Mr. Dahle Goes to St. Paul

A recent editorial criticized the House and Senate DFLers for raising taxes. What the editorial failed to mention is the fact that both the House and Senate cut spending more than the Governor. The editorial goes on to criticize a House plan that “eliminates deductions on…most astonishing – mortgage interest.” It’s unfortunate that the editorial board failed to do some homework on this House provision. A closer look reveals the truth about the mortgage interest deduction proposal.

First of all, the bill does NOT impact the federal mortgage interest deduction, which represents most of the tax benefit for homeowners. It only impacts the much smaller state portion, and in a positive way for most. The House tax bill converts the mortgage interest deduction into a credit so that all taxpayers qualify for an equal percentage tax benefit.

Consider the following scenarios:

A married couple, $40,000 of income, $75,000 home, and working hard to pay about $6000 in mortgage interest. They don’t have enough other deductions; therefore, they don’t itemize. Their current state tax benefit is $0. Under the House proposal they will get a credit of $140.

A married couple, two kids, $100,000 of income, $200,000 home – relatively modest for their income, paying about $13,000 a year in mortgage interest. Their current state tax benefit equals about $400. Under this proposal, they’ll get a credit of $420 or $20 more.

Married couple, two kids, $100,000 of income, paying about $25,000 in mortgage interest. Their current law gives them a state tax benefit of $1,180. Their home is worth twice as much as the first example but their state tax benefit is three times as big! Under this proposal, they’ll get the same $420 credit as the married couple in the $200,000 home. Under current law, the bigger the home, the higher the income, the bigger the benefit – the House proposal reforms this impact.

Married couple two kids, $500,000 of income, million-dollar home, paying mortgage interest of $60,000. Under current law they receive tax benefits of $1,750. Under the House proposal, they would receive $420.

The bill creates a credit that provides the same benefit for everyone, up to $10,000 of interest. The Senate tax bill does not include this proposal. They do have a provision that would eliminate the mortgage interest deduction on a second home. Fifteen states do not have a mortgage interest deduction at all. The House proposal is similar to what is currently in place in Wisconsin.

I am not sure what the final tax bill’s provisions regarding mortgage interest will look like when it arrives on the Governor’s desk. Given the enormous budget deficit facing the state, subsidizing $1 million mortgages is no longer affordable. I would hope the correct information regarding the House and Senate budget plans are reported accurately so proper discussion can ensue.

So what’s next? The House and Senate budget solutions include increased revenue and deep cuts, deeper than what the Governor has proposed. All three budgets rely on one time Federal funds, a revenue stream, by the way, that will be absent in future budget solutions. Without increased revenue, how much deeper do we have to cut essential services to Minnesota citizens?
The Minnesota Senate proposal makes cuts that are distributed fairly across all budget areas of the State. We cannot expect our seniors, disabled citizens, nursing homes and local hospitals to endure deeper cuts. We cannot expect the burden to fall unduly on our State and local governments, have police and fire services cut to the bone while property taxes spike to make up the difference. Our schools need more money not less money. Our judiciary is in danger of being unable to provide proper legal services, accessibility, and timely resolution to necessary civil and criminal matters. Our roads and bridges continue to crumble, and higher education becomes less affordable to the next generation of Minnesotans. After cutting a billion dollars last year, how much more can we cut this biennium?
It makes sense to include revenue increases as part of the budget deficit solution. Resolving the deficit with cuts only would do greater harm to our economy. While both cuts and tax increases remove demand from the economy, state spending cuts can hamper the economy more during an economic downturn than do tax increases. When government spending is cut, more money is taken out of the economy as the state spends less on employee wages and the purchase of goods and services. In contrast, a tax increase on high-income households is likely to have less of a drag on the state’s economy, because those Minnesotans are likely to maintain their levels of consumption, but compensate for the tax increase by saving less (Minnesota Budget Project 2009).
Total state and local taxes in Minnesota are lower today than in 1996, measured as a share of income, which is not surprising considering that Minnesota made the largest tax cuts in the country in 1997, 1999, and 2001 (National Conference of State Legislatures).
With one of the worst budget deficits in my lifetime, we will need to use all of the tools in the budget balancing toolbox: raising revenue, cutting spending, and the use of one time federal dollars. Short term solutions are irresponsible. These same problems will reappear in future budget years unless a balanced budget without gimmicks, shifts, and borrowing is addressed now. We can’t cut our way out of this budget. Minnesota’s quality of life as we know it will cease to exist.

Yesterday, I stopped by the Lonsdale city hall to visit with the Mayor, Tim Rud and city administrator Joel Erickson. Representative Bly and I both spent some time with our friends to the west to talk about local issues.

Lonsdale has a lot of good things happening right now. They are anticipating opening a new care facility for assisted living as the Northfield Three Links Care Center expands there and they eagerly await the opening of a new municipal library set to open its doors this fall. Both facilities are a great addition to the community.

Recently, a federal grant request was submitted to the state hoping to acquire about $35,000 from the Library Services and Technology Grant. Surprisingly and unfortunately that grant request was denied. We will be asking the grant committee to reconsider the request and awarding of funds which would be used for books and getting books programmed into the SELCO (Southeast Library Coop) system. The Northfield Library has been very helpful in assisting the Lonsdale library in getting started and have been a good resource in helping Rep. Bly and I understand the grant process a little more clearly.

We also talked in general terms about the effects of LGA cuts to the city budget and about possible federal stimulus dollars that may find their way to Lonsdale in the way of commercial development improvements or aging downtown infrastructure replacement. While there are no specific plans in place, my office will be forwarding all state and federal contact information regarding the use of stimulus funds to the city administrator.

While many small towns continue to struggle in a tough economy, Lonsdale continues to look for ways to develop and improve a plan for growth they have put in place over the last several years. I look forward to working with the Lonsdale leaders and of course will do whatever I can to help them achieve those goals.

The Senate Education bill passed off the Senate floor last week. The Senate bill differs from the House and the Governor’s education bill because it makes some cuts to education.
Why would the Senate approve a bill that cuts education? The state has a $6.4 billion deficit. Education makes up 40% of the state’s budget. Holding education harmless means even greater cuts to health and human services, local government aid, higher education, public safety and the courts. The Senate bill does not rely on accounting shifts or delayed payments to schools. Payment shifts have to be paid back. They serve as a short term solution to a long term budget problem. The Governor and House plans both employ shifts, and the House proposal has an unprecedented $1.7 billion in delayed payments.
Federal stimulus dollars will soften the blow. A 7% cut, in reality, will be closer to a 1-3% cut as federal money flows directly to schools, primarily in areas of special education and Title 1 programs. Some school districts will actually receive more federal dollars this biennium than they will lose in cuts. The Senate bill does not make cuts to special education or early childhood education. Pre-kindergarten allowance programs will actually expand and see increased funding. In addition, the Senate bill allows schools to access capital reserves, staff development set-asides, and other dedicated funds as a flexible option to replace lost general fund dollars.
In the overall state budget, the Senate cuts more than the House or the Governor. It does not rely on budget shifts or borrowing gimmicks. These calculated cuts are also based on an additional $2.2 billion in new revenue, a concept the Governor flatly rejects. Failure to raise additional revenue means even larger cuts to education, our hospitals, nursing homes, and other areas of the health care budget.
The Governor’s education increases support expanding Q-Comp, the alternative teacher pay for performance program… an unproven program with questionable results currently in place in less than a third of Minnesota schools. None of that money would reach the classroom directly.
I am absolutely opposed to the idea of making cuts to education. These cuts are not permanent. But we face an unprecedented economic crisis that requires shared sacrifice. If we make tough decisions now by crafting a balanced budget, as the economy improves we can reinvest in our schools and our most precious asset, our children.
What will the final education bill look like? That remains to be seen. But the House, Senate, and Governor will need to find a way to work together, find a responsible balanced budget, and collectively share in that sacrifice while making tough decisions now.

The 2009 Legislative Session is at its mid-point and the Legislature continues work to finish the job of balancing the state’s budget before the constitutionally mandated deadline in May. The Senate and House set their budget targets earlier this year than any year in recent memory, and the Legislature is positioned to finish this session on time, with a budget that is balanced and fair to Minnesotans.
To address the financial crisis affecting the state, the Senate DFL has taken the fiscally responsible approach to solving the state’s $6.4 billion budget deficit. The Senate’s proportional solution is the fairest and most equitable of the plans put forward to deal with the deficit, and it best positions the state for new investments once the economic storm is weathered. Additionally, unlike the Governor’s proposal that leaves the state $2.6 billion in deficit in 20011, the Senate solution provides for a balanced budget for the state through 2013.
The plan calls for a 7% proportional cut for each of the budget areas; however, those reductions are softened by federal funds in the American Recovery and Reinvestment Act (ARRA) of 2009 in key areas, including education, public safety, and health care. Reductions in education are further eased by the elimination of several mandates that will free up resources to allow school districts to reinvest those dollars back into the classroom.
While balancing the budget is the primary focus of this session, the Legislature is also moving forward on many issues of importance to Minnesotans. Several bills that address a variety of issues have already been signed into law the Governor. Those bills extend unemployment benefits, ensure that any budget passed by the Legislature and enacted by the Governor be balanced for the long term, and provide tax relief to Minnesotans. The Senate has passed several bills to create jobs in the state, including a bonding bill with a focus on creating jobs now by fixing the state’s infrastructure and investing in flood mitigation. A Mandate Reduction Bill designed to eliminate duplicative or unnecessary government regulations has also passed the body.
There is still much to be done in the 2009 Legislative Session and cooperation has never been more important to our state as we face unprecedented difficulties. The Senate will continue its bipartisan tradition and collaborate with the House and the Governor to guide our state through the rough times ahead and to a stronger and more prosperous future for all of us.