Senate DFL budget focus: education and property taxes

Another piece of the state budget puzzle fell into place Wednesday as Democrats in the Minnesota Senate released their framework for erasing a projected $627 million deficit while also increasing overall spending by $1.4 billion.

But the budget targets did not show how Senate DFL leaders plan to come up with the tax revenue they'll need to pay for their higher spending on education and property tax relief.

The Senate plan follows one from House Democrats, who proposed increasing state spending by $1 billion. Both plans provide big funding boosts for public schools and colleges.

But the House also wants to pay back the entire $854 million in delayed state payments to K-12 schools that were part of previous budget agreements. They get the money from a temporary income tax surcharge on Minnesotans earning more than $500,000 a year.

Senate Majority Leader Tom Bakk of Cook said while the House DFL put a high priority on the school shift, the Senate DFL put a high priority instead on property tax relief.

"We just didn't have enough money to do both, and I think the House didn't have enough money to do both," Bakk said. "The question will be coming out of the conference committee: Where can we find a compromise between the Senate's desire to potentially restore the homestead credit or something like it, and the House's desire to pay back the school shift?"

The Senate DFL has a two-prong approach to property tax relief. One is a $463 million increase in tax aids and credits to local governments. The other comes from the new education spending. Bakk said the $486 million funding increase for K-12 education includes money to buy down local tax levies.

"Levies that normally would fall on property to pay for school funding, things like voter-approved levies, will be reduced by about $150 million," Bakk said. "That's $150 million of property tax relief that would be replaced by state general fund money."

Bakk said the Senate budget will require about $2 billion in new tax revenue, but those details have not been worked out. He said an income tax increase on top earners will be included and could potentially include more than the top 2 percent that DFL Gov. Mark Dayton has targeted. Bakk also mentioned a cigarette tax increase, similar to the governor's proposal, and a sales tax on some online transactions.

REPUBLICANS RAISE CONCERNS

A lack of details didn't slow Senate Republicans from criticizing the plan.

"We think that the additional $2 billion in taxes that they're raising are unnecessary, unneeded," said Senate Minority Leader David Hann of Eden Prairie.

Hann said he's concerned about what tax increases will do to a still-struggling economy. He believes that state revenues are already improving enough to keep pace with essential spending. Hann said Republicans will soon outline an alternative approach to the budget.

"The budget we had two years ago focused on the revenues that were being generated by the economy and the spending that would live within the limits of that revenue," Hann said. "We think that's the prudent way to do it. We think you can do it with this structure we're in today with the constraints we have today."

SCHOOL PAYBACK FASTER IN HOUSE PLAN

The new targets put Senate Democrats and Dayton on the same page regarding the school shift. They rely on current law for a gradual pay back. Dayton, whose budget proposal includes $1.1 billion in new spending, said he's not enthusiastic about the House using a tax increase for a faster payback.

"I think it's too much," Dayton said. "It's part of the negotiations. We'll have to see what happens."

Despite that key disagreement, DFL House Speaker Paul Thissen of Minneapolis said he was standing by the proposed temporary surtax. He described it as a fair way to get the state books balanced.

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