By Danielle Killey
Talk of tax increases continues even as economists anticipate a smaller state budget deficit.
“Tax reform is important for Minnesota’s future,” Senate Majority Leader Tom Bakk, DFL-Cook, said. “I don’t think this will even slow that down.”
Bakk’s comments came shortly after Minnesota Management and Budget reported Thursday the state will face a $627 million shortfall in the next two years, down from $1.1 billion predicted in late 2012.
The state also has a surplus of $295 million for this year, most of which will go to repay money the state borrowed from public schools.
Democratic Gov. Mark Dayton and lawmakers will use Thursday’s budget forecast to set the state budget during the final three months of the legislative session.
“The forecast really sets the table for where the issues are,” Commissioner Jim Schowalter of Minnesota Management and Budget said.
House Speaker Paul Thissen, DFL-Minneapolis, said the forecast is positive, but there is work to be done.
“We still have a deficit,” he said. “We still have a big chunk to deal with just to get back to zero.”
Republicans argued the lower deficit means Dayton should rethink plans to increase taxes.
“If Gov. Dayton and DFL legislators are looking for a reason to raise taxes, they won’t find one in this budget forecast,” House Minority Leader Kurt Daudt, R-Crown, said.
Dayton suggested the better outlook could lead to tax cuts, such as an increased renters’ credit. He did not say he will change proposals to raise income taxes on the richest Minnesotans or sales tax changes. The income tax increase is expected to bring in an extra $1.1 billion and sales taxes changes would result in a $2 billion net increase in revenue.
The governor’s original budget proposal would spend $38 billion over the next two years. He said he will make more concrete decisions about his budget in the coming days and release an updated plan the week of March 11.
The forecast Thursday included about $297 million more than previously expected from income taxes.
Daudt said that is evidence the state’s economy is improving.
“You don’t need to raise the rate to raise revenue,” he said. “You need to get more people back to work.”
Sen. Dave Thompson, R-Lakeville, said Republican policies of not raising taxes and “restraining the size of government” have contributed to the better outlook.
“I’m hoping the governor adjusts his path,” he said, adding tax increases are not only unnecessary but “damaging.”
Dayton said the forecast was good news for Minnesota and a step in the right direction, but “it is not progress anyone is satisfied with.”
Schowalter said the economy is being hurt, in part, because federal budget issues remain unresolved. The economy is “making steady progress, but not nearly enough,” he said.
“We have a new forecast, but a relatively old story,” Schowalter said.
Thissen said he hopes lawmakers can get out of the cycle of deficits.
“We also need to raise new revenue if we want to invest in the things that will improve the quality of life for Minnesota families: education, infrastructure and property tax relief,” Bakk said.
State Economist Tom Stinson downplayed the economic impact of massive federal budget cuts due to begin Friday, but said it could slow state economic growth.
“There’s more going on than just Minnesota policies,” Stinson said.
A state budget must be set by July 1 to avoid a state government shutdown. Democrats, who hold the majority in the House and Senate, have said they will not allow a shutdown.
The state technically is not allowed to have a deficit, so it would have to offset that by raising taxes, cutting spending or a combination.
“Over the coming days and weeks budget discussions will pick up and the task of improving our education system and future workforce will continue,” Rep. Paul Marquart, DFL-Dilworth, said. “We need to think big again and go in a new direction that puts the middle class first.”
“Today’s forecast is good news, but our state is still not on stable financial footing,” Rep. Mary Sawatzky, DFL-Willmar, said. “Minnesotans deserve an honest budget balanced without gimmicks that funds our priorities and lays the foundation for a stronger economy, a stronger middle class, and a stronger future.”
“The improved forecast is definitely better than the alternative,” Rep. Roger Erickson, DFL-Baudette, said. “But we can’t let this small improvement cover up the fact that we’re still faced with a $600 million budget deficit. The only way we can move forward from this past decade of budget deficits is to help make a fair tax system that lets us invest in things like education, property tax relief and job creation.”
“I’m pleased that our deficit is shrinking, but it’s still another in our decade of deficits,” Rep. John Ward, DFL-Baxter, said. “Minnesotans deserve a budget that is balanced honestly without gimmicks, one that funds the things we value as Minnesotans and keeps us economically competitive.”
“We have less of a mess to clean up, but a mess nonetheless,” Rep. Joe Radinovich, DFL-Crosby, said. “We need to close this deficit and begin re-investing in Minnesota’s future.”
“Today’s forecast numbers are encouraging, but we must remember the need for a sustainable and honest solution,” Sen. Roger Reinert, DFL-Duluth, said. “With these numbers in hand, the real budget work begins.”
“Overall, this is encouraging news,” Sen. Kent Eken. DFL-Twin Valley, said. “It shows Minnesota continues to move in the right direction and that our economy keeps improving. But it also highlights the work we still have to do. The next few months will consist of looking closely at every penny of spending.”
“It’s vitally important the Legislature make responsible budget decisions to ensure we don’t disrupt this positive economic progress and that we keep Minnesota on the right track,” Sen. Lyle Koenen, DFL-Clara City, said. “Using a sensible balance of spending cuts, responsible new revenue and targeted government reforms is the combination needed to solve the deficit and support continued economic recovery.”
“With Minnesota’s budget outlook greatly improving, Gov. Mark Dayton has lost all justification for raising taxes on haircuts, car repairs and certain clothing items,” said Ben Golnik, Republican activist and Minnesota Jobs Coalition chairman. “The bottom line is that Minnesota’s deficit is now manageable enough to solve without raising taxes on anyone.”
“While today’s news shows improvement, the state still faces a $627 million budget shortfall,” Minnesota DFL Chairman Ken Martin said. “Leaders need an honest budget that gets Minnesota off the financial roller coaster of the last decade and makes investments to move Minnesota forward.”