Budget Update on 2011 Minnesota Legislative Session

May 4, 2011

Budget issues have preoccupied the 2011 legislative session and with less than three weeks remaining before adjournment no agreement is in sight.  In a broad sense the Republican controlled legislature is at odds with DFL Governor Mark Dayton over how to close the state’s $5 billion budget deficit.  Governor Dayton proposes a combination of budget cuts and $2.5 billion in tax increases, while Republicans propose budget cutting without raising taxes.

In a more detailed analysis, the budget proposals of the House and Senate Republican caucuses are not structurally balanced, relying on one-time transfer of funds and estimates of new revenues generated from the use of analytics for both the Departments of Revenue and Human Services that are unrealistic.  Furthermore, the Republican caucuses seem to be internally divided on how to balance the budget and end the session.

The Governor and the legislature agree that substantial cuts will be made.  They disagree on the amount and the caucuses reject the Governor’s proposal to close the gap with an income tax increase on high income individuals.

If the parties get beyond campaign talking points, some obvious options exist to achieve a structurally balanced budget.  One is to reduce or eliminate certain tax expenditures now part of the state income tax code.  Another is to extend the sales tax to food and clothing and reduce the rate.  These and other options, and combinations thereof, are available to solve the budget problem now and for the foreseeable future.  It will take courage from all parties and the result is unlikely to be pleasing to anyone.