500 million
E-12 Education $300 million $435 million
Other Bills $265 million $25 million
Higher Education $100 million $100 million
Judiciary, Public Safety $59 million $68 million
Debt Service, Capital Projects $12 million $28 million
Jobs, Economic Growth $10 million $0
Veterans, Military Affairs $1.0 million $1.0 million
Agriculture, Rural Development, Housing $0 $0
Commerce, Consumer Protection $0 $0
Energy, Utilities $0 $0
State Government -$30 million -$30 million
Environment, Natural Resources -$40 million -$50 million
Health and Human Services -$335 million -$335 million
Net Changes $1.6 billion $1.8 billion

Most of the state’s projected surplus, $900 million, is designated for tax cuts and aids to local governments. Senate fiscal staff indicate that only $40 million of this target will go toward aids and credits.

The targets indicate increased investment primarily in Transportation and E-12 Education.

The Senate’s increased spending in these areas are funded in part by the surplus, but also through a large cut in Health and Human Services. This is disappointing, as the surplus creates an opportunity to invest in Basic Sliding Fee Child Care Assistance after more than a decade of decreased state funding, or boost the Minnesota Family Investment Program’s cash grant, which hasn’t increased in over 30 years. These investments will be much harder to achieve with such a small target.

As policymakers decide how to build the state’s FY 2018-19 budget, we’ve argued they should be cautious because the budget landscape is likely to change significantly as federal policymakers enact large-scale changes over the next year. They should do this by:

  • Avoiding large tax cuts that would compromise the state’s ability to provide essential services and respond to federal funding cuts, and
  • Maintaining a strong budget reserve to be sure the state is equipped to respond to future economic downturns.

We will be watching closely as the details are filled in, but the Senate targets don’t seem to put us on this path.

-Clark Biegler

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Trump’s budget proposes cuts in services for most vulnerable and in funding to states

Earlier this month, President Donald Trump released his budget outline for federal discretionary spending. (That’s a fancy name for spending that Congress authorizes funding for each year.) It is lacking some key details, but here’s what we know: it proposes dramatic cuts for services that support low-income people and it would drastically reduce funding for state and local services. The budget also includes $54 billion in increased funding for defense.

It’s important to remember that the president’s budget proposal is just the starting point in the federal budget process. The executive branch starts off the budgeting process with a proposal. Congress will next develop their budget outline, and they will ultimately pass the next federal budget, which may or may not look like Trump’s proposal.

Cuts would harm low-income Americans and services provided at the state and local levels. The president’s budget includes $15 billion in unspecified cuts in domestic discretionary spending for the current fiscal year (FY 2017), which ends on September 30, and $54 billion in cuts for FY 2018. The proposed cuts include:

  • $2.5 billion, or 21 percent, from the U.S. Department of Labor, including cuts to several job training programs that help workers get better jobs;
  • $9 billion, or 13 percent, from the U.S. Department of Education, including cuts to college student aid and work study programs for low-income students; and
  • eliminating funding for the Corporation for National and Community Service, which oversees the AmeriCorps program.

In addition, the budget cuts about $18 billion in grants to state and local governments, including:

  • $3.9 billion in cuts to K-12 education grants, including after-school programs;
  • $4.2 billion from the Community Development Block Grant and the HOME program, which are crucial to funding affordable housing initiatives; and
  • $4.2 billion from the Low Income Home Energy Assistance Program (LIHEAP) which helps low-income families pay for heat, and the Community Services Block Grant, which funds state, local and nonprofit programs to fight poverty.

In addition, the president’s budget proposal includes severe cuts to many other services that help build vibrant communities, like arts and humanities, and a 31 percent cut to the Environmental Protection Agency.

Cuts at this order of magnitude push a lot of tough choices on the states, which will be extremely challenged in funding crucial services, including those to meet the needs of their most vulnerable residents.

The proposed budget leaves us with many questions. The president’s budget outline provides much less information than prior presidential budgets, analysis from the Center on Budget and Policy Priorities finds. Budgets from the past five administrations have included estimates of total revenues, spending and deficits for at least four fiscal years, and the two most recent administrations have covered 10 years. These past administrations also included information on how their budget proposals would affect mandatory and entitlement spending (like Social Security, Medicare, Medicaid and SNAP food assistance), and four of the five provided details for more than the current year. In sharp contrast, Trump’s budget only includes details for FY 2018 and only for discretionary programs. There is no information on spending on mandatory and entitlement spending, revenues, interest payments, or deficits. It is also unclear where the budget cuts for the current fiscal year will come from. The president’s budget document notes that the administration will release information on a tax plan and entitlement spending later this spring. Stay tuned.

-Clark Biegler

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Congressional Budget Office: Republican health care plan would do little to resolve Minnesota’s insurance market woes and would mean 24 million more uninsured

On Monday, the nonpartisan Congressional Budget Office (CBO) released an analysis detailing how the American Health Care Act (AHCA) would cut $1.2 trillion in federal funding for affordable health care while giving the wealthiest Americans and insurance companies the bulk of $600 billion in tax cuts. The CBO’s report details several important ways these radical funding changes would result in lost health care coverage for 24 million Americans and high health care costs for many others.

The CBO predicts 24 million more people would lack health insurance in America by 2026, including 14 million by 2018. Notably, less than 10 percent of this decrease is explained by fewer individuals buying coverage on the individual market. There are several ways the bill would increase the ranks of the uninsured:

  • Roughly 7 million fewer people would receive health insurance coverage through their employer.
  • Roughly 14 million fewer people would be enrolled in Medicaid.
  • Roughly 2 million fewer people would purchase coverage through the individual market.

The AHCA would also fail to curtail premium increases in a meaningful way, and would not address the high out-of-pocket costs for Americans shopping for health insurance on the individual market. In fact, under the AHCA, the federal government would provide much less assistance for either than is done under current law. By the CBO’s calculations, the federal assistance that helps people afford health insurance premiums and other out-of-pocket costs would be cut by $312 billion, or 46 percent, by 2026.

When discussing premiums, it is important to note the difference between the “sticker price” of premiums that shoppers see in the market and the out-of-pocket premium shoppers actually pay after taking any available premium assistance into account. At the same time that federal premium assistance decreases — causing out-of-pocket premium prices to increase — the CBO predicts that the sticker price of insurance premiums will also rise 15 to 20 percent in 2018 and 2019. It is important to note that this is a 15 to 20 percent increase on top of the sticker price premium increases that would already occur without any law changes.

Under the AHCA, the sticker price of premiums is predicted to start falling in 2020, but the out-of-pocket price that many Minnesotans pay will be higher because of cuts in assistance. These lower average sticker prices come at a high price for older Americans: the CBO writes that the reduction in average sticker price premiums will partially occur because so many shoppers aged 50-64 will drop out of the market altogether. That’s partially because under the AHCA, insurers will be allowed to charge these older people five times as much as their younger neighbors. That is a big change from today, when they are only allowed to charge them three times as much. In other words, one reason the average sticker price premium will be lower because many older Americans simply won’t have insurance.

With the AHCA, many people will be paying more for less coverage. That’s because higher out-of-pocket premiums will pay for lower-quality insurance as measured by actuarial value. “Actuarial value” describes the share of medical costs covered by an insurance plan, as opposed to the share paid by patients. The CBO projects that typical plans under the AHCA will carry lower actuarial values. That’s bad news for the roughly 9 percent of Minnesotans under age 65 who find insurance on the individual marketplace. The following chart from the report lays out an illustrative example:


Source: Congressional Budget Office report on the American Health Care Act. See it in the report here.

In the example above, only the 21-year-old would actually pay less in out-of-pocket premiums relative to current law. The 64-year-old would see a staggering $12,900 increase in their out-of-pocket premium costs. Meanwhile, all three people would see a 22 percentage point decrease in their actuarial value, meaning that when they actually need to purchase health care, they’ll be paying even more out-of-pocket.

The damage that would be done by the AHCA becomes more clear with each new report analyzing its impact. Federal policymakers must put the brakes on this legislation and go back to the drawing board to find solutions that will help more Minnesota families afford health care, instead of increasing the number of uninsured and raising costs for many.

-Ben Horowitz

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Governor Dayton’s FY 2018-19 Budget: Focus in economic development, housing, transportation is expanding opportunity for Greater Minnesota, people of color

Note: This blog is part of a series on Governor Mark Dayton’s FY 2018-19 budget proposal, including his HHS budget, his education budget and his tax priorities.

Governor Mark Dayton’s budget includes several proposals intended to invest in the state’s future prosperity by increasing investments in housing opportunities, wage protections, transportation and economic development.

Housing: The governor proposes $10 million in FY 2018 intended to address racial housing disparities through the Housing Finance Agency. These would:

  • assist low- and moderate-income first-time homebuyers with down payment and closing cost assistance;
  • provide education to low- and moderate-income potential homebuyers, with particular attention to households of color; and
  • assist families to find stable housing, including those currently or recently experiencing homelessness.

Wage protections: Dayton’s budget also seeks to address the problem of wage theft, which is when workers don’t get paid what they are owed for work already completed. The state’s Department of Labor and Industry estimates that more than 39,000 workers are victims of wage theft each year, which results in almost $12 million in lost wages. The governor proposes $1 million to create a wage theft education and enforcement team. The governor also proposes to strengthen laws regarding wage theft, including more clearly defining the term “wage theft” and increasing penalties for wage theft violations.

Transportation: The governor’s proposal would raise $1.0 billion in additional revenues in FY 2018-19 for his “NexTen” transportation proposal. This would come from a 6.5 percent gross receipts gas tax and increasing fees for vehicle registration and title transfers. The governor’s proposal also authorizes $2 billion in highway bonds over the next decade that will fund improvements to our state’s roads. His proposal seeks to bridge funding gaps highlighted in a report by the Transportation Finance Advisory Committee in 2012 to meet state infrastructure needs like repairing the state’s roads and bridges. He also includes investments in transit: $10 million annually to increase bus service in Greater Minnesota, including more morning and evening service hours and multi-county services; and increased funding for bike and pedestrian infrastructure.

Economic development: The governor also proposes $20 million so that businesses owned by women, people of color, people with disabilities, veterans, or located in Greater Minnesota can better access state supports for job creation and business expansion through the Minnesota Investment Fund and the Job Creation Fund. He also proposes an additional $60 million to expand the availability of broadband internet services, a portion of which is set aside to serve tribal and low-income areas.

-Clark Biegler

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ACA replacement: huge tax cuts for the wealthiest while raising costs and cutting care for struggling Minnesotans

The Republican plan to replace the Affordable Care Act (ACA) doesn’t just slash the federal government’s commitment to health care for those who struggle the most to afford it, it does so while providing huge tax cuts for the wealthiest Americans. The American Health Care Act (AHCA) includes tax benefits that do little to make health care more affordable or expand health insurance coverage. Instead, the AHCA places affordable, quality health insurance out of reach for lower-income people and their families, the elderly, people with disabilities, and residents of Greater Minnesota by making big cuts in Medicaid and reducing premium assistance.

The AHCA cuts taxes by:

  • Cutting the revenues that have been used to pay for expanding affordable health care through the ACA; and
  • Creating new opportunities for higher-income households to contribute to Health Savings Accounts.

The AHCA is speeding through the U.S. House of Representatives, and a new analysis from the Center on Budget and Policy Priorities describes the likely impact. Overall, 57 percent of the tax cuts from repealing major ACA revenue provisions would accrue to millionaires and much of the rest would go to other high-income households, insurance providers, and medical device and drug companies.

Meanwhile, according to the Kaiser Family Foundation, under the AHCA, consumers who purchase their coverage through marketplaces around the nation would lose an average of $1,700 in assistance that currently helps them afford their health insurance. But many would be hit harder — for example, a 60-year-old in Rochester, Minnesota, earning $40,000 would see a $8,590 cut to their premium assistance.

Below are some of the tax changes in the AHCA that make our nation’s tax system more unfair while doing little to meet Americans’ health care needs.

The AHCA repeals some federal taxes paid only by high-income households. Lower-income Americans pay Medicare taxes on all of their income; the Affordable Care Act made sure that the same was true for higher-income households. The AHCA would change that by exempting income over $200,000 from Medicare taxes (over $250,000 for married couples). That and a related tax repeal cuts taxes by $275 billion from 2018 to 2026. Millionaires would get more than a $50,000 tax cut on average, and the 400 highest-income American households each would see an average $7 million tax break annually.

The AHCA cuts taxes on health insurance companies with high-paid executives. The AHCA would eliminate a fee on insurers and allow them to deduct more of the salaries they pay to executives who earn more than $500,000. Combined, these two changes would cut taxes by $145 billion over 10 years and reduce the federal resources available for health care.

The AHCA gives drug and medical device companies a tax break. Over 10 years, the AHCA would cut taxes on medical devices and drug companies by $45 billion. The AHCA reverses taxes that were enacted under the ACA to reflect the fact that, with increased insurance coverage, these companies would likely see increased sales of their products. Much of the benefit of this tax reduction would accrue to wealthy shareholders even as millions of Americans would lose the insurance coverage that enables them to afford prescription drugs and medical devices.

The AHCA makes changes to Health Savings Accounts (HSAs) that would overwhelmingly benefit the wealthiest Americans. HSAs offer people with high-deductible insurance plans tax incentives in exchange for saving money to pay for health care. They are primarily used by families with higher incomes, since their very nature requires that a family has money left over after meeting their basic necessities. The AHCA doubles the maximum amount a family can contribute to an HSA from $6,550 to $13,100. The tax benefits of HSAs are already skewed towards higher-income families – because these families are in a better position to use HSAs and because the tax savings from doing so increases at higher incomes. The proposed changes only benefit those households who already “max out” their HSA contributions. This tax cut would cost $19 billion from 2017 to 2026. Nationwide, 70 percent of contributions to HSAs come from households with incomes over $100,000. Only about one in four Minnesota families falls into this income group, and again, only those who already are maxing out their contributions would benefit.

Federal policymakers should not accept the AHCA, which will make it harder for Minnesotans to afford quality health insurance – especially Minnesotans who live outside of the Twin Cities metro area, those who already struggle to pay for their families’ basic necessities, and seniors and people with disabilities who face higher medical bills. This plan slashes health care for those who need it most while providing tax cuts to those who need them the least. We encourage Minnesota nonprofit organizations and Minnesota residents to contact our Congressional delegation and ask them to reject this plan.

-Ben Horowitz

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Undocumented immigrants pay $83 million in state taxes, would pay more with immigration reform

Undocumented immigrants play a vital role in Minnesota’s economy and currently pay an estimated $83 million in state and local taxes, according to a new report from the Institute for Taxation and Economic Policy (ITEP). Under immigration reform that provides a path to legal status, ITEP estimates these contributions would substantially increase.

The estimated 85,000 undocumented immigrants currently living in communities throughout Minnesota pay taxes in a variety of ways. For example, they pay sales taxes when they buy school supplies, property taxes through their rents, and income taxes when it is deducted from their paychecks and when they file taxes in the spring. Even though undocumented immigrants are ineligible for many services that taxes pay for, they are doing their part to support the state’s schools, roads and bridges, and other public services.


ITEP’s report highlights that one of the benefits of welcoming immigration reform is likely to be increased economic activity in our communities and increased tax revenues in Minnesota. When immigrants have legal status, they are often able to take jobs that match their full range of abilities, build on and develop additional skills, and ultimately increase their earnings. ITEP estimates that granting full legal status to all undocumented immigrants would mean $19 million in increased tax revenues in Minnesota.

On the other hand, if many immigrants are deported, then “state and local revenues could take a substantial hit,” according to ITEP. Immigrants are important to our communities for many reasons, including bringing greater cultural diversity and revitalizing struggling cities. Their worth as people is not limited to their economic contributions, but the fiscal impact of removing immigrants would be substantial. ITEP reports that states could lose $12 billion in revenue if all undocumented immigrants were deported.

Undocumented immigrants already play important roles in cities across Minnesota. Recognizing this value and opening paths to legal status for immigrants could further strengthen our communities while also increasing economic activity and tax revenues.

-Clark Biegler

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