Gov. Dayton Unveils Supplemental Budget

The governor’s supplemental budget includes the expansion of the sales tax exemption to other government entities.
(Published Mar 10, 2014)

Gov. Dayton released the outline of his supplemental budget recommendations to the Minnesota Legislature on March 6. The supplemental budget is a set of recommendations to the Legislature proposed by the governor in the second year of the biennium to address any budget shortfall or surplus or any new budget priorities of the governor.

With the recently announced $1.233 billion general fund surplus for the remainder of the fiscal year 2014-2015 biennium, the governor is recommending a combination of tax cuts, spending increases, and an increase in the state’s rainy day fund.

More specifically, the governor’s supplemental budget recommendations include $616 million in tax reductions and tax relief, $162 million in spending increases and a $455 million increase in the state’s budget reserves.

Sales tax exemption expansion included
For cities, the governor’s supplemental budget includes a recommendation to extend the sales tax exemption to all local government districts and joint powers entities. The governor’s press release says that last year’s sales tax exemption “has reduced the costs of local governments, and helped hold the line on property taxes.”

Some items not included
The governor did not recommend any additional funding for other city programs, including the local government aid (LGA) program, nor did he recommend any additional funding for direct property tax relief programs such as the homestead credit refund program, formerly known as the property tax refund program.

Additionally, the governor’s supplemental budget did not include money toward achieving the state’s broadband access and speed goals. While the state has made progress in improving access, there are still over 500,000 people without broadband. The funding has been recommended by many groups, including the Governor’s Broadband Task Force, in order to meet the legislatively enacted goals on broadband speed, statewide coverage, and broadband adoption.

Repeal of business-to-business taxes
Other tax relief initiatives included in the governor’s recommendations are the elimination of three business-to-business taxes that were enacted last year: the sales tax on maintenance and repair of electronic and commercial equipment, the sales tax on telecommunications equipment, and the sales tax on warehousing and storage services. The repeal of these three taxes will reduce the state surplus by an estimated $232 million for the remainder of the biennium.

Federal tax conformity
The governor’s tax reductions and relief also include a number of conforming changes to federal tax law that will provide an additional $301 million in tax relief to Minnesotans. Several of these federal conformity provisions are retroactive to tax year 2013 and, therefore, must be adopted in the near future to allow taxpayers to file accurate 2013 tax returns.

Next steps: legislative action
The supplemental budget represents the governor’s recommendations on new tax, spending, and reserve priorities for the state based on the February state budget forecast. Between now and the end of the 2014 legislative session, the House and Senate will propose their own tax and budget bills that may or may not include portions of the governor’s recommendations.

Also on March 6, the House adopted a tax bill that includes several of the governor’s tax recommendations, including the sales tax reductions and much of the federal tax conformity recommended by the governor. At this point, the Senate has not yet begun to formulate a bill on tax cuts and federal conformity. However, if they choose to retroactively conform to portions of 2013 federal income tax law as the House and governor have done, they will have to move quickly.

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