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Don’t “Give Back” All of the Surplus

March 03, 2014 By Jeff Van Wychen, Fellow and Director of Tax Policy & Analysis

Since last year, when progressives passed a new budget bill that raised taxes on the top two percent to invest in education and other key services, angry conservatives have been railing against “wasteful spending,” predicting doom for the state’s economy fueled by massive tax flight. A $1.2 billion surplus projected for the current biennium and the $2.6 billion surplus projected for the next (based on last week’s February forecast) is proof that the sky is not falling, but nonetheless the outrage from the right over last year’s spending increase continues.*  The latest example of right wing ire over last year's spending increase is the "Give It Back" campaign.

Let's catalog the “waste” in the FY 2014-15 budget, beginning with the single largest category of expenditure increases: education. During the period from FY 2003 to FY 2013, state operating aid for K-12 education declined by $1,600 per pupil (15.9 percent) in constant FY 2014 dollars, as documented in a November 2013 Minnesota 2020 report. The “wasteful spending” in the 2013 K-12 finance act will restore less than a third of this decline by the FY 2015 biennium. This spending increase will be invested on things like shrinking class sizes—which had increased significantly over the preceding decade—and reducing the achievement gap between white students and students of color.

The E-12 funding increase will also include $134 million for all-day kindergarten and $40 million for early childhood education. Non-partisan experts have concluded that early childhood education provides an 8 to 1 return-on-investment achieved through higher educational attainment, increased productivity and earning potential, and reduced crime and incarceration. Despite the strong evidence in support of public spending on early childhood education, a significant state commitment to this area was nowhere to be found during the decade of Minnesota’s “no new tax” fiscal experiment. It took the 2013 tax increases to bring serious investment in early childhood education to fruition.

The 2013 budget also made important strides toward holding the line on higher education costs, expanding college access, and reducing debt for Minnesota students. This was achieved through a $250 million increase in higher education spending, which will pay for a two year tuition freeze at U of M and MnSCU campuses, an increase in Minnesota State Grants which will reach about 100,000 students, increased funding for the Minnesota Indian Scholarship Program to eliminate the waiting list for native students trying to get into a Minnesota college, and an expanded Minnesota GI bill.

A Georgetown University report found that over two-thirds of new job vacancies in Minnesota will require post-secondary credentials and 70 percent of all jobs in Minnesota will require post-secondary training by 2018. In light of this, Minnesota must make a college education affordable for all aspiring students. The investments made during the 2013 session halted the trend of post-secondary disinvestment over the preceding decade that led to soaring tuition and crushing student debt and will make higher education more affordable and attainable for more students. Given the workforce demands that Minnesota’s economy will be facing, this was an investment that was long overdue and well worth making.

Property tax relief was also a priority during the 2013 session and for good reason. The elimination of the homestead credit pushed through by conservatives in 2011 as a precondition for ending the state government shutdown produced property tax increases for the vast majority of Minnesota property owners,† on top of the property tax increases resulting from repeated cuts to city Local Government Aid, County Program Aid, and cuts to the Renters’ Property Tax Refund (PTR) enacted over the course of the preceding eight years.

The 2013 tax act reversed these trends through creation of a new Homestead Credit State Refund (basically a dramatic expansion of the existing homeowner’s circuit breaker program), increased state aid for Minnesota counties, cities, and townships, and an increase in the Renter’s PTR. These dollars not only provided property tax relief, but also allowed Minnesota local governments to restore a portion of the budget cuts to libraries, public safety, street and road maintenance, and other public services and infrastructure made since 2003.

What other “wasteful spending” was enacted in 2013? A partial list includes new state funding for affordable housing and job training, new bonding authority that will beef up Minnesota’s transportation infrastructure in a way that will promote economic development, and initiatives that will help provide affordable healthcare to Minnesotans, including MNsure, which—despite initial implementation problems—will cut the number of uninsured people in the state by half or more.

Of course, conservatives focus their ire on the proposed new Senate office complex; the public finance article of the 2013 tax act included money for design of this facility. As someone who hangs around the Capitol a lot, I can attest to the need for additional Senate office space (especially with the ongoing Capitol remodeling), although I have no way of knowing how much it should cost. However, to characterize the entire FY 2014-15 spending increase as “wasteful” based on one project that comprises a negligible portion of the new spending—while ignoring the new investments in education, infrastructure, property tax relief, affordable housing and healthcare, and job training that comprises the overwhelming majority of the new dollars—is absurd.

With little difficultly, one can imagine the right wing response to the “wasteful spending” in the 2013 budget because it is the same solution they have for every problem, real or imagined: cut taxes. Moments after release of the February forecast, conservative legislative leaders unveiled their latest public relations masterpiece: the “Give It Back” Act. The “Give It Back” Act—along with more sensible uses of state surplus dollars—will be discussed in the final installment of this series.

*The most recent examples of conservative angst over the 2013 spending increases include a December 2013 GOP press release and “wasteful spending” statements quoted in a February 24 Star Tribune “Hot Dish Politics” blog post.

†In 2011, conservatives in the legislature pushed for and succeeded in eliminating the homestead credit and replaced it with a “homestead market value exclusion.” As noted in a 2011 Minnesota 2020 report, “this exclusion causes the tax base of local governments to shrink, which in turn causes local property tax rates to increase, even if local governments do not increase their levies. As a result, the vast majority of homeowners and other property owners will see property tax increases as a result of the elimination of the Homestead Credit and the creation of the homestead value exclusion.”

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