MN2020

MN Goes Green and You Should Too!

Fri, 17 May 2013 17:15:51 +0000

By Christina Motilall, Fellow

I have a lot of favorite things that come with summer weather, and one of them is browsing a farmers market in sunglasses and sandals. The St. Paul Farmers' Market is great on a Saturday morning and tomorrow morning (May 18th) is going to be one of the best all year. This is because they (along with a lot of other really great partners) are sponsoring MN Goes Green from 9 a.m. to 6 p.m. at the St. Paul Union Depot, just one block away from the market.

MN Goes Green is a FREE event to promote sustainability and green living in Minnesota. In one day you can see green fashion, bring in damanged items to flex your Fix-It muscles, hear informative speakers, and learn the best ways to source local groceries. I have been involved in the environmental movement for over 10 years and I can tell you, there is always something new to learn to improve your life and the health of the planet.

With so many environmental stressors facing our earth, it is important for Minnesotans to do our part to effectively use and conserve common pool resources. Our air, water, and land need to continue supporting future generations as they have supported us. This will only happen if we take sustainability by the reigns and make environmentally conscious decisions. So come on down to MN Goes Green tomorrow morning and take your steps to becoming a responsible enviro-citizen!

Another Sign Affording College is Not Getting Easier

Fri, 17 May 2013 15:30:10 +0000

By Alex Christensen, Policy Associate

It’s mid-May, meaning that college admissions decisions are out and most high school seniors have committed to their college. Now comes the worst part: finishing the last few weeks of high school!

That might seem like the worst part to the students themselves (I know it was for me), but a few more weeks of American History are a breeze compared to navigating the world of financial aid. With the price of college rising and wages stagnating, financing college is becoming more difficult.

There are subsidized loans, unsubsidized loans, and loans to cover the expected family contribution (which is more than many families can afford). There are Pell Grants, but those are covering less of students’ needs. As if that weren’t enough, The Atlantic reports that some colleges and universities are using financial aid dollars for relatively wealthy students while leaving students with financial need under piles of loans.

A handful of private colleges are restructuring their financial aid systems, however. While the New America Foundation report singles out small private colleges and public universities in the Ohio River Valley, private universities with large endowments have more flexibility.

I was lucky enough to study at Washington University in St. Louis (whose endowment is almost as large as the national economy of Cyprus), which is doing just that. Families that earn less than $60,000 per year are not expected to take out the loans included in the FAFSA financial package, which are replaced with grants funded by the university. Harvard University (with an endowment the size of Bosnia and Herzegovina) has taken its efforts even further. The Cambridge, Mass. college not only replaces loans for families making less than $60,000, but has a sliding pay scale based on income. Families making $120,000 are only expected to pay 10% of their income out-of-pockets and that percentage slides down, until incomes of $60,000 and less pay 0%. The key in the coming years is to translate the successes of these small, rich schools to the wider university system.

Experiments are going on in a few financial aid offices around the country, but the report is damning. The idea that elite institutions are tagging financial aid for already elite students undermines a basic tenant of education in the United States: that gifted students can reach the upper echelons of education as long as they put in the effort. As The Atlantic article says, the incentives are there for private colleges to continue these practices. The continued political pressure on the Pell Grant program only impedes the overcoming these issues.

Addressing financial aid distribution at elite universities might be putting the cart before the horse. Analysis from a few months ago shows that lower-income students, for the most part, never get to the point of receiving financial aid packages; they never apply to those schools in the first place.

Agreement on Fourth Tier Emerges

Fri, 17 May 2013 12:00:53 +0000

By Jeff Van Wychen, Fellow and Director of Tax Policy & Analysis

Yesterday morning’s Hindsight post regarding the ongoing tax and budget negotiations at the State Capitol speculated that the difference between the House’s offer of a 9.11% fourth tier income tax rate and the Senate’s offer of a 10.5% rate could be settled by agreeing to the 9.85% rate proposed in Governor Dayton’s budget. That turned out to be exactly what state policymakers decided to do.

Last Sunday, House and Senate leaders and Governor Dayton announced that they had agreed to limit the state income tax increase to the top two percent. However, left unsettled was the question of how much revenue would be raised from this income tax increase. At a press conference last night, that unsettled piece of the income tax increase was nailed down with the announcement of the 9.85 percent.

For taxable income above $250,000 for married joint filers, $200,000 for heads of households, and $150,000 for single filers—income that would fall in the new “fourth tier”—the tax rate would increase from 7.85 percent to 9.85 percent. This rate increase is projected to generate $1.1 billion in new revenue during the upcoming FY 2014-15 biennium.

The income tax surcharge contained in the House omnibus tax bill will not be part of the final tax deal. Governor Dayton and House and Senate leaders also stated at last night’s press conference that any new revenue above projected levels in the November 2013 and February 2014 state budget forecasts would be dedicated to paying back the K-12 school funding shift. If these revenue improvements are not sufficient to retire the entire K-12 shift, leadership said that they would pass legislation to pay back the remainder of the shift in 2014.

Also announced at last night’s press conference was an agreement to accept the House proposal to increase the state’s cigarette tax by $1.60 per pack, which would generate $371 million in FY 2014-15. However, another House proposal—an increase in the alcohol tax—is not included in the final tax deal.

The agreement announced at last night’s press conference will repeal some, but not all, of the corporate tax loopholes targeted in the House and Senate omnibus tax bills. However, the precise list of loopholes to be closed is not yet known, although a legislative source has indicated that the corporate tax haven loophole will not be among those repealed.

The House-Senate Tax Conference Committee will meet again tomorrow to work out unresolved tax issues, including property tax and sales tax items. Time is of the essence, since Monday is the last day of the session that the Legislature can pass bills.

However, with the income tax provisions agreed on today, a critical piece of the progressive agenda has been nailed down. Even with the increase in regressive cigarette taxes, Minnesota’s overall state and local tax system will become less regressive by virtue of the fourth tier income tax announced last night. Revenue from this tax increase will help to restore critical public investments to education, economic development, infrastructure, and property tax relief that have been allowed to languish for a decade.

The Invisible Bike Helmet

Thu, 16 May 2013 19:30:28 +0000

By Conrad deFiebre, Transportation Fellow

In the great debate among bicyclists -- helmet or not -- a couple of young Swedish women may have come up with a way to split the difference. Their invention, in limited commercial rollout but backed by $10 million in venture capital, mimics automobile airbag technology: out of sight until needed.

The Hövding invisible bike helmet is worn in a pouch around the neck until embedded sensors detect the start of a tumble. Then it deploys into a large, hoodlike cushion to protect the head from impact.

This could appeal to appearance-conscious riders but may not settle a deeper-seated argument over the best approach to bicycle safety. In much of bicycle-friendly Europe and by some U.S. cycling enthusiasts, helmets are disdained as falsely signaling that biking is inherently very risky. In this camp, as well, it's believed that helmets unfairly put the responsibility for safety on bicyclists rather than on drivers or public provision of separate lanes for two-wheelers.

On the other hand, many bicyclists consider helmets a common-sense response to actual dangers. This week's Ride of Silence, commemorating cyclists killed or injured in crashes, requires helmets, even though the ride won't exceed 12 m.p.h. And a young Minneapolis bike commuter I know says he could have died several times in spills but for his helmet.

At Minnesota 2020, we think helmets are the smart choice for anyone traveling by motorcycle or bicycle, just as seat belts make eminent sense for motorists and their passengers.

Taking on what they called an "impossible" challenge, Swedes Anna Haupt and Terese Alstin developed the 1½- pound battery-powered pop-up helmet as part of a master's degree thesis. Be sure to check the crash-test video on the link above. No word yet, though, on U.S. retail availability. In Scandinavia, Germany, Switzerland and Turkey, it lists at about $520, and about $75 for stylish extra airbag shells.

Differences Remain Between House and Senate Tax Negotiators

Thu, 16 May 2013 16:00:17 +0000

By Jeff Van Wychen, Fellow and Director of Tax Policy & Analysis

After a day of trading offers and counter-offers, members of the House and Senate tax conference committee met last night to discuss their outstanding differences. The third and most recent House offer and the subsequent Senate offer remain significantly apart.

House Tax Committee Chair Ann Lenczewski and lead tax negotiator for the House expressed concern over the magnitude of the differences in the fourth tier income tax rate between the House and Senate. Over the course of negotiations yesterday, the difference between the two bodies in terms of the fourth tier rate narrowed; however, the fourth tier rate in the last Senate offer is 10.5 percent (generating a projected $1,482 million in additional revenue in FY 2014-15), compared to 9.11 percent in the last House offer (generating a projected $707 million).

The fourth tier tax rate proposed by Governor Dayton in his revised budget is 9.85 percent. Based on the agreement reached by the Governor and House and Senate leadership last Sunday, the new fourth tier rate will apply to taxable income in excess of $250,000 for married joint filers, $200,000 for heads of households, and $150,000 for single filers; filers with taxable incomes above these levels comprise the top two percent of all Minnesota households by income and currently enjoy a significantly lower state and local effective tax rate than other Minnesota taxpayers.

House conferees noted that the House members were uncomfortable with the size of the fourth tier income tax rate proposed by the Senate and argued that a rate this high would not be necessary if the Senate would remove some of the additional “tax expenditures” from its budget. House negotiators specifically cited increased funding for the historic tax credit and angel investment credits as examples of new tax expenditures that could be removed from the Senate’s offer.

Senate conferees—lead by Tax Committee Chair Rod Skoe—argued that the higher income tax rate proposed by the Senate was necessary because—under last Sunday’s leadership agreement—the new rate would not kick-in until very high income levels and thus would not generate sufficient revenue at a lower rate. (In the Senate omnibus tax bill, the higher income tax rates would have applied to taxable income in excess of $140,960 for married joint filers—significantly lower than the $250,000 threshold agreed to last Friday.) Senate negotiators also defended the additional tax expenditures in their offer, arguing that they were useful economic development tools.

House conferees urged the Senate to consider the House’s proposed increase in alcohol taxes, proposed to be six cents per drink in the most recent House offer (down from seven cents in previous offers), which would generate $289 million in new revenue in FY 2014-15. In addition, the House negotiators asked the Senate to agree to the House proposed cigarette tax increase of $1.60 per pack, compared to the Senate’s proposed increase of $0.94 per pack.

Chair Lenczewski defended the increase in the alcohol tax on the grounds that it would help to pay for the societal costs associated with excessive alcohol consumption. She also argued that the House’s higher cigarette tax per pack would not only generate $371 million in new revenue ($72 million more than would be generated by the Senate’s offer of $0.94 per pack), but would reduce the incidence of smoking, especially among price sensitive teens.

Chair Skoe responded by noting that both cigarette taxes and alcohol taxes are highly regressive, falling most heavily on those Minnesotans with the least ability to pay. (This is confirmed by the 2013 Minnesota Tax Incidence Study; in fact, the cigarette tax is the most regressive of all state taxes.) Skoe also noted that the alcohol tax would affect nearly all Minnesotans, thereby deviating from the Governor’s goal of only increasing taxes on the top two percent.

Both the House and Senate negotiators are making reasonable points. While tax credits and other tax expenditures are promoted on the basis that they will create jobs and promote economic development, it is difficult to prove that the generate any more economic activity than would have occurred in their absence. On the other hand, if the final tax agreement relies too heavily on regressive excise taxes and not enough on progressive income taxes, it is possible that it will not make progress in reducing the regressivity of Minnesota’s tax system. Reduction in tax regressivity is a goal embraced by the House, Governor, and Senate.

A possible compromise would be to settle on the fourth tier income tax rate proposed by Governor Dayton—9.85 percent. This is approximately half way between the rates proposed in the most recent House and Senate offers and would generate a project $1,119 million in FY 2014-15. In addition, the new tax expenditures in the Senate proposal could be trimmed and the magnitude of the cigarette and alcohol tax increases in the Senate proposal could be reduced. This compromise could allow the negotiators to reach the $2.05 billion revenue target agreed to last Sunday, while at the same time reducing the regressivity of Minnesota’s tax system.

If the tax conference committee fails to reach an agreement soon, the final decisions could be “kicked upstairs” to the Governor, House Speaker Paul Thissen, and Senate Majority Leader Tom Bakk. Today promises to be a busy day for the tax conferees.

Liberty and (Environmental) Justice for All

Thu, 16 May 2013 14:30:32 +0000

By Christina Motilall, Fellow

I remember saying the Pledge of Allegiance almost every day during my K-12 tenure. The part that always stuck with me was ‘…liberty and justice for all.” The part I always took for granted was ‘…the United States of America.” When you think of America you think of 50 states and DC. Yet scattered throughout the U.S. are dozens of sovereign Native American Nations. So where does state and federal power stop and tribal jurisdiction begin?

As my interest in the environment grew, I began researching how Minnesota and our many Tribal Nations interact on federal and state environmental policies. What I discovered was a tangled set of policies. Minnesota and 5 other states have been given civil and criminal jurisdiction over tribal lands (minus the Red Lake Nation in Minnesota) through Public Law 280. This transfer of federal power to state power means that state environmental policies are seen more as ways to prohibit certain actions rather than to regulate a way of life.

The remaining Federal environmental policies mandate certain protection and remediation efforts on tribal lands to protect the livelihood of Tribal Nations who choose to exercise their subsistence rights (such as fishing and gathering). Some Tribal nations have applied for the ‘Treatment-as-a-State” designation in Minnesota to allow them to enact federal policies on their own land instead of state implementation. Different Tribes have gained ‘Treatment-as-a-State’ status for different federal policies.

What makes all of this so interesting to me is that Tribal lands are supposed to be sovereign. So why does the federal government and the state of Minnesota have any say on environmental issues at all? From what I can tell, it is more a product of habit than actually following written law. With pipelines being run through Tribal lands, when the majority of people on that land don't want them, I think more can be done to protect Tribal lands. The tangled web of policies is not easy, but it is a start. To uphold 'Liberty and (Environmental) Justice for all' in the environmental realm, Tribal nations need their voices to be heard.

Senate Makes Counter-Offer to House

Wed, 15 May 2013 21:24:37 +0000

By Jeff Van Wychen, Fellow and Director of Tax Policy & Analysis

Senate tax conferees have responded to the House offer—summarized in a previous Hindsight post—with their own counter-offer. The two plans are in agreement on some issues and diverge on others.

The Senate is proposing a fourth tier income tax rate increase significantly larger than what is being proposed by the House. The Senate offer would raise nearly $1.6 billion in FY 2014-15 from the fourth tier income tax on the wealthiest two percent of Minnesotans, nearly three times more than would be generated in the last House offer and significantly more than would have been generated under the Senate’s omnibus tax bill. Both offers include the income tax surcharge, but it is not clear if the level of the surcharge is identical.

While the Senate offer proposes a large fourth tier income tax rate increase, it has a significantly smaller cigarette tax increase—94 cents per pack (generating $299 million in FY 2014-15) as opposed to $1.60 in the House offer (generating $370 million). The Senate offer does not extend the cigarette tax to “little cigars” or increase alcohol taxes, as the House offer does.

Both the House and Senate offers would exempt local governments and other entities from the sales tax. However, the list of what would and would not be exempted is not identical. Among the provisions in the Senate offer that is not in the House offer is the sales tax exemption for capital equipment purchases. Under current law, purchases of capital equipment is subject to the sales tax; this tax is later refunded. The Senate proposal would exempt capital equipment upfront, thereby reducing administrative hassles by eliminating the need for a refund. The upfront capital equipment exemption does have a significant one-time cost to the state of $140 million in FY 2014-15, but a significantly smaller cost in subsequent biennia.

Like the House offer, the Senate offer proposes extending the sales tax to warehousing and storage services. In addition, the Senate extends the sales tax to electronic and commercial repair and maintenance and to telecommunications equipment. Net of the sales tax base expansion and the new exemptions, the Senate offer would generate $48 million from the sales tax in the FY 2014-15 biennium and considerably more in the second biennium (FY 2016-17) as the cost to the state of the upfront capital equipment exemption declines after the initial biennia.

The Senate offer repeals some corporate tax loopholes, but not as many as the House offer does. Not included among the loopholes closed by the Senate are the foreign royalty subtraction and tax haven provisions. While the House offer would generate a projected $394 million in FY 2014-15 from corporate loophole closing, the Senate offer would generate only $108 million.

Click here for a link of items in the Senate’s tax offer. It is difficult to compare the items in this offer to the items in the House offer because of different ways in which the items are categorized and caution should be used when doing so. For example, the total FY 2014-15 projected revenue increase under the Senate offer is $2.05 billion, compared to $2.92 billion in the House offer. However, this difference is due to the fact that the House adds the one-time revenue from the income tax surcharge to its FY 2014-15 revenue total, while the Senate does not. Ignoring this difference in how items are tallied, both offers are generating a similar amount of new revenue in FY 2014-15, although the Senate appears to be generating somewhat more in the FY 2016-17 biennium.

The initial House and Senate offers are part of an ongoing negotiation that will extend for at least another day. Offers and counter-offers will be traded between House and Senate tax conferees until a final tax agreement is reached. The final agreement of the tax conference committee—referred to as the “tax conference committee report”—should be completed before the weekend.

House Makes Tax Offer to Senate

Wed, 15 May 2013 18:19:13 +0000

By Jeff Van Wychen, Fellow and Director of Tax Policy & Analysis

The agreement announced by Governor Dayton, Speaker Thissen, and Majority Leader Bakk on Sunday set the broad framework for the final tax bill, but many of the specifics have yet to be resolved. Part of the process of settling these specifics involves the trading of offers and counter-offers between House and Senate tax conference committee members, who are charged with working out the differences between their respective bodies. As part of this process, the House conferees presented an offer to the Senate this morning.

In this offer, the House proposes to set the new fourth tier income tax rate at 8.84 percent, which is greater than the 8.49 percent rate proposed in the House tax bill, but less than the 9.85 percent rate proposed by the Governor and the 9.3 percent rate in the Senate tax bill. (The Senate’s rate would apply to the existing third tier.) The income level at which the new fourth tier tax rate would kick in was part of the broader Sunday agreement and is based on the Governor’s proposal. (The various income tax rates and tier thresholds were discussed in a recent Minnesota 2020 article.) The fourth tier proposal in the House offer is projected to generate $555 million in FY 2014-15, approximately half of what would be generated by the Senate tax bill and the Governor’s proposal.

The temporary income tax surcharge—part of the House omnibus tax bill—is also included in the House offer. The surcharge would be in effect for two years at a rate yet to be determined, but sufficient to generate a projected $861 million in FY 2014-15, somewhat less than what would have been generated by the House omnibus tax bill. The House proposal fills in details of the general income tax surcharge agreement announced on Sunday. Revenue from the surcharge would be used to pay back the remaining K-12 education funding shift.

The House offer proposes to close several corporate tax loopholes, including the foreign royalty deduction (except for unitary business groups involved in research & development), foreign operating corporation provisions, and foreign tax haven provisions. The offer would also close loopholes pertaining to foreign partnership income, real estate investment trust dividends, and “nowhere income.” In regard to corporate income tax, the House offer would also increase corporate minimum fees, which have not been adjusted for inflation for several years. The total revenue projected to be generated by the corporate income tax provisions in the House offer—including items not listed here—is $394 million in FY 2014-15.

Also included in the House offer is a proposal to increase the cigarette tax by $1.60 per pack and to impose the cigarette tax on “little cigars.” The House offer also proposes to increase the alcohol tax to seven cents per drink. Most of the provisions in the House offer pertaining to cigarette and tobacco taxes are similar to what was in the House omnibus tax bill and are projected to raise a total of $871 million in FY 2014-15.

The sales tax provisions in the House offer are approximately revenue neutral, resulting in only a small reduction in total sales tax revenue. Here the House proposes to exempt counties and cities from the state sales tax and to begin imposing the sales tax on warehousing and storage services. Inclusion of these proposals in the House offer, which were part of the Senate tax bill but not the House bill, represents a concession on the part of the House to the Senate position.

The House offer did not include proposals regarding the unresolved property tax issues, such as the House proposal to expand the homeowners’ property tax refund (PTR) and to adjust the LGA appropriation for inflation in future years. Also not included in the House offer was the Senate’s proposal for school property tax relief and similar but different proposals from both the House and Senate regarding the renters’ PTR. For a complete list of all of the provision that were in the House’s tax offer—including provisions not described above—click here.

The House-Senate tax conferees are scheduled to meet this afternoon to discuss the House’s offer and possibly consider a counter-offer from the Senate. Stay tuned!

Reserve Bank Warns of Farm Land Bubble

Wed, 15 May 2013 16:00:52 +0000

By Lee Egerstrom, Economic Development Fellow

Another Minnesota real estate bubble is forming; this time on the country side, with prime farm land prices rising to record highs.

Two Kansas City Federal Reserve officials use regression models to show why everyone, especially in the Midwest, should be downright leery about these price spikes and the debt loads they carry. The Fed’s Main Street Economist highlights that while farm debt-to-asset ratios do not yet appear to be in the danger zone (20 percent or higher), data for 2012 and the winter land sales of 2013 are still unknown.

Farm booms in the 1910s and 1970s were succeeded by farm bankruptcies and widespread farm financial crises in the 1920s and 1980s. And just like nonfarm households, farm families leverage existing wealth (assets) in times of low income to support consumption and make existing debt payments.

If you’ve been paying attention the last six years, you’ve seen this play out in housing market problems and home values that are now, at long last, showing signs of recovery. If your memory stretches long enough, you will recall the farm financial collapse of the 1980s that followed similar bubbles and bursts, from which a large percentage of rural Minnesota communities never did significantly recover.

While we don’t know for sure the condition of today’s farm operations heading into another growing season, we have been properly warned. The fed officials point out USDA projections that show 2014 U.S. net farm income likely to fall 20 to 25 percent below 2013 levels and stabilize in that range in the coming decade.

Further, they cite projections that net returns for raising corn – the biggest driver of land prices – will likely fall from averaging $580 per acre the past two years to fall below $350 per acre by next year. At the same time, the Fed farm experts found farm debt outstanding at commercial banks rose 5 percent in the fourth quarter of 2012 and by 5.7 percent at Farm Credit System institutions. This compares with commercial bank and Farm Credit leverage increasing by less than 1 percent annually since 2008.

“History has shown that significant increases in farm leverage set the stage for deleveraging cycles and farm busts if land values fall,” they concluded.

“Whether this farm boom simple fades or busts depends on the wealth effect and how farmers finance agricultural investments.”

Credit Where It’s Due

Wed, 15 May 2013 12:30:49 +0000

By Michael Diedrich, Graduate Research Fellow

About a year and half ago, I wrote a post called “Math Plus Reading Does Not Equal Learning,” in which I noted the persistently low science scores of the Harvest Prep Seed Academy. My overarching argument was, “We need to remind ourselves what the goal of our education system is. It's not just about scoring well on the tests we have, it's about comprehensive student readiness for post-secondary success. To punish and reward schools using just [reading and math] is to encourage a narrow-minded focus on low-level testable skills.” I stand by that thesis, but I wanted to post an update on the facts.

In 2012, both Seed Academy and Best Academy (another school under the Harvest Prep umbrella) posted major gains in their 5th grade science proficiency rates. In particular, a dramatically higher percentage of African-American students from low-income backgrounds were proficient at Seed and Best relative to statewide average for that subgroup.

(Data from MDE)

I wanted to write this for two reasons. The first is to give credit where it's due; both of these Harvest Prep schools have made near-melodramatic progress in a single year. To the extent that these changes reflect broader learning by Harvest Prep students, well done to those students and their teachers.

The second reason is to reaffirm my original point. Our goals for our education system need to be higher than the subset of skills the state tests in the particular format (and at the low levels of thinking) those tests assess. If we only respond to the weaknesses those tests reveal, we risk sacrificing learning in other areas and at deeper levels for a system that rewards specialization in a particular intersection of subject, question format, and level of thought.

Basically, test scores let us know that we have a problem. You can't look at proficiency levels (or graduation rates) for African-Americans, Latinos, American Indians, and students from low-income backgrounds and deny that we have a problem. My worry is that too many of our schools (and I include a large slice of district schools here) are focused on fixing the test scores rather than the deeper problems.

I truly believe students from all backgrounds and walks of life can learn at high levels. I don't think standardized tests will ever meet that definition, which makes them the wrong target.

Compromises Slows Renewable Path

Tue, 14 May 2013 18:30:09 +0000

By Christina Motilall, Fellow

Ambitious legislation to expand Minnesota's Renewable Energy Standard has been scaled back for now. A compromise between the state's legislative chambers stripped a House plan that would have put Minnesota on a solid path to generate 40 percent of energy from renewable sources by 2030. Positive news for clean energy and jobs advocates remains, however. The compromise legislation includes a 1.5% solar standard by 2020 and wide expansions to how much solar non-utilities can generate that include a number of financial incentives.

Prior to the conference committee, which yielded this compromise, here's the original legislation each chamber passed. The spirit of these two bills had been the same: decrease our dependence on fossil fuels, mainly through increasing our use of solar, wind, hydroelectric, hydrogen, and biomass.

One of my favorite parts of both bills—which remains in the current legislation—is the ‘Made in Minnesota’ provision. There is a clear push to keep photovoltaic cell production in the state. This creates green jobs and keeps money here. Also still in both bills are a series of studies to garner more information about renewable energies and their potential for Minnesota.

However, these bills diverged in a few ways as well. A big distinction is the mandate on solar energy utilization. The House called for 4% of renewable energy in the state to come from solar, while the Senate's plan called for a 1% solar RES, each by the year 2025. The new legislation calls for a 1.5% solar standard by 2020, with a goal of 10% by 2030.

Perhaps the biggest difference was the House bill’s advancement of a new RES which would jump from 25% by 2025 (for public utilities minus Xcel) to 40% by 2030 (for investor-owned utilities minus eligible co-ops and municipalities). The Senate bill pointed to this as a distant goal.

While the House bill was much more in-depth and created a stronger incentive for renewable energy, the solar advances in the compromise bill and the promised studies keep Minnesota on a path toward a cleaner, greener, more sustainable environment.

Making Room for More Dakotans

Tue, 14 May 2013 15:30:47 +0000

By Lee Egerstrom, Economic Development Fellow

South Dakota Gov. Dennis Daugard stopped at the Mall of America this week trying to recruit Minnesotans to migrate westward to fill jobs in his state. This is a novel twist on the past few decades when “free rider states” have tried to lure businesses across state lines by offering subsidies at the expense of school children, local tax bases, living wages and quality of life factors.

In this case, South Dakota is trying to lure people. South Dakota Labor and Regulation Secretary Pam Roberts told the Associated Press the state has 10,000 unfilled positions open. That isn’t a lot, but South Dakota has a low unemployment rate and has lost population in some areas to outmigration in recent decades.

Compared with states such as Texas, which has higher unemployment (6.4%) and spends enormous funds (51 percent of state budget) on subsidies to lure businesses from California, Illinois and other states, our South Dakota neighbors are being downright neighborly.

My best recollection of a state raiding party coming to Minnesota was in the late 1960s when “Ten Tall Men” from Tennessee, a play on a movie picture title, came to Minnesota trying to lure some of our locally-grown businesses. Gov. Harold Levander, and more precisely his playful press secretary Bob Swanson, recruited former Minneapolis Lakers great and NBA Hall of Famer George Mike to assemble 10 taller Minnesotans to greet the visitors from Tennessee.

The arrivals were given Minnesota-made gifts, tourist information and business brochures and were told to look around, enjoy themselves, and were told they’d be welcome if they chose to “defect.”

Look around, Governor Daugaard and Secretary Roberts. If you like what you see and enjoy the amenities of urban development, you can always move here when you leave office. And please be neighborly; spend some money while you are here.

Renters’ Refund Restoration and Reform

Tue, 14 May 2013 12:30:36 +0000

By Jeff Van Wychen, Fellow and Director of Tax Policy & Analysis

There are at least two pieces of progressive tax policy poised to become law during the 2013 legislative session. Both are supported by the House, Senate, and Governor. However, the first of these—an income tax increase targeted to high income households—has received a lot of attention from the media—while the second—an increase in the renters’ property tax refund (PTR)—has been flying under the radar.

According to the 2013 Minnesota Tax Incidence Study, the renters’ PTR is the most powerfully progressive program in the state tax system. The renters’ PTR targets tax relief to renters whose estimated rental property tax payment (paid in the form of higher rents) is high relative to their income. A recent Minnesota 2020 article described how the renters’ PTR works. Dollar for dollar, no program does more to reduce the regressivity of Minnesota’s state and local tax system.

While the House, Senate, and Governor all support an increase in the renters’ PTR, the approach they take to expanding the PTR is different. The approach favored by the Governor and Senate would increase funding for the program by $18 million (about nine percent) annually and would increase refunds for 311,000 Minnesota households by an average of $57.

The PTR increase in the House tax bill would provide a somewhat smaller increase—about $15.5 million or 7.6 percent annually—and would affect a smaller number of currently eligible households (about 80,000), but would provide them with a larger average increase ($152). The House proposal would also extend PTR coverage to a larger pool of renters by reducing the income threshold (i.e., the percentage of income that a renter’s property tax must exceed before qualifying for a refund) for households with incomes above $31,030.

The website of the Minnesota Budget Project has a more thorough discussion of the renters’ PTR proposals currently being considered by state policymakers.

Property taxes are regressive and rental property taxes are the most regressive of all property taxes, falling hardest on low-income renters. Ironically, anti-tax conservatives pushed hard for and successfully achieved a $26 million annual cut to the renters’ PTR during the 2011 special legislative session, thereby increasing taxes on Minnesota renters. The proposals under consideration by state policymakers would restore a portion of the 2011 cut.

The House-Senate tax conference committee discussed the renters’ property tax refund during their May 10 meeting, although no final decisions were reached. Whatever approach is ultimately settled on, state policymakers are poised to make a powerfully progressive improvement to Minnesota’s property tax system during the 2013 legislative session.

Renewables Have Negligible Impact on Price Spikes

Mon, 13 May 2013 18:30:19 +0000

By Yingxin Ye, Undergraduate Research Fellow

As broad coalition of faith, labor and environmental organizations push for increased renewable energy standards in Minnesota, we’re hearing a lot of the usual push back about rising costs for consumers. Recent experience shows, however, that price spikes for expanding renewable energy standards haven’t materialized. In fact, since implementing the 2007 Renewable Energy Standards, renewables have in some cases driven down energy prices, according to compliance reports filed with the Public Utilities Commission.

One Xcel Energy filing says during 2008-2009, prices were 0.7% lower with wind on the grid. Minnesota Power reported that “renewable expansion plans produce no negative cost impacts to customers.” Ottertail Power initially saw a slight decrease in price with renewable energy, followed by two years of minimal increases. Many cooperatives, which wouldn’t be mandated to follow any increase under proposed new standards, also saw little or no negative impact because of the 2007 RES.

Environmental leaders say since the 2007 Next Generation Energy Act took effect, Minnesota has done a magnificent job increasing its portion of renewable energy production, going from just 5 percent to 17 percent renewable. Many of the state’s utilities are meeting or exceeding the current standard; therefore, strengthening the current renewable standard from 25 percent renewable by 2025 to 40 percent by 2030 is the logical next step.

Those who support increased energy standards say evidence showing price spikes represent budgeting outliers, and attribute most price spikes to utilities’ poor business decisions.

Furthermore, expanding renewable energy options provides a hedge against fossil fuel price spikes. Unlike coal or natural gas power, you don’t have to pay any extra for the wind or sun.

Decreasing carbon output will also have long-term economic benefits. Each extreme weather event connected to climate change costs businesses, communities, and the federal government millions and billion to clean up and rebuild.

We’ve done plenty of debating around this issue, and now we also have real data to help evaluate renewable energy standards. Generally they’re working well. Energy costs haven’t skyrocketed as feared and we’re exceeding standards in many cases. Earlier standards have also encouraged investment in and development of new and more cost effective green energy technology. So why shouldn’t we raise the bar? The only question left is how high?

Budget Agreement Makes for a Happy Mother’s Day

Mon, 13 May 2013 15:00:41 +0000

By Jeff Van Wychen, Fellow and Director of Tax Policy & Analysis

Governor Mark Dayton, House Speaker Paul Thissen, and Senate Majority Leader Tom Bakk announced a tax agreement during a Mothers' Day press conference that will generate about $2 billion in new state revenue, although the state tax increase is partially offset through property tax relief resulting from a $400 million increase in state aids and taxes.

The tax agreement includes a new “fourth tier” income tax bracket which will begin at $250,000 for married joint filers and $150,000 for single filers, which is what the Governor proposed in his budget. However, the exact amount of the rate increase that will be applied to these high-income households is not yet settled. The agreement will also include a temporary income tax surcharge that would apply to households with incomes above $500,000 along the lines of what was proposed in the House omnibus tax bill; the rate of the surcharge has yet to be negotiated, but will reportedly be less than the four percent rate contained in the House omnibus tax bill. The revenue from the surcharge will be used to pay back the K-12 education funding shift.

The tax agreement also includes an unspecified increase in cigarette taxes and a sales tax increase which, according to the Governor, will be “focused on business activity, not on consumers.” The later change will apply the state sales tax to at least some business-to-business transactions, which was part of the Governor's original budget submitted in January. The sales tax changes will apparently be revenue neutral, but additional detals are not yet known. Other details of the plan will be worked out by the House-Senate Tax Conference Committee over the next few days.

Predictably, House Minority Leader Kurt Daudt proclaimed a “disappointing” Mother’s Day because the gift “every hardworking mother in the state of Minnesota” will receive “is going to be a more than $2 billion tax increase.” Apparently Daudt thinks that every Minnesota mother is either a smoker or among the wealthiest two percent of Minnesotans, because these would be the only state residents that would see a tax increase based on what we currently know about the plan described by Dayton and the House and Senate leadership.

In fact, Minnesota mothers have many reasons to celebrate. While the details of the spending bills have yet to be agreed to, the tax increase will likely lead to some or all of the following:

An increase in state funding for the schools that will partially offset the 13 percent real per pupil decline that has occurred over the last decade. All-day Kindergarten and increased funding for pre-K education, which are among the smartest investments that government can make according to Nobel laureate economist James Heckman and Art Rolnick, research director at the Federal Reserve Bank of Minneapolis. Increased funding for higher education, which has seen a 35 percent decline in real state funding over the last decade. An increase in state funding for public safety. Property tax relief for both homeowners and renters.

All things considered, the plan announced on Sunday should be sufficient to make for a happy Mothers’ Day not only for mom, but for the state as a whole.