Tax bill closes $627 million state budget deficit

But local legislators say raising $2.1 billion in taxes and fees may not be enough to cover added spending 

By Terry LehrkeNews Editor

As the legislative session ended, a last-minute vote on Minnesota’s tax bill closed a $627 million state budget deficit.

But, Republican Sen. Paul Gazelka, who represents Senate District 9, said the increased spending may find the state short in another two years.

“It’s going to raise well over $2 billion — in taxes and a whole host of fees I haven’t been able to sort out,” said Gazelka.

The problem, he said, is that spending in the tax bill “increased dramatically” over every area of the budget. “So, two years from now, it wouldn’t surprise me if they were still short.”

Rep. Ron Kresha, R-Little Falls, agreed.

“To get out of debt, we only needed $627 million and raised over $2 billion in taxes and fees,” he said. “But also put a lot of automatic spending in place, so we haven’t truly balanced the budget going forward.”

The tax bill not only closes the state budget deficit, but fuels education funding and provides tax relief for both homeowners and renters.

Gazelka said K-12 education funding was increased by a half billion, and higher education spending by $200 million.

Kresha said he felt really good about the all-day every-day kindergarten funding and the equity funding in the levy for education.

To balance the budget, instead of increasing spending in budget areas as well as fees, Gazelka would have preferred a different approach.

“We should have gone line by line through each area of government,” said Gazelka. “We have to do that all the time, but we didn’t do any of that.”

People want effective government, but expect it to be efficient, he said.

Kresha said leaving the budget to the last minute, after dealing with social issues, like the same-sex marriage issue, is not the approach he would have taken.

“I would have worked on the budget first,” he said. “We should have pushed all the divisive social issues to the side until the budget was solved. That’s the number one problem we had in January was fixing the budget; number one before day care unionization or any social issues.”

He said that’s what pushed the budget to the end, “And it put us in a bad position again,” he said.

Cities and counties will receive more local government aid (LGA). Gazelka said $80 million was going for local government aid, $40 million to county aid and $10 million to townships.

“We’re no longer charging cities and counties sales tax,” said Gazelka, who agreed with that concept.

Also eliminated was sales tax paid by townships. “Why should local government pay the state sales tax?” he said.

The one thing that bothered Gazelka about the LGA is that the formula was shifted.

“Last year and earlier, 70 percent of that (LGA) went to rural and 30 percent to the metro,” he said. “With this new infusion of money, they also changed formula. Now, 60 percent will go to the rural and 40 to metro.”

The bill promises reduced property taxes for some and a rebate for others, but Kresha said that promise is simply a shift.

“We’re sending rebates back to property owners — giving them a check — but that’s spending on the state side,” said Kresha. “Property owners’ tax portion may go down, but it’s a one-time thing, a shift of cash. We’re shifting spending on one side and shifting taxes on the other.”

He wants to change the property tax formula.

“We don’t need to shift money to make people feel good,” he said.

“Essentially it was a school shift in reverse,” he said. “We borrowed from taxpayers to give them money back in their property taxes.”

Democrats control the House and the Senate, as well as the governor’s office, and the session still went to the very end, Gazelka said.

“It was not about Republicans being difficult,” said Gazelka. “Just a disagreement about where to spend more.”

Until the last week, a gas tax increase was being considered, and a clothing tax and more went by the wayside, Gazelka said.

He was more than disappointed that the same-sex marriage bill passed “with very few religious protections.”

Gazelka said taxpayers will feel the increases gradually. “I’ve never felt that fees were anything but a tax,” he said. “You can technically say they’re a fee; but if it’s more revenue, most people call it a tax.”

He said small businesses would get a “quadruple whammy.”

Their property taxes will go up and if they are successful and make enough money, their income tax will increase. “If they are a corporation, their corporate taxes will go up, as well as a number of business-to-business taxes put in place,” he said. Business-to-business tax costs will be passed on to the consumer.

“That’s where people won’t know where it’s (an increase) coming from,” he said.

Raising taxes on cigarettes by $1.60 a pack was touted as being a health issue. Gazelka said that was “baloney.”
“You can’t have it both ways — $1.60 was the top amount they could raise it without the revenues dropping down,” he said. “If you’re going to get a $408 million revenue increase from tobacco tax, it’s not about really helping people quit.”

Gazelka, who is not a proponent of smoking, said many who use tobacco are not high income. “This is going to be a difficult tax for them,” he said.

A first-time legislator, Kresha said it became clear at the Capitol that the fight for resources was between the metro and the rural areas.

“It was pretty clear to me that we had to continue to fight for rural resources,” he said, as everything happened with a metro focus.

He was also surprised at how much power unions had at the State Capitol.