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Tax trio trifecta

Published (5/25/2012)
By Lee Ann Schutz
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Three tax bills, two vetoes.

As the session neared closure, it was clear, at least to the House Taxes Committee chairman, that the session’s success was conditioned on passage of a bonding bill to appease the DFL; support for a new stadium to house the Vikings, a measure pushed by the governor; and business property tax relief, a Republican session priority. You could call it a “trifecta” for job creation in Minnesota, said Rep. Greg Davids (R-Preston).

But in pretty short order, he saw Gov. Mark Dayton put the kibosh on the first tax bill, termed “smokin’ hot” by Davids. That was followed up shortly after with the veto of a second, trimmed down version of the first tax bill. Both addressed the Republican priority of tax relief for business; but both, according to the governor, were “out of balance.”

A third bill offering some targeted property tax relief to eligible homeowners, but mostly making technical changes to statute, made it to law; but neither the bill’s sponsors or the governor were too happy with the product.

Credits – who pays?

The governor termed the first two tax bills “fiscally irresponsible,” saying they provided tax relief for only one sector while ignoring others.

The first bill (HF2337*/ SF1972/CH285) contained several tax credits for businesses and a proposed phase out of the state property tax levy paid by business owners and seasonal/recreational property owners. It would have cost the General Fund $71.8 million in the 2014-2015 biennium. Republicans chose to pay for the provision by using budget reserves, something that had little appeal to the governor.

Dayton gave the bill a quick turnaround before session’s end as a signal of his willingness to work with the Legislature on a “balanced” tax bill.

Davids and Sen. Julianne Ortman (R-Chanhassen), the Senate sponsor, came back a few days later with HF247*/ SF872/CH296, proposing to freeze the state tax property tax levy for one year. The General Fund impact of the new bill was to be $46 million over the 2012-2013 biennium. The financial hole would have been filled by a $27.9 million transfer from the budget reserve, with the rest (approximately $18.4 million) to come from cost savings achieved in other bills passed during session.

Dayton nixed the “reduced version” after the Legislature adjourned sine die. He stated in his veto letter that the bill “ignored my requirement that any future spending must be paid for and avoid adding to the next biennium’s projected deficit” of $1.1 billion.

After the veto, Davids criticized the governor for not personally negotiating the tax bill, but leaving that to his revenue commissioner. “There was a workable solution,” Davids said. “I should have pushed harder — demanded — that the business tax changes be part of any stadium negotiations. He did a lot of damage with the veto. … I wanted a tax bill signed.”

The tax law that Davids finally got was enacted with reservations, according to a letter from Dayton laying out his concerns.

With various effective dates, the law:

• provides targeted tax relief for homeowners equal to 90 percent of any tax increase over 12 percent for pay 2012 only;

• freezes pay 2013 city local government aid payments at 100 percent of pay 2012 amounts for larger cities and at the greater of 2012 aid or 2013 aid under the LGA formula for smaller cities with a population under 5,000;

• provides additional aid payments of $12,000 in 2012 and 2013 to the city of Tamarack; and

• forgives the LGA penalties for late filing of 2010 city financial reports with the state auditor provided that all reports are in by May 31, 2012.

Dayton said the reallocation of LGA funding nearly caused a veto because this provision “would create many winners (i.e., cities which would receive more aid than was allocated under the LGA formula), but also some very serious losers, who would receive considerably less money than under current law.” Since the bill was passed overwhelmingly by both bodies, Dayton questioned if legislators fully understood the consequences when they voted.

He signed the law because of the $4.1 million of property tax relief for some homeowners.

“While this program aids only those homeowners affected most severely, and only for one year despite permanent property tax increases, it is virtually the only aid this Legislature has provided them in the session,” Dayton said.

HF2690*/ SF2136/CH294

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