CHICAGO — Minnesota lawmakers wrapped up their work on a new two-year $38.3 budget late Monday approving a tax package that generates $2.1 billion of new revenue by raising taxes on top earners, corporations, and cigarettes.
The package also provides aid for the Mayo Clinic’s proposed makeover of its hometown.
Lawmakers also passed a scaled down $156 million capital budget – known locally as the bonding bill – after a larger $800 million proposal pushed by house leaders was rejected last week. Gov. Mark Dayton initially floated a $750 million bonding package for capital projects.
The more modest bill that won approval earmarks $109 million for renovations to the state capitol with the remainder going to a series of other building projects and for flood mitigation.
The tax bill raises income taxes on the state’ top 2% of earners, eliminates some corporate tax breaks, imposes sales taxes on some business to business services, and hikes the tax on a pack of cigarettes by $1.60.
Lawmakers left proposals to raise alcohol taxes and to tax clothing sales out of the bill. The new revenue will wipe out a $627 million deficit projected in the budget and pay for more spending on education, economic development, and fund property tax relief. The budget is up nearly 9 % over the current two-year plan that runs through June 30.
“The budget closes the deficit for the long term and makes spending cuts and reforms,” Dayton said on his website in stressing the structural soundness of the plan which does not rely on one-time fixes. “It pays for new investments in education and job creation by asking the richest 2% of Minnesotans to pay their fair share and closing corporate tax loopholes.”
Republicans opposed the tax increases, warning they would hurt the state’s competitive edge and hit the middle class. The Democrat-Farmer-Labor Party controls the Legislature and Dayton is a DFLer. While a simple majority was needed to win passage on the budget bills, a higher threshold requiring Republican support was needed to authorize new bonding.
Public universities will receive $250 million in additional funding and in exchange will freeze instate tuition. Aid to local governments would go up by about $130 million.
The tax bill provides $585 million in local and state funds to help finance the Mayo Clinic’s $6 billion “Destination Medical Center” plan. The state’s share of about $400 million would be capped at $30 million per year and it would hinge on local contributions and be limited to funding infrastructure and public transit projects in Rochester.
The clinic initially pursued $500 million in state borrowing aid and $85 million in local support to fund infrastructure improvements as part of the expansion and economic development plan. The clinic had warned that state and local help was needed to support its own $3.5 billion investment in its facilities and a city makeover was needed to bolster its appeal for patients and healthcare professionals.
The plan envisions improved lodging, hospitality, entertainment, retail venues, and housing stock for both patients and their families.
Supporters of the aid believe the commitment is worth it given Mayo’s role as an economic engine in the state, its national prominence, and role as the state’s largest private employer with 40,000 on its rolls. Critics contend providing the system with public subsidies sets a bad precedent. The plan also relies on more than $2 billion in private investment.
The bills approved Monday set aside a backup funding stream to repay $500 million of state bonds expected to sell later this summer to help finance the new $975 million Minnesota Vikings football stadium. Revenue from an expansion of charitable gambling has so far fallen short of the $30 million needed annually to repay the appropriation bonds.
The state would earmark toward bond repayment a portion of funds from the cigarette tax increase and revenue expected to be raised from a change in the reporting system for some corporate taxes if needed. The state is on the hook for $350 million of the borrowing and the city of Minneapolis will cover $150 million.
With passage of the budget, the state can now kick into high gear borrowing plans to raise new money and possibly refund debt for savings as well as the stadium issue. Standard & Poor’s rates Minnesota AA-plus and Moody’s Investors Service rates the credit Aa1 with a negative outlook. Fitch Ratings rates the state’s $6 billion of GOs AA-plus.