Governor Releases Supplemental Budget

The funding increase of $80 million for LGA remains in the budget, but the homeowner property tax refund was eliminated.
(Published Mar 18, 2013)

Gov. Dayton on March 14 released his supplemental budget recommendations, which reflect the updated February state budget forecast and the $463 million reduction in the projected state budget deficit for the upcoming biennium. The recommendations also include other budgetary changes.

As expected, the governor removed the provisions that would have subjected business-to-business services to the state sales tax. In his original budget, services such as legal, accounting, architectural, and engineering consumed by a business would have been taxed at a 5.5 percent rate. This base expansion would have applied the sales tax to city purchases of these and other services.

The governor also eliminated most of the other sales tax base expansions, including clothing purchases over $100, and many services purchased by individuals. In total, the supplemental budget dropped nearly all of the governor’s $2.1 billion sales tax base expansion and the associated reduction in the sales tax rate to 5.5 percent from the current 6.875 percent.

For transit, the governor has revised his initial budget recommendation for a quarter-cent local sales tax increase in the seven-county metro area by increasing it to a half-cent local sales tax. The increase in this sales tax rate was necessary due to the elimination of the sales tax base expansion contained in the governor’s original budget.

The governor did not change his proposal for a new 9.85 percent individual income tax rate on married joint filers with incomes over $250,000, or the 94-cent-per-pack cigarette tax increase. However, the supplemental budget did drop the statewide commercial/industrial property tax reduction that was included in the original budget proposal.

On the expenditure side, the largest single change in the supplemental budget was the elimination of the $500 homeowner property tax rebate. That initiative from the governor’s original budget was projected to have cost more than $1.4 billion for the fiscal year (FY) 2014-2015 biennium.

For cities and counties, the governor maintained the $80 million local government aid formula increase and the $40 million increase in county program aid for aids paid in 2014 (FY 2015). The supplemental budget also increases the funding for the renters credit by $18.4 million in FY 2015.

The governor’s initial budget and his supplemental budget recommendations are just that—recommendations to the Legislature. The House and Senate will continue to shape their respective state budgets and each body may or may not include provisions recommended by the governor. We expect that the legislative budget work will begin in earnest when the Legislature reconvenes after the Easter/Passover recess in late March.

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