Budget talks: Where new revenues might come fromby Catharine Richert, Minnesota Public Radio
St. Paul, Minn. — After a cooling-off period over the long Independence Day weekend, DFL Gov. Mark Dayton and Republican legislators met again Tuesday to revisit budget negotiations.
The two sides remain at an impasse over a new two-year budget agreement, which was to have gone into effect on July 1. The state has a projected $5 billion deficit that must be closed. Dayton and the GOP remain more than $1 billion apart.
For weeks, the parties conducted their budget negotiations behind closed doors, so it wasn't clear which revenue sources they may have discussed as a means to closing the gap.
What was clear is that Dayton wanted to increase income tax rates on Minnesota's top earners, and Republicans were looking to close the budget gap with spending cuts only.
But in the aftermath of Friday's government shutdown, a few timeworn money makers have emerged as possible solutions to close the state's budget gap.
The state already charges hospitals, nursing homes, and managed care facilities a fee. That money is put into the general fund, and care groups recoup what they pay through higher Medicaid reimbursements. The state benefits by getting the money up front, but only having to cover half of the Medicaid reimbursement cost because of a dollar-for-dollar federal match.
In his initial budget proposal, Dayton wanted to raise an additional $611 million over two years from higher Medicaid surcharges -- about 12 percent of the state's $5 billion deficit. In fact, former Republican Gov. Tim Pawlenty used the same strategy to help close the budget gap back in 2003.
But Dayton's plan fell flat with hospital officials who argued that their facilities would be paying more than they'd be getting back.
It appears as though Dayton got that message. According to Dayton's June 30 budget offer, he was willing to scale back his proposal to $300 million in new revenue.
SCHOOL PAYMENT SHIFTS School payment shifts:
During the last budget cycle of Gov. Pawlenty's term, he and the Legislature agreed to delay school payments to the current biennium. Dayton and GOP legislators have already agreed to continue the delay through the end of 2013, saving the state about $1.45 billion.
As part of their compromise proposal, the GOP suggested increasing that delay by an additional $700 million, and Dayton appears amenable to the idea, saying that he and Republicans are on the same page about increasing per pupil funding by $50 to help offset the temporary funding loss.
This revenue raiser is another vestige of the Pawlenty administration. Back in 2009, he suggested raising $1 billion in one-time money by selling bonds backed by the state's tobacco settlement. Since 1998, the state has been getting annual payments from the tobacco industry.
The GOP leaders resurrected the option last week, saying they'd approve an unspecified amount of revenue from the sale of tobacco bonds. But Dayton rejected the idea because he said it is not a permanent solution to the state's budget crisis.
During this legislative session, several lawmakers came out in favor of some sort of new gambling revenue. For instance, Sen. Dave Senjem, R-Rochester, introduced a bill that would allow casino-style gambling at horse racing tracks, a proposal that has long been resisted by tribal casinos and some gambling opponents. Senjem estimated his plan would bring in $125 million annually in new tax revenue.
SALES TAX EXPANSION
Minnesota is somewhat unusual in that it doesn't tax clothing sales. Expanding the tax base to include such items could bring more than $600 million over two years, according to a 2010 Minnesota Department of Revenue estimate. Expand the sales tax to food, and new revenue increases by more than $1.4 billion, according to the same estimate.
Still, it's a hard sell in the Legislature, where some lawmakers will argue that such sales taxes are regressive.
CORPORATE TAX EXPANSION
Another component of Dayton's latest budget proposal includes $303 million in new revenue from corporate tax reform and closure of corporate tax loopholes.
Dayton hasn't laid out exactly how he'd find that money, but his initial budget proposal provides some clues. For instance, he argues for scaling back special tax treatment for domestic companies that have most of their property and employees outside the country. A Revenue Department estimate for a separate bill that would repeal the provision pegged new revenue at more than $150 million over two years.