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Legislative News and Views - Rep. Jerry Hertaus (R)

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Finance bills advancing

Thursday, May 07, 2015

Greeting Friends and Neighbors,

The 89th Legislative Session has entered the final two weeks and is rapidly approaching the required statutory end which is May 18th this year. All of the Omnibus finance bills have passed through the House and nearly all have passed through the Senate. In all cases, the legislation produced by both chambers will now head to conference committees in order to work out differences in content, language and cost in order that one final draft may be agreed upon and considered by both chambers before moving each bill on to the governor for consideration.

The four major Omnibus Finance bills which have garnered the most attention in the news and media are the Education Omnibus Finance & Policy Bill, Health and Human Services Omnibus Finance& Policy Bill, Transportation Omnibus Finance& Policy Bill and the Omnibus Tax Bill.

There has been much contention about the budget (target) amounts released by the House last month. In every area as whole, excepting certain specific areas of needs, the respective divisions and chairs of the various committees have been provided targets which require fiscal restraint and evaluation of broad and diverse needs as represented by all of the stakeholders during constituent meetings and public hearings in committees. No matter the individual targets that the committee chairs may have been handed, it is important to note that the proposed general fund and all-funds expenditures are still growing over the previous biennium, largely driven by budget “tails” enacted during the previous biennium. Previous legislation and its cost(s) tail into this next biennium. A rapidly aging population dependent upon health care services and the states obligations to Medicaid payment participation under the Affordable Care Act also add to costs which are difficult to contain. Despite the Affordable Care Act, MnSure and MinnCare, experts seem to agree that costs relating to health and human services continue to rapidly grow and will soon outgrow all other budget areas unless structural changes in program benefits are soon dealt with. Minnesota is the only state in the nation that has a basic health plan (BHP) and legislation has been introduced to end MnCare our BHP. The cost of MnCare now exceeds $1.5 billion for 60,000 beneficiaries.

The House budget target for the 2016-2017 biennium was announced to be $39,996 million or about $40 billion even though the budget tails from the previous biennium put the number closer to $40,724 million.

It is demonstrated that Minnesota spending under the Dayton administration, including the budget as proposed by the governor for the next biennium if adopted, would increase by 40.7% of general fund expenditures and 28.1% for all-funds expenditures. During this same period, growth in the private sector as measured by the gross domestic product (GDP), a measure of all goods and services produced has been averaging 2-3% per year. The most recent forecast released last week stated the growth in the first quarter of 2015 in our nation at .002% for the quarter, which extended to an annualized rate is less than 1% for 2015.

State government uses an index called the “government price deflator” which only measures increased cost to government as an indicator for inflation and excludes the consumer price index (CPI) which measures the changes in cost for all goods and services such as tires, food, housing, etc. When government uses the “government price deflator” the rate of inflation is exaggerated by government increasing its own costs by spending more on wages, hiring more employees, and increasing program costs and/or benefits. Sadly, the rhetoric appears to always refer to budget negotiations which do not fully fund the government price deflator as a cut in spending, even if more dollars are actually being spent in a certain categories.

Much attention has been directed towards the alleged nearly $2 billion surplus. This is not money that is in the bank, but is instead a projected surplus based upon trending revenues. State government derives the bulk of its revenue from income and sales taxes. The recent drop in fuel prices has had the effect of creating more disposable income for consumers to spend on other discretionary items in the economy. Unlike spending money on gasoline other spending generates higher sales tax revenue. If gasoline remains below $3.00/gal for an extended time, the increase in other discretionary spending by consumers could result in several hundred million dollars of additional sales tax revenues and expansion of the local economy.

The House budget plan views the projected surplus as an opportunity to make some structural changes to Minnesota taxes and policy that would make Minnesota more competitive with its border states and also put more money in the hands of consumers which would further grow tax revenues and provide increased employment opportunities resulting from increased economic activity. Excluding social security and veterans pension benefits from Minnesota income taxation, providing tax conformity with federal law, providing expanded college education credits, increasing personal exemptions, reducing the state general levy on property taxes for seasonal recreational property/cabin owners and commercial-industrial owners is targeted mainly at our smallest businesses. 90% of targeted tax reforms proposed by Republicans would put more money into the hands of consumers and our small businesses and job creators.

The governor’s budget plan spends the most, the Senate budget plan is in the middle and the House budget plan spends the least, although more than the last biennium. The next two weeks is certain to provide lots of negotiations, compromises, disappointments and consternation.

I will provide further updates as the session winds closer to its end. If you are going to spend time on the water this weekend for the fishing opener, please have a good time, be safe and remember to watch for aquatic invasive hitchhikers on your equipment and gear.

Best Regards,

Rep. Jerry Hertaus

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