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Minnesota Legislature

Finding funding

Published (3/25/2010)
By Lee Ann Schutz
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Operating engineers fill the hearing room March 23 to listen to the House Taxes Committee discuss a bill that would encourage job creation. (Photo by Andrew VonBank)A gallery full of union equipment operators came to the House Taxes Committee March 23 to show their support for HF2695, which carries tax incentives designed to jumpstart the construction industry and get them back to work.

The bill, sponsored by Rep. Ann Lenczewski (DFL-Bloomington), contains a variety of new tax incentives for investors who would provide money for credit-strapped small businesses, historical renovations, and help the Mall of America expand. There is also potential help to keep the Ford Motor Company plant going in St. Paul.

It is expected to be heard on the House floor March 29.

Lenczewski has worked closely with the governor and Senate Taxes Committee Chairman Sen. Tom Bakk (DFL-Cook) to bypass a conference committee and have the measure signed quickly into law. The provisions garnered bipartisan support, but the problem is how to fund the tax credits.

Heard in the committee March 15, the bill languished on the table until a funding source could be found — the amount of credits available would hinge on how much money could be put on the table.

Lenczewski first proposed that at least $10 million of the $12.8 million needed for the credits in fiscal year 2011 would come from plugging a loophole in the tax code relating to Real Estate Investment Trust; however, the anticipated savings turned out to be $1 million.

Try, try again

She went back to the drawing board, and on March 23 presented the idea to the committee of having the state retain a personal tax exemption set to phase out. This would apply to the state’s high-income earners. According to the Tax Research Division in the Minnesota Department of Revenue this would raise approximately $76.6 million to pay for the credit through fiscal year 2015, two years longer than the previous proposal.

However, Revenue Commissioner Ward Einess said this most likely would be unacceptable to the governor.

“This is a $76 million income tax increase, and he has consistently said he is against that. He thinks there are other options on the table,” Einess said. “We don’t think raising taxes is needed to achieve this very important goal.”

Rep. Keith Downey (R-Edina) said there is enough state revenue to pay for the credits, but leadership should set priorities and not try to fund everything. He said that “revitalizing the business climate would stimulate job creation.”

With the clock ticking on her goal to have the bill passed off the House floor by the Passover/Easter break, which begins March 30, Lenczewski called the committee into recess. Later that evening she proposed to fund the credits by beefing up tax compliance. However, with other bills also relying on greater tax compliance for their revenue, Einess said that, at most, about $10 million more would be generated. That meant the amount available for tax credits would drop to $20 million through fiscal year 2013.

Before the committee approved the bill and sent it to the House Ways and Means Committee, there was a last minute plea to add language for another project.

Duluth is in the running to become the North American headquarters for a European wind turbine company — and potentially 1,300 new jobs. Up against an aggressive set of incentives from Ohio, Rep. Roger Reinert (DFL-Duluth) asked that provisions in the current JOBZ program be extended specifically for the company through 2020, and offer a comparable benefit to the company for a period of 10 years. Over the life of the benefit, tax exemptions could total $12.7 million.

The bill’s funding source — tax compliance — came under stiff questioning before being approved by the House Ways and Means Committee March 24.

Einess noted the department has been very successful with previous audits and bringing in owed revenue. When efforts began, there was a $12 return for every $1 spent; that ratio is now 4:1. “The low-hanging fruit has been picked,” he said, adding that there is a fine balance between collecting owed money, and being viewed by taxpayers as too aggressive. He also noted that new staff would most likely be needed because the window of time to make the collections to fund the credits is short.

Lenczewski’s amended bill would require any new collection employees hired by the department after April 30, 2010, to conduct new (compliance) initiatives be located in Ely.

Einess countered that the current operation in Ely has 100 employees, and their offices are filled to capacity.

Lenczewski and Rep. Loren Solberg (DFL-Grand Rapids), chairman of the House Ways and Means Committee, said work will continue with the Senate and the governor on some of the more controversial provisions.

The Senate companion, SF2568, sponsored by Bakk, was rolled into a Senate jobs bill, SF2167, sponsored by Senate President James Metzen (DFL-South St. Paul). It awaits action by the Senate Finance Committee.

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