For more information contact: Ted Modrich 651-296-5809
Along with Senator Jim Carlson, we were pleased to visit with area residents at our January 26 town hall meeting at Burnsville City Hall. As happens at these get-togethers, sometimes there isn’t enough time to answer everyone’s questions. As we indicated, we promised to post answers to some of your inquiries.
Many people had questions about Governor Dayton’s proposed 2014-2015 budget and tax reform recommendations. We want to underscore that the Governor’s recommendations serve as a starting point for legislative discussion—not the final word--on how to responsibly balance Minnesota’s budget without resorting to the short-sighted accounting gimmicks, shifts, borrowing, and other band-aid approaches that were used over the past decade to paper over serious, built-in structural deficit problems. The final budget that the Minnesota Legislature passes this spring will not look identical to the Governor’s proposed budget.
The Governor’s $37.9 billion biennial budget comes in $1.8 billion lower than was forecast for the 2014-2015 biennium based on laws enacted by the previous governor and Legislature. Governor Dayton’s budget proposes over $640 million in new investments in education. This includes new funding for early education scholarships, access to all-day kindergarten for 46,000 kids, and school funding increases in the K-12 formula, special education, and more.
The Governor has proposed lowering the sales tax rate from 6.875% to 5.5%--a 20% reduction--while extending the sales tax to services and individual clothing item purchases over $100. This was one part of his 2014-2015 budget proposal, which also includes a $500 property tax rebate to homeowners, a decrease in the corporate tax rate, and creation of a new fourth tier income tax rate for the wealthiest 2% of Minnesotans.
This proposed new marginal 4th tier income tax rate would apply only to taxable income above $250,000 for married joint filers, $200,000 for head of household filers, and $150,000 for single filers. (The other income tax rates are unchanged.) The proposed 4th tier is expected to affect 53,600 returns state-wide (3300 in Dakota County) and raise $1.1 billion in additional revenue.
Over the next few months a variety of budget-balancing approaches will be thoroughly reviewed by the Legislature--including a lowering and broadening of the sales tax, increasing the tobacco tax, asking the very wealthy to pay a little more, less reliance on property taxes, and strategic budget cuts--that will allow us to finally get an honest handle on Minnesota’s structural budget deficit, restore fairness and stability to the system, and set Minnesota on the road to job growth and prosperity for years to come.
We encourage you to follow House budget and tax proceedings online at http://www.house.leg.state.mn.us/. To track specific bills, you can sign up for committee e-mail lists. The public is also welcome to testify at hearings.
There were also questions related to welfare reform. With the state continuously dealing with multi-billion deficits over the past few years, and another deficit anticipated for the next biennium, the Legislature must scrutinize the efficacy of every state program, including its welfare programs. We want to be good stewards of tax dollars, which is why we are more than willing to explore fiscally prudent improvements to state services.
To that end, for example, we are supporters of the Fraud Investigation Program (FIP), a program that ensures Minnesota is making proper use of the funding devoted to our welfare safety net. The FIP is the main unit that is charged with controlling fraud in Minnesota’s public assistance programs (Food Support, Child Care, TANF, Medicaid, etc.).
The benefits of the FIP are clear. Minnesota saves $4.67 for every $1 spent on program administrative costs. According to the Department of Human Services, in 2011 fraud investigators completed over 6,900 investigations, reducing or stopping benefits in 47% of those cases. It’s hard to argue with the program’s success.
Someone wanted to know what percentage of the Health and Human Services (HHS) budget was cash assistance. Minnesota's two cash assistance programs, the Minnesota Family Investment Program (MFIP) and the Diversionary Work Program (DWP) help very low-income families with children obtain job training and better employment opportunities. About 37,000 families use MFIP/DWP monthly and 70% of those recipients are children.
Welfare cash assistance (MFIP & DWP) will comprise just 2.7% of the HHS General Fund spending for FY2012-13 (0.9% of total General Fund spending for the biennium). Defining welfare more broadly to include child care assistance programs (MFIP/Transition year child care), General Assistance (low-income singles w/o children), and Minnesota Supplemental Aid (aged, blind or disabled), Minnesota is forecasted to spend a total of $458 million in FY2012-13, or 4% of HHS General Fund spending (1.3% of total General Fund spending for the biennium).
Another questioner wanted to know about oversight for managed care plans (HMOs). Given the fact that Minnesota paid over $3 billion in state funds to managed care plans last year, they should be subject to significant oversight. Fortunately, the 2012 Legislature took action to require the Legislative Auditor to contract for a biennial independent third-party financial audit of information required to be provided by managed care and county-based purchasing plans.
In 2011 Governor Dayton also issued an Executive Order that has already resulted in improved managed care documentation and reporting. In December 2012 the results of the first audits stemming from this Executive Order were released. The Department of Human Services also created a new webpage so that all public information about managed care plans that contract with the state to provide health care for enrollees in public programs, including the above-mentioned report, is now available at one central location: www.dhs.state.mn.us/ManagedCareReporting. Human Services Commissioner Lucinda Jesson
released the following statement about these findings: “The findings released today show that the financial management of publicly-funded health care programs by managed care organizations in 2011 was generally sound. Several issues were identified that deserve further action, and demonstrate the wisdom of this increased oversight of public programs. Going forward, strong oversight of the management of these programs will continue and ensure that Minnesotans are receiving the best possible value for their public health dollars.”
There were a few questions about public pension reform. There is no doubt that we cannot have a public pension system that is financially unsustainable. To address that problem, some reforms have recently been made, including increasing employee contributions and reducing the assumed rate of return on investments. To the extent that more needs to be done we are always open to considering effective reforms.
There was also a question about renters. Will has authored a bill to restore the Renter’s Property Tax credit to 2009 levels, which will help renters afford basic living costs and stimulate the economy. Sound investments at one end of the system reap positive rewards at the other. Quality health care, good schools, and affordable housing make for a better Minnesota and lift everyone up—renters and homeowners alike.
Someone also asked about the size of the state workforce. The state workforce has declined in each of the past three years, declining by 4% from 2010 to 2011. The number of employees decreased from 34,123 in 2010 to 32,924 in 2011. As of July 2012 the population of Minnesota was 5,379,139, so that would mean that .006% of Minnesota’s population is employed by the state. You can read more about the state workforce in this Minnesota Management & Budget publication: http://tinyurl.com/b2zgu4q.
A question was asked about the accuracy of state budget forecasts. According to Bill Marx, House Chief Fiscal Analyst, “The forecast is never correct because it is a best guess for future periods. The forecast that was released in November 2012 was based on economic conditions at that time, but attempted to predict revenue and spending for the period starting July 1, 2013 and ending June 30, 2015.
“Forecasts tend to under-predict revenues in good economic times and over-predict revenues in bad economic times. Each of the past three budget forecasts (November 2011, February 2012, November 2012) has predicted positive balances for the current biennium (FY 2012-13). However the November 2012 forecast predicted a larger deficit for the FY 2014-15 biennium than the previous forecast did.
“A publication that discusses the variances in forecasts is on the Fiscal Analysis Department web site at: http://www.house.leg.state.mn.us/fiscal/files/11fcstvr.pdf . This publication has not been updated since the February 2011 forecast. It will be updated after the February 2013 forecast.”
We hope this information helps answer some of questions. As always, please feel free to contact us with your input. Thank you again for attending the town meeting, and we look forward to hearing from you again!
Will Morgan Sandy Masin
State Representative State Representative
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