April 23, 2007

Mid-Session Minnesota Legislative Update

Senate Passes Income Tax Increase

The Minnesota Senate passed a nearly $1 billion income tax increase on Minnesotans earning the highest incomes. If enacted into law, this legislation will give Minnesota the highest tax rate in the nation.

The Senate voted 35-29 to raise the top-tier income tax rate from its current 7.85 percent to 9.7 percent. It would affect an estimated 93,000 taxpayers and impose an average tax increase of $4,340. Couples earning $250,000 or more per year and individuals earning $141,250 a year would pay the new rate. The additional tax revenue would provide K-12 education nearly $860 million in additional funding over the next two years. In addition, the state's colleges and universities would receive $93 million for tuition relief, and more than $54 million would be appropriated to early childhood programs.

Senate Majority Leader Larry Pogemiller (DFL-Minneapolis) defended the tax increase and called the legislation "a tremendous investment in the future," arguing that the bill provides targeted property tax relief to families and sizeable funding increases for K-12, preschool and higher education. Senate Republicans countered that with a $2 billion surplus, the tax increase is both unnecessary and counter-productive, and claimed it will adversely affect Minnesota's economy, hurt businesses and cause them to relocate out of state, and unfairly increase an already high tax burden on Minnesotans.

A similar tax increase proposal is making its way through the DFL-controlled House. The top rate is 9 percent and is targeted to incomes above the $1 million threshold. That companion bill awaits further committee action in the House and, if passed by both legislative chambers, will most certainly be vetoed by Gov. Tim Pawlenty.

Senate Approves Commercial-Industrial Property Tax Increases

The Senate Omnibus Tax Bill contains $222 million of commercial-industrial property tax increases for the next biennium. This legislation changes the calculation of the statewide property tax paid by businesses. The tax is projected to increase by $467 million in fiscal year 2010-2011. The Senate would then redirect the new revenue to increase aid to local governments and provide some property tax relief for homeowners.

House and Senate Approve Billions for Transportation

In a rare Saturday session in March, the Minnesota House approved a $9.1 billion transportation funding bill — but only after hours of intense floor debate. The Omnibus Transportation Bill passed 83-46 and includes increases to tax levies on gasoline, vehicles and general sales to build and maintain the state's roads and transit over the next 10 years. The bill's next stop will be a conference committee to resolve differences with a more expensive version of the bill that cleared the Senate earlier.

Both the House and Senate transportation measures would add 10 cents to the state's existing gas tax of 20 cents per gallon, increase registration renewal fees on cars purchased in the future and authorize a half-cent general sales tax increase in the Twin Cities area. Republican efforts to eliminate the gas tax hike were repeatedly voted down. The additional gas tax revenues are dedicated to roads and bridges. The proposed transportation sales tax increase would be appropriated to finance mass transit projects throughout the state. One amendment to remove it drew significant support, and an attempt to make it subject to a voter referendum in the Twin Cities area fell just three votes short of adoption.

During a heated floor debate, House Minority Leader Marty Seifert (R-Marshall) argued the transportation bill is nothing more than "a morbidly obese tax increase, and it's going to the packinghouse of the governor's office." Republican members argued that the House bill would impose an additional $500 a year in new taxes on an average Minnesota family. Rep. Paul Kohls (R-Victoria) ridiculed the bill as a "taxapalooza" and quoted lyrics from the Beatles: "If you drive a car, I'll tax the street ... If you take a walk, I'll tax your feet, 'cause I'm the taxman." In an ironic twist during his closing arguments, House Majority Leader Tony Sertich (DFL-Chisholm) quoted Republican President Ronald Reagan's plea for a 5-cent increase in the federal gas tax a quarter-century ago.

Whether any taxes can be raised over a Pawlenty veto, however, looks increasingly unlikely. The House bill drew five suburban GOP supporters, with four outstate DFLers voting no. Several Republicans who voted in favor during the Saturday session said they wouldn't abandon their party's governor in an override vote.

The Senate's Omnibus Transportation Bill also features a 10-cent bump in Minnesota's current 20-cent-per-gallon gas tax, which is expected to raise $3.4 billion over 10 years. According to Senate fiscal projections, automatic inflation and trunk highway debt service adjustments could gradually boost the tax to 44 cents a gallon by 2017, collecting another $2.3 billion. The bill's other major revenue sources are $2 billion in borrowing and $1.5 billion in additional registration fees on new vehicles, a half-cent general sales tax increase in the seven-county Twin Cities area that would be imposed without a voter referendum, plus a $20 excise tax on new vehicle sales in the Twin Cities area.

Health Care

After an emotional floor debate over immigration, abortion and the state's health care system, the Senate passed a series of health care bills that provide billions of dollars for health and human services programs throughout the state. A bill that funds health care coverage for tens of thousands of uninsured Minnesotans and provides additional funding for nursing homes and other state health programs narrowly won passage. The bill does not provide universal health care coverage.

The Senate also approved an extra $27 million to increase salaries and cover health insurance costs for long-term care workers that will be funded by increasing the state's top-tier income tax rate. In addition to providing nursing homes with increased state funding, the Senate loosened the state's welfare recipient regulations and narrowly approved a plan to place inflationary caps on increases in health care premiums. Republicans criticized the measures and offered amendments that would have rescinded tax advantages for health insurance and allowed for-profit health plans to sell insurance to Minnesotans. All the amendments failed along straight party line votes.

Senate Bans Public Smoking

The Minnesota Senate voted 41-24 to approve a statewide smoking ban that would eliminate most indoor smoking in public places, including bars and restaurants, beginning August 1. The bill prohibits smoking in public places, aboard public transportation and at public meetings. Violations would be petty misdemeanors.

The measure allows bars, restaurants and bingo halls to build outdoor smoking patios. Electricity and heating would be allowed on the patios, but not food or beverage service. Hospitality workers would be eligible to use the state's Dislocated Worker Program if they lose their jobs because of the ban. Exemptions include private residences and vehicles, hotel rooms, specific areas in nursing homes and some smoke shops. Tribal casinos are not regulated by the bill, and local governments could impose stricter requirements. According to spokesman Brian McClung, Gov. Pawlenty has concerns about the effect of a ban on private clubs and VFW posts but stated his willingness to sign the more expansive bill.

A House version has not reached the House floor yet.

Senate and House Increase Higher Education Funding

House and Senate members approved bills that increase funding to the state's colleges and universities over the next two years. The bills also include aid for veterans but would not require a significant increase in the state grant program. Lawmakers said the bills ensure that programs will not be cut and tuition will not be raised to pay for inflationary increases in employee pay. The House bill also includes a provision for a pilot textbook rental project.

The Senate passed its own two-year, $3.1 billion higher education funding plan which, in addition to increasing state funding for higher education, extends in-state tuition rates to some children of illegal immigrants — a measure that Gov. Pawlenty has vowed to veto. After failed attempts to freeze or cap tuition, the Senate adopted the higher education budget bill.

The bills are now set to go to conference committee, where House and Senate members will need to agree on a compromise package in order to send the legislation to Gov. Pawlenty.

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