FAQ: Making sense of Dayton's budget proposal

State budget released
Minnesota Management and Budget Commissioner Jim Schowalter presents Gov. Mark Dayton's 2012-13 budget in St. Paul, Minn. Tuesday, Feb. 15, 2011.
MPR Photo/Jeffrey Thompson

Gov. Mark Dayton released on Tuesday his budget proposal for balancing the state's $6.2 billion deficit. Below are some questions and answers about Dayton's proposal.

Dayton proposes raising taxes in his budget. Who would be affected?

Dayton says only 5 percent of Minnesotans would see their income taxes go up. Here's a look at who he's talking about:

-- Minnesotans whose taxable income -- that means after deductions -- exceeds $85,000. (The threshold is $130,000 for heads of household and $150,000 for couples.) Minnesotans whose taxable income exceeds $500,000 will have to pay an additional temporary "surtax" of 3 percent.

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-- Snowbirds and other Minnesotans who spend part of the year in another state. (Dayton wants to close a loophole, meaning people will still have to pay income taxes even if they don't live here all year.)

-- Minnesotans who own homes valued at more than $1 million

How would income and property taxes be calculated?

Assuming Dayton follows current practice, the new rate of 10.95 percent would be applied to any income over the $85,000 annual taxable income threshold. That means if your taxable income is $125,000, you'll pay the new higher tax rate only on $40,000 and pay a lower rate for the rest. Likewise, the property tax would be applied to the portion of the home's value over the $1 million threshold.

How would Minnesota's income tax rate compare to other states under Dayton's proposal?

Currently, Hawaii, Oregon and California have higher tax rates than Minnesota. If Minnesota adds a fourth tier income tax rate of 10.95 percent, the state would have the second-highest income tax rate. If the temporary surtax is included, Minnesota would have the highest state income tax rate.

Dayton proposes cuts to MinnesotaCare, higher education, health and human services, the state government work force. How much money are we talking about and who would be impacted?

-- MinnesotaCare: The budget would eliminate MinnesotaCare coverage for 7,200 people -- adults making more than 200 percent of the federal poverty guidelines (about $22,000 a year or $1,815 a month for a single adult and about $29,000 a year or $2,452 a month for two adults). MinnesotaCare currently provides health insurance for more than 100,000 people each month, including many people who are considered members of the working poor. Recipients pay a monthly premium based on their income. Commissioner of Human Services Lucinda Jesson said she hopes people who lose their insurance will be able to find coverage in the private market. She said there will be more opportunities to get subsidized coverage through federally mandated insurance exchanges in 2014.

-- Higher education: Minnesota's public colleges would see a $153 million reduction in the next two years. That could lead to tuition increases and/or cuts at the University of Minnesota and MnSCU campuses. Dayton's budget protects the State Grant program from cuts, providing financial aid to college students whose families make less than $50,000 a year. But Dayton would cut $18 million out of other programs and small grants administered by the Minnesota Office of Higher Education. Overall higher education funding would be reduced to 2003 levels.

-- Health and human services: Dayton wants to transition some "lower need" Minnesotans who have disabilities into less expensive community living alternatives rather than high-cost nursing homes. He would also raise eligibility requirements for community based services for seniors. Also, the rates the state will pay for nursing home or other long-term care would be reduced to save the state money. These cuts would impact care providers and could also impact the care the elderly and Minnesotans with disabilities on public receive. Stay tuned for more details in the coming days.

-- State government: Dayton would reduce the work force by 6 percent, which is about 2,160 workers. It's not yet clear how many people would be laid off, but some of the cuts could be achieved through attrition.

How likely is it that this will be the state's next two-year budget?

Not likely. Even Dayton acknowledges that his budget proposal won't be what the final version looks like after he and the Republican-controlled Legislature work out an agreement. The Republicans are against tax increases and want the overall budget to be about $5 billion less than what Dayton proposes. But Dayton said he will stand firm against "barbaric" cuts that affect Minnesota's most vulnerable residents.

What happens next in the process?

Republican House and Senate leaders will work on an alternative budget plan. They're expected to release that proposal by March 25. Then, Dayton and the Legislature will have about two months before the legislative session ends to work out a deal. Technically though, lawmakers have until July 1 to enact a budget. That's when the next fiscal year begins. If they fail to reach an agreement, state government would shut down -- a prospect Dayton and lawmakers said they want to avoid.

Does Dayton's budget cut funding for welfare programs?

Dayton's budget preserves funding for two main welfare programs: General Assistance and the Minnesota Family Investment Program. General Assistance provides up to $203 a month for childless adults who cannot work because of an illness or disability. The Minnesota Family Investment Program provides assistance to low-income families.

But the budget would cut some funding for emergency GA and MSA. Low-income people use emergency GA when they're in crisis. For example, it can pay rent when a low-income Minnesotan is facing eviction or pay a utility bill to prevent shut-offs. MSA stands for Minnesota Supplemental Aid. It provides monthly payments to about 29,000 low-income disabled or elderly Minnesotans. The average monthly payment was $97.05 in the 2010 fiscal year.

Many cities and counties are facing their own budget crises. Does the governor's budget cut aid to local governments?

Dayton's budget would fund local government aid at $3.5 billion in the next two years. It's more than what cities and counties are currently getting because of cuts made by former Gov. Tim Pawlenty.

But Republican lawmakers, including Rep. Greg Davids of Preston, hint that local governments shouldn't expect full funding. The chairman of the House tax committee said local governments ought to be tapping into their rainy-day funds, "because it's raining," Davids said.

Does Dayton's budget proposal create any new government programs or initiatives?

The budget would create a Governor's Achievement Gap Innovation Fund and would expand all-day kindergarten for low-income students.

U.S. Secretary of Education Arne Duncan has said that Minnesota isn't doing enough to close the achievement gap.

Although Minnesota's education system and its students usually rank toward the top of national achievement tests, the data masks a deep disparity between white and minority students. For example, in 2009, eighth graders in Minnesota had the second highest math scores in the nation on a widely used standardized test, but the gap between the scores of white students and both African-American and Latino students was the seventh largest in the country.

Dayton says he's increasing funding for early childhood and K-12 education. How much of an impact would there be?

Dayton wants to spend $14.2 billion on K-12 education in the upcoming two-year budget cycle, which is about $900 million more than the state allocated for the current biennium. But the increase won't feel that large to schools because most of it replaces one-time federal stimulus money. Also, enrollment increases are driving up per-pupil payments. Despite the new funding for all-day kindergarten and the Governor's Achievement Gap Innovation Fund, education officials said the $14.2 billion essentially keeps funding flat for schools.

Does the budget preserve funding for local farmers markets and other small-scale health initiatives?

The budget maintains funding for the State Health Improvement Program. In Minneapolis, SHIP grants have funded a program to get fresh produce into corner stores, create mini farmers markets in low-income neighborhoods, free classes on how to can food, and other efforts to increase bicycling, walking, and gardening. The current funding runs out in June, putting all of the programs in jeopardy.

(MPR reporters Tom Weber and Tom Scheck contributed to this report.)