If state surplus holds, get rid of B2B taxes first

The state of Minnesota received good financial news this week when it was announced that the state’s budget coffers are overflowing with a $1.08 billion surplus. This comes after the Legislature passed a $2.3 billion tax increase, which took effect a few months ago. Many economists would say that such an increase would put a damper on the private economy, so we recommend waiting until next summer to determine the full effect of the Legislature’s work last spring.

Still, it is a good thing that the state has finally caught up on its commitments to schools, eliminating the last of the delayed payments caused by the Great Recession.

Governor Mark Dayton was so giddy over the news that he started talking about a tax cut. At the top of the list ought to be the three business-to-business (B2B) taxes that the Legislature passed and Dayton signed last spring. The tax on storage and warehouse services do direct harm to the industry’s ability to compete with warehouses in other states. The tax on repairs and maintenance hits farmers and the state’s already beleaguered manufacturers hard. And the tax on telecommunications makes it more difficult to expand broadband services to rural areas. If those three taxes are repealed, as they should be, the current budget projection suggests that the state will still have a $593 million surplus if the projection holds up in February’s update.

While folks are already lining up at the trough to spend the money, the Legislature would be wise to set aside money to pay off the state’s share of the new Vikings’ stadium. Electronic pulltabs, the financing mechanism chosen for that project, have proven to be a spectacular failure. Better to take that political football off the field than to argue about how to come up with the shortfall for the next 30 years. The state is on the hook to pay off almost $500 million in bonds, with annual interest payments between $20 million and $30 million. Instead of paying bondholders, lawmakers should refocus on lowering debt so it can then repair more potholes, pay teachers, nursing home workers, judges and other essential government-sponsored workers more.

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