FFM Bulletin - February 12, 2013

Another strike against Dayton’s budget and Minnesota’s competitiveness
Minnesota’s neighbors smell blood. Political leaders from nearby states are seeking to capitalize on Governor Mark Dayton’s budget proposal, with its myriad tax hikes, massive spending increases (many of which are permanent), and dearth of reform. Lawmakers from other states are trying to lure Minnesota residents and especially businesses seeking economically competitive states with lower taxes.

Wisconsin Governor Scott Walker responded to Dayton’s budget plan, with its billions in sales taxes on business services, by reminding Minnesota companies that "Wisconsin is open for business." This week, a Wisconsin legislator issued an open letter to Minnesota businesses, touting Wisconsin’s fiscal restraint, low cost of doing business, and forthcoming tax cuts.

It’s not just Minnesota’s immediate neighbors that are pouncing. Florida Congressman Trey Radel sent a letter to Governor Dayton that began: "I’m writing today to thank you. As a Floridian, I am overjoyed to hear about your plan to raise taxes on Minnesotans … Your proposal gives us a chance to shine here in the Sunshine State."

But in North Dakota, policymakers are offering more than rhetoric. Legislators of both political parties are pursuing policies that seem designed to exploit elements of Dayton’s sales tax plan. First it was the North Dakota bill to create a sales tax exemption for clothing, just days after Dayton announced his plan to tax all clothing over $100. (On Monday, the North Dakota house overwhelmingly rejected a proposal to raise the minimum wage and index it for inflation, just as DFL legislators in Minnesota prepare to pass legislation that would do just that.)

But it’s not just retailers and shoppers that North Dakota is after, they also want to lure investment and innovation across the border.

A bill moving through the North Dakota legislature would renew the state’s sales tax exemption on telecom equipment purchases, an exemption that Minnesota also currently allows. The exemption encourages investment in high-tech telecommunications infrastructure. Why is this significant? Because Governor Dayton’s budget proposal imposes a new tax on telecom equipment (one of many business-to-business taxes Dayton is seeking).

The proposed new tax on telecommunications equipment is expected to generate $32.9 million for FY 2014-15 and $52.4 million in FY 2016-17.

This is not merely a tax on business, but a tax on innovation and technological advancement. And it comes at the worst possible time, as Minnesota works toward ambitious goals for expanding broadband access and adoption.

Studies have shown that exempting (or lowering taxes on) telecom equipment increases high-tech investment, increases GDP, and creates jobs. In fact, when North Dakota eliminated the sales tax on equipment, telecommunications and cable TV, investment jumped 207 percent. Governor Dayton is apparently willing to forfeit high-tech investment and economic benefits to more business-friendly states.

Governor Dayton is sending a very clear message to business: Invest and innovate elsewhere. And unfortunately, businesses seem to be getting the message.

Capitol Cronyism: Union Edition
Legislation introduced this week in the state House and Senate would provide taxpayer-supported pensions to private employees of a corporation. The proposal would change state law to identify private workers, who are not employed by the state in any way, shape, or form – as "state employees" But not just any employees, and not just any corporation: it is a strictly for union organizers at the Minnesota Association of Professional Employees (MAPE), the largest union of state employees in Minnesota, representing about 13,000 workers.

The Senate bill (S.F. 280) was introduced Wednesday, authored by Senators Sandy Pappas, Jeff Hayden, Tom Saxhaug, Barb Goodwin, and Alice Johnson. Its companion bill in the House (H.F. 345) dropped Monday, sponsored by Representatives Michael Nelson, Mary Murphy, Will Morgan, John Lesch, and Linda Slocum. The proposed legislation would qualify these non-public union organizers for pension benefits from the underfunded Minnesota State Retirement System (MSRS).

According to the Pioneer Press, the MSRS claims the union would be "on the hook for any unfunded liability if the plan were to fail" and that taxpayer funds are not at risk. These are dubious claims at best, considering the system has been underfunded for years, and even modest reforms to pension fund accounting and employer/employee contributions have been met with fierce resistance, including from MSRS itself.

The Pioneer Press story includes a telling excerpt about Sen. Sandy Pappas, who chairs the legislative pension commission and introduced the MAPE legislation: "When asked for the rationale behind the bill, Pappas acknowledged that she didn't know. 'I guess no one's ever asked me, 'What's the rationale?''"

While the rationale apparently eludes the legislation’s author, it’s not much of a mystery to the rest of us.

MAPE, which spent more than $360,000 to lobby legislators in 2011 and 2012, is a major funder of legislative campaigns and political causes. Between 2010 and 2012, MAPE’s PAC and political fund spent more than $800,000 to fund campaigns, party units, political funds, and independent expenditures. Virtually all of that money went to elect Democratic candidates. MAPE also gave $75,000 to the Dayton Recount Fund in 2010.

In 2011, the last year for which data are available, MAPE reported revenue of $4.7 million, almost all of which came from union dues, and net assets of $6.5 million. Yet apparently they are unable or unwilling to fund their own employees’ retirement.

Luckily it seems the legislature is generously offering to give these non-public political organizers state pensions. And did we mention, the legislature is preparing to ratify a new MAPE contract with an across-the-board pay hike?

Contracts, cash, and cronyism. It’s going to be a long session.

Short takes
A real plan for job growth and economic competitiveness
: In case you missed it, be sure to read the Freedom Foundation’s latest report: The Lawsuit Reform That Minnesota Needs Now. The report provides a roadmap for policymakers to attract and retain jobs, improve Minnesota’s economic competitiveness, and lower consumer costs.

Taxation without representation? Legislation introduced this week would remove those pesky voters from the school referendum renewal process, allowing school boards to unilaterally decide to renew expiring tax levies.

Create a job, pay a tax: One of the more perplexing elements of Governor Dayton’s "jobs, jobs, jobs" agenda is his proposal to tax, well, jobs. That’s right, a substantial portion of the revenue in Dayton’s budget comes from a new sales on job creation. The list of newly taxed goods/services includes all employment services (temp agencies, job placement agencies, executive search firms, etc). Revenue for FY 2014-15 is estimated at $268.4 million. For FY 2016-17 it's $456 million, so about $725 million over the next four years. Compared to all other newly taxed services, only computer services and advertising/PR account for more revenue.

MPR on Dayton’s tax plan: Business leaders in the Duluth area are concerned that Dayton’s sales tax plan will make them less competitive, especially with Wisconsin businesses just over the border.

Tweet of the Week (via @Rep_SAnderson): "Verified: new sales tax will apply to ATM & overdraft fees. Every time you take cash out of your account, one is for you & one is for govt."

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