One would think the state’s November budget forecast revealing a $1.9 billion surplus would be viewed as an incredible gift, sort of like free money. But get ready for the agony of trying to divide up such a measly sum.
Measly? Well, yes, when you consider how many mouths are at the trough.
Of that amount, by law the state has to put a third in its reserves. It also intends to repay $71 million to two environmental funds that it raided when times were tougher.
Restoring the reserves is wise policy because the economy, now dependent on so many global forces, remains vulnerable to sudden jolts.
That’s why I continue to raise a lonely protest, encouraging the Legislature to bond less.
Since Mark Dayton became governor in 2011, debt service has been the second fastest growing part of the state general fund, trailing only K-12 education. Debt service has grown an estimated 47.5 percent, and is now 3.24 percent of general fund spending, the highest ever.
With the Federal Reserve Bank on the verge of raising interest rates, debt will become more painful for everyone.
Nobody goes to the bank to borrow when they are flush enough to pay cash. Why would the state do that?
The answer is because the appetite for how the state may use the surplus stretches far beyond the $1.2 billion left to allocate.
At the top is a transportation bill, which could suck up the entire surplus by itself. One study forecasts that the states faces a $16.3 billion shortfall in transportation funding over the next 20 years. That’s more than $800 million annually.
A gas tax hike has likely been scuttled, but the state needs new mechanisms to fund transportation.
One argument sure to be made by Republicans is that the surplus is a sign that the citizenry is being overtaxed, and the money needs to be returned to taxpayers. Instead of sending a check to every taxpayer, however, a myriad of proposals have been submitted to ease the burden on selected groups.
Of particular interest in rural areas is a proposal to use $50 million to provide a 50 percent property tax credit on that portion of ag land taxes that are levied for school building projects. The theory is this would make it easier to pass referendums in rural districts.
Exempting military pensions from state income tax would take about $25 million. This is a proposal backed by state Sen. Paul Gazelka, R-East Gull Lake, who is a member of the tax conference committee. Since this district has Camp Ripley, and, thus, plenty of people receiving military pensions, this gesture of patriotism would be popular here.
Most veterans, at least those with honorable discharges, tend to be law-abiding, solid citizens.
This change would encourage them to retire here rather than in another state.
Exempting Social Security from state income tax, which 38 states already do, would cut close to $500 million in taxes.
The state already provides assistance to low-income elderly, but this would encourage those retirees with disposable income to stay here instead of living out their golden years in another state.
Another proposal would expand Local Government Aid (LGA) by at least $45 million. State aid is used to hold down property taxes. State Rep. Paul Anderson, R-Starbuck, authored this bill last session, but it got hung up when his GOP colleagues tried to cut aid to Minneapolis, St. Paul and Duluth, cities that don’t elect any Republicans.
Some suburban legislators, where property values are high and their communities receive little or no LGA, would like to eliminate the program completely. However, if LGA disappears, property taxes will soar. The Coalition of Greater Minnesota Cities says city tax rates alone would be over 100 percent in Buckman, Little Falls, Long Prairie, Motley, Randall, Swanville and Upsala. (The city tax rate is defined as the levy divided by the net tax capacity [NTC]. NTC is the property’s market value times a percentage rate for that property classification [residential, commercial, etc.])
End LGA and you’ll hear more honking than at a Canadian goose convention.
Then, there are the additional spending proposals. Dayton wants $173 million for universal 4-year-old education, and proposals are also on the table for more spending on rail safety and rural broadband expansion.
That’s how a $1.9 billion surplus becomes just a drop in the bucket.
Tom West is the editor and general manager of the Record. Reach him at (320) 616-1932 or by email at [email protected]