High tax rates ≠ high revenues
Lower tax rates incentivize economic activity and therefore expand the tax base. High tax rates do the opposite
Imagine it’s March 2021 and they just announced the state budget deficit has grown to $5 or $6 billion for the next biennium. The economic slowdown from our over-reaction to COVID wreaked predictable havoc on Minnesota, and revenue from corporate, income, and sales taxes all came in lower than expected.
To solve the budget deficit, lawmakers and Governor Walz promise “everything is on the table.” But that is not completely true. Certain pots of money are most certainly not on the table because they have been constitutionally dedicated for very specific things. And using these funds to “supplant” other state spending is strictly prohibited.
Imagine the education committees meeting to hear agonizing testimony from school leaders, teachers, parents, and students about devastating cuts to K-12 schools caused by the deficit. Cries to “fully fund” schools will be replaced with “just hold us harmless” compared to the last budget, even though districts will be serving fewer students. Pressure will build to raise taxes on “the rich.”
Imagine the health and human services committees meeting to hear agonizing testimony on behalf of the poor, disabled, elderly, and those still without access to healthcare. HHS is the fastest-growing part of the state budget and the most likely to experience spending reductions in the face of a multi-billion deficit. Calls to raise taxes on the rich will intensify.
But some committees will be immune from the hard work of setting priorities and reducing spending. Instead of telling their constituents “no” they will be in charge of doling out millions in constitutionally dedicated funding that can’t be used for such pedestrian issues as education and healthcare.
Despite the deficit, the Legacy Committees in the House and Senate and the Legislative-Citizen Commission on Minnesota Resources (LCCMR) will make recommendations to the full legislature on how to spend around $360 million in dedicated funding per year on projects benefiting the environment, water quality, and the arts and cultural heritage.
From their website:
In 2008, Minnesota’s voters passed the Clean Water, Land and Legacy Amendment (Legacy Amendment) to the Minnesota Constitution to: protect drinking water sources; to protect, enhance, and restore wetlands, prairies, forests, and fish, game, and wildlife habitat; to preserve arts and cultural heritage; to support parks and trails; and to protect, enhance, and restore lakes, rivers, streams, and groundwater.
The Legacy Amendment increases the state sales tax by three-eighths of one percent beginning on July 1, 2009 and continuing until 2034. The additional sales tax revenue is distributed into four funds as follows: 33 percent to the clean water fund; 33 percent to the outdoor heritage fund; 19.75 percent to the arts and cultural heritage fund; and 14.25 percent to the parks and trails fund.
The Environment and Natural Resources Trust Fund (ENRTF) was established following voter approval of a constitutional amendment in 1988. The money in the Trust Fund is generated by the Minnesota State Lottery. The Trust Fund holds assets that can be appropriated, “for the public purpose of protection, conservation, preservation, and enhancement of the state’s air, water, land, fish, wildlife, and other natural resources.” Since 1991, the ENRTF has provided approximately $500 million to approximately 1,000 projects around the state.
Because the money is there and must be allocated for these constitutionally dedicated purposes, sometimes the normal scrutiny and discretion of the legislative process aren’t followed. A lot of the funding is handed out to state agencies and quasi-government organizations like the State Arts Board. These organizations then award grants to individuals and small groups to carry out projects that meet the mission of the funds.
This multi-layered grant-making process is how we end up with silly and wasteful expenditures that would never make it through the legislative process on merit. Two such examples made it into the finals of our inaugural Golden Turkey Awards:
The Legacy Fund, through a grant from the Minnesota Humanities Center, set aside $1,000 of your money for a woman to host a hands-on climate mapping workshop where participants create maps of their personal emotional terrain of climate change. I’m personally emotionally angry about that use of taxpayer dollars.
The Environment and Natural Resources Trust Fund (ENRTF), through the LCCMR, through the Board of Water and Soil Resources (BWSR), gave $900,000 to the Lawns to Legumes program to give homeowners $350 grants not to mow their lawns in an effort to improve habitat for bees.
Dedicated funding handcuffs legislators in times of budget crisis and forces them to stubbornly fund wasteful projects like these while other parts of the budget suffer. In the long term, Minnesotans should reevaluate whether to continue these dedicated funds (the ENRTF amendment expires in 2024). In the short term, click here to vote for one of these wasteful projects in our Golden Turkey Awards.