Senate Targets Divide Surplus Between Tax Cuts & Spending

At a Wednesday press conference, Senate DFL leadership unveiled their budget targets for the 2016 legislative session, which “includes $300 million for an updated version of last session’s tax bill and $489 million in other spending, much of it one-time.” The proposed budget also leaves $111 million on the bottom line, unspent.

The spending items in the Senate budget include $91 million to address racial economic disparities and $96 million evenly divided between E-12 and higher education. Despite funding increases enacted in recent years, a North Star report released last month shows that current law levels of state support for E-12 and higher education remain significantly below FY 2003 levels after adjusting for inflation and changes in student enrollment. The Senate targets also include $85 million for statewide expansion of high speed internet service. A breakdown of the Senate targets by policy area appears below.

Sen target table 2

Earlier this week, a North Star analysis indicated that the FY 2016-17 tax cut and transportation spending priorities contained in the recently released House budget targets likely could not be met without substantial paring of the tax reductions contained in last year’s House omnibus tax bill. A similar analysis of the Senate targets indicate that the far more modest level of tax reductions in last year’s Senate omnibus tax bill likely could be accommodated within the new Senate tax target of $300 million, provided that effective dates are adjusted accordingly.*

During the 2015 legislative session, the Minnesota House and Senate were unable to reach an agreement on an omnibus tax bill. Consequently, the tax conference committee remains “open.” The work of this conference committee is expected to resume before the end of the current legislative session, with both bodies advancing the tax bills they passed last year along with whatever modification to these bills are adopted during the 2016 session.

In 2015, the House and Senate also failed to reach a consensus on transportation. While the new Senate targets do not contain a comprehensive transportation package, last year’s Senate transportation bill still resides in the transportation conference committee. The House targets announced last week would dedicate an unspecified portion of the $900 million surplus projected for the FY 2016-17 biennium to transportation. The work of the transportation conference committee is also expected to resume before the end of the current session. While both bodies acknowledge a need for increased transportation spending, they disagree sharply over how to pay for it. The Senate is seeking new taxes dedicated to transportation funding, while the House is seeking to divert existing general fund revenues.

A budget to keep state government operating during the current biennium was passed during the 2015 session—and thus it is not essential for the Governor and House and Senate leaders to reach an agreement on taxes and transportation during the current legislative session. There remains a substantial gap between the House position on these subjects versus that of the Governor and Senate.

 

 

*Based on a fiscal analysis prepared in May 2015 by non-partisan legislative staff, the projected cost of the Senate tax package was $461 million during the FY 2016-17 biennium. However, that analysis assumed that the Senate tax bill would have been enacted during the 2015 session; the level of FY 2016-17 tax reductions would be much lower if an updated version of the Senate tax bill were enacted today because we are already over one-third of the way through the FY 2016-17 biennium. If we assume that the projected effects of the Senate tax bill are simply postponed by one year because that bill would be enacted in 2016 instead of 2015, the revenue reduction in FY 2017 would be approximately $269 million—within the $300 million Senate tax target.