Governor Tim Pawlenty today announced his 2006 supplemental budget recommendations, targeting $49 million in tax relief, $102 million to address emergency needs and adding $159 million to the budget reserve, which would bring it to a record level of $812 million.

"In this short, non-budget year, we should stay focused on addressing our most important needs," Governor Pawlenty said. "We should also take advantage of this surplus to boost our budget reserves, so that we will be well prepared for any contingencies.  I'm hopeful that this approach will find bipartisan support and that the legislature will act quickly to pass the supplemental budget and the bonding bill."

The Governor's supplemental budget recommendations follow the announcements of a $1.04 billion surplus in the November economic forecast and a $181 million surplus in the February economic forecast.  After completing the commitment to restore payments to school districts, $317 million is available in the tax relief account and $88 million is available as a general fund balance.

Governor Pawlenty's supplemental budget recommendations include:

·      $49 million in tax reductions and credits, including elimination of the marriage penalty

·      $102 million in emergency items and budget fixes

·      $159 million added to the budget reserve, bringing the total to $812 million in FY 2007

·      $95 million in other initiatives including previously announced funding for early childhood, military and veterans support and immigration reform

In addition to specific initiatives the Governor previously announced, over 40 percent of the recommended spending changes relate to important budget fixes needed in the current biennium.  Primary among these is $64 million to handle the continuing growth of sex offender and mentally ill and dangerous persons caseloads.  The Governor's proposal also includes $17 million for salaries for employees who treat and supervise sex offenders and mentally ill and dangerous persons, $13 million for Corrections staff and $6 million to make improvements to the Minneapolis Veterans Home. 

The recommendations are a mix of ongoing and one-time items.  Under the Governor's proposals, revenue-expenditure differences projected for the next budget cycle, FY2008-09, remain positive.

Tax Relief

Eliminate Marriage Penalty in Tax Code - $28.7 million

The federal tax code sets the standard deduction for married couples filing a joint tax return to twice the amount of the standard deduction for single filers and the standard deduction for married persons filing separate returns to be equal to that of single filers. This proposal would conform Minnesota tax code to federal law. "This proposal is a no-brainer," Governor Pawlenty said. "Minnesota's married couples should not have to pay a higher tax."

Single Sales Factor for Corporate Tax - $1.6 million

"The move toward a single sales factor corporate tax is good for job creation and plant expansion in Minnesota," Governor Pawlenty said. This proposal will accelerate the phase-in of the single sales factor from the current 8 year phase-in to a 5 year phase-in that would be completed by 2011. Since 1939, Minnesota has required corporate taxpayers to apportion their income based on a three factor formula of sales, payroll and property.  Moving to a single factor of sales within the state will encourage companies to locate and grow in Minnesota.  

Dairy Investment Tax Credit - $4.7 million

This tax credit will encourage dairy farmers to make capital investments in their farm facilities and equipment. Dairy farmers would be able to claim a tax credit of 10 percent of the amount of a qualifying investment of up to $500,000 in building and facility improvement, machinery and equipment.  "Minnesota's dairy farmers are world-class when it comes to knowledge and work ethic, but in many cases our farm facilities and equipment need some updating to bring them up to the level of our competitors," Governor Pawlenty said. 

Sales Tax Exemptions for Resorts - $880,000

A sales and use tax exemption up to $10,000 per resort per calendar year for construction materials and supplies used in physically expanding or making improvements to small resorts.

Property Tax Reform

"Local governments are ultimately responsible for tax and spending decisions at the local level," Governor Pawlenty said. "However, it's clear that some local units of government need assistance holding down local property taxes."  Governor Pawlenty is proposing to implement a control on increases in property taxes by capping the levy growth for cities (over 2,500 population) and counties.  The cap would allow some spending discretion but would require that the levy growth be limited to inflation and household growth.  Levy increases outside the limit would be allowed for debt service and for voter approved levies.

Emergency Items and Budget Fixes

Sex Offender Commitment Growth - $36.3 million

This proposal provides additional funding to open four new units (100 beds) to accommodate the growth in the Minnesota Sex Offender Program. The funding will provide needed staff, renovate and occupy temporary space at the Moose Lake Correctional Facility while new facilities are constructed, and additional security.

Mentally Ill and Dangerous Population Growth - $33.5 million

This initiative will provide funding to open six additional units to address the growth and changing composition of the mentally ill and dangerous population. The funding will provide staff and supplies for 150 beds at the Minnesota Security Hospital and the Forensic Nursing Home.

State Operated Services Salary Costs - $17 million

This proposal would adjust administrative appropriations to address salary increases for State Operated Services staff who treat and supervise sex offenders and mentally ill and dangerous persons.

Corrections Salary Costs - $13 million

Most correctional employees provide direct care to offenders, either in corrections institutions or through community supervision.

Veterans Home Board - $6 million

These funds would be used to add resources to remedy deficiencies found in the Department of Health's survey of the Minneapolis Veterans Homes and to provide for preventative upgrades at other homes around the state.  Included in the request are additional staff and equipment necessary to satisfy Health Department standards. 

 
The Governor's supplemental budget proposal also includes two new public safety initiatives:

1)      $1 million for new child pornography crime initiatives that include forming a new investigative team and providing stronger criminal penalties for child solicitation cases; and

2)      $100,000 initiative to reduce youth access to alcohol through a mandatory training program for new liquor license holders.

The Governor's recommendation also includes funding for early childhood ($10.2 million), military and veterans support ($12.8 million), immigration reform ($4.3 million), internet posting of non-compliant sex offenders ($200,000) and other initiatives previously announced by Governor Pawlenty.

The Governor's complete supplemental budget is available online at www.finance.state.mn.us.