CHICAGO - Minnesota lawmakers were expected Friday to pass a plan to tap $434 million of the state's $1.2 billion budget surplus for tax relief and to set aside another $150 million to bolster budget reserves.
The expected vote in Minnesota follows action in Wisconsin on a $540 million tax cut package pushed by Gov. Scott Walker after revenue estimates showed a $1 billion budget surplus.
If Minnesota lawmakers approve, the state's reserve would grow to about $800 million. The state also has a cash flow account that holds about $350 million.
The Senate was expected to approve the package and then send it to the House for review because it differs somewhat from a plan that recently passed that chamber. Both are controlled by the Democrat-Farmer-Labor Party.
Gov. Mark Dayton, also a DFLer, earlier this week pressured the Senate to act. He wanted a bill passed by Wednesday but lawmakers missed that deadline. Dayton has said the urgency is due to the impending tax filing deadline. Many of the credits would apply retroactively.
"I'm very, very, very disappointed they would not pass a bill," Dayton said earlier in the week, accusing the Senate of tying its vote to approval of a new Senate office building. Senate Democratic leaders denied the accusation and quickly unveiled a plan which advanced from committee to an expected floor vote Thursday. Republicans delayed immediate consideration pushing a vote off a day.
The Senate package could repeal various business sales taxes approved last year on commercial equipment repairs, telecommunications equipment and warehousing services. The plan also provides income tax relief retroactively for 2013 through targeted tax credits that would benefit working families, recent college graduates with loans, and taxpayers who lost their homes to foreclosure, and others. The plan also calls for one-third of future budget surpluses go into state reserves.
Republicans, who fought Dayton's tax hike package last year, support the cuts but they believe the relief falls short of what the state can afford given its surplus. On Thursday, they unveiled a proposal to lower the state's sales tax rate which would cost state coffers about $360 million.
Dayton called for the tax relief after the state's February economic forecast lifted the state's budget surplus by $400 million to $1.2 billion. The state anticipates a $2.6 billion balance in its next two year budget but that's before inflationary increases are accounted for in spending. Dayton is also pushing for lawmakers to approve a $1 billion bonding package for infrastructure work.
Minnesota's coffers have grown more flush thanks to an improving economy and an income tax hike on the wealthiest residents approved last year. The latest figures provide a stark contrast to the state's fiscal position a few years ago when the state was grappling with a $5 billion deficit.
The state carries general obligation bond ratings in the high-double-A category.
The GOP-controlled Wisconsin Legislature sent Republican Gov. Scott Walker a $540 million tax relief package this week. It closely resembles the plan Walker unveiled after the latest state revenue estimates projected a $1 billion surplus in the two-year budget that runs through June 30, 2015.
The plan cuts property taxes and reduces in income taxes through changes in withholding. It leaves about $100 million in the general fund that was to have gone into the state's rainy day fund. The plan leaves the state with a $660 million structural shortfall in the budget cycle.
Democrats argued more of the funds should go to pay down debt, go into the state's rainy day fund, and reimburse schools and local governments for previous cuts made Walker to eliminate a deficit in the previous budget.
Fitch Ratings and Standard & Poor's assign AA ratings to Wisconsin GO debt while Moody's Investors Service rates it Aa2. The state last year also received a first-time AA rating from Kroll Bond Ratings Agency.