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Minnesota Legislature

Vetoed: Tax bill’s ‘destabilizing effects’

Published (7/15/2011)
By Lee Ann Schutz
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The session-long debate over new revenue to solve the state’s projected $5.1 billion deficit ended with Gov. Mark Dayton vetoing the omnibus tax bill.

“Your tax proposal would require most Minnesota property owners and renters to pay higher property tax,” he wrote in his veto letter. By contrast, he reiterated that his proposal to balance the budget by a combination of cuts and raising taxes on the top 2 percent of Minnesota income earners is a more equitable approach. He said the bill shifts the state’s budget problem to local units of government and property taxpayers.

Sponsored by Rep. Greg Davids (R-Preston) and Sen. Julianne Ortman (R-Chanhassen), the bill would have provided $202.71 million in tax relief during the 2012-2013 fiscal biennium, including a reduction in the state general property tax levy on commercial-industrial property; modification to the K-12 education tax credit to include private school tuition; an increase in the research and development credit; a phased-in income tax subtraction for those receiving military retirement pay; and several sales and use tax exemptions, including on downloadable ringtones.

But Dayton contends the bill would make unnecessary and geographically imbalanced cuts to local government aid, including a phase-out of aid to Minneapolis, St. Paul and Duluth. He summarizes that the reductions could mean a $400 million cut for “critical local services” and increase property taxes by that amount over the next year and by over $1.2 billion during the next three years. He said this increase would “fall disproportionately on low- and middle-income Minnesotans.” Republicans say cuts to LGA do not necessarily translate to higher property taxes.

A new Minnesota Science and Technology Authority to provide grants for research projects received bipartisan support from the Legislature and was included in the vetoed bill. While Dayton did not reference the proposal, he did highlight the bill’s attempt to address other business concerns. “We agree on the importance of expanding and improving the Research and Development Tax Credit and the Angel Investor’s Tax Credit,” he wrote in his veto letter. He left open the possibility of supporting similar measures. He noted the bill would also raise property taxes on Minnesota businesses by $89 million in fiscal year 2012.

The bill would have reduced payments to individuals over the biennium by

$925.26 million. The greatest amount ($198.95 million) would come from reductions to the renters’ property tax refund, repeal of the Sustainable Forest Incentive Act and elimination of the political contribution refund.

Changes to the state’s local government aid and county program aid programs would save $382.74 million in the biennium, Republicans say.

The bill would also extend limits on the ability for local units of government to raise their levies for two years. It would use

$60 million from the Douglas J. Johnson Fund, an Iron Range economic development fund, to help balance the budget. Dayton pointed to the irony of cutting local government aid, while extending authority for nine cities to impose local option sales taxes, which he noted could increase sales taxes by

$17 million.

Several income and sales tax conformity issues were addressed in the bill that Dayton lauded. “I appreciate that the Legislature included conformity to most federal tax law changes in the bill and included provisions necessary to maintain Minnesota’s conformity to the streamlined sales and use tax agreement,” he wrote.

Dayton summarized the bill as having a destabilizing effect on the state-local finance system and that it would “exacerbate our ongoing budget challenges by beginning new tax expenditures in future years and eliminating state budget reserves.”

HF42*/ SF27/CH38

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