ST. PAUL, Minn. (AP) — State officials assured legislative leaders on Thursday that Minnesota’s economy is on the upswing judging by promising jobs figures and tax collections, which will help buy off debt owed to schools and could enable the state to win a credit-rating upgrade.
The officials from the Department of Minnesota Management and Budget testified that tax collections have far surpassed expectations and Minnesota is close to regaining the jobs it lost during the recession. The hearing of the Legislative Commission on Planning and Fiscal Policy involved the most senior lawmakers from both parties.
State Economist Tom Stinson said Minnesota could yield $500 million or more in unanticipated revenue once final calculations are made on a fiscal year that ended June 30. By law, the extra money will pay back schools for hundreds of millions of IOUs the state took on during past budget crises. School leaders will know by the end of September how much is coming their way.
“This is a good story, but I wouldn’t be an economist if I didn’t caution you about getting too euphoric,” Stinson told lawmakers.
He said there are still some soft spots in the national economy and continuing gridlock in Washington has many on edge. He said some of the extra tax payments could be a result of people cashing out stock accounts or claiming bonuses on their 2012 income taxes to avoid getting stung by new high-end taxes that took effect this year.
GOP Rep. Mary Liz Holberg said Minnesota was gambling its recovery by turning its budget 180-degrees from the last two years, when state tax rates were frozen and spending crimped to the current two years when taxes and spending will go up.
“Is there not more risk in that we have increased the size of government?” Holberg asked the budget agency commissioner, Jim Schowalter. “Certainly you talk about how we have more stability, but we also have more spending.”
Schowalter responded that Minnesota is depending on fewer short-term patches in this two-year budget than it has before.
“We’re looking at a biennium that has less risk, less uncertainty than we have,” he said.
Schowalter was in New York last week trying to convince Wall Street bond houses that Minnesota deserves an elevated credit rating after sacrificing its sterling status following prior budget standoffs.
Meanwhile, the party leaders differed over how to interpret a fresh property tax simulation that attempts to gauge how the new budget will affect what people pay.
Republican officials raced straight for the bottom line, noting that there will likely be $13 million more in property taxes collected in 2014 compared with this year if early estimates hold up. That’s a 0.2 percent increase from current collections. Rep. Greg Davids, R-Preston, said it would result in “record property taxes.”
Democrats seized on data showing that rising market values — mainly from new construction and increasing agriculture land worth — account for the extra tax collections. Statewide, taxes on residential homes are slated to fall by 3.1 percent overall and small-business property taxes are also expected to drop. Actual fluctuations in tax bills will vary by geography, type of property and real estate market trends.
“Statewide property taxes on existing properties are actually going down,” insisted House Speaker Paul Thissen, DFL-Minneapolis.
Most cities and counties won’t set their 2014 levies until later this year, with some bound by newly imposed caps. Even the nonpartisan House researchers who did the simulation cautioned it was highly speculative.
The property tax tussle is more political than academic.
Democrats pounded at Republicans in the 2012 election on the premise the state budget the GOP crafted drove up local property taxes. In reality, residential taxes fell between 2011 and 2012. But state and local governments levied more in taxes on other types of property, from commercial property to apartments.
Democrats plowed hundreds of millions of dollars into property tax relief programs in the new budget, so both sides are watching closely on how it pans out.
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