Tim Kelly

Now that the curtain has closed on the 2012 Legislative Session, lawmakers can begin to analyze what worked and what didn’t over the past two years.

The biggest success story was Minnesota’s global economic turnaround.

At the start of 2011, lawmakers were told they would face a $5.1 billion budget deficit. During that timeframe, legislative leaders and Governor Dayton decided to work together and change the policy direction in this state, and enact dozens of proposals that would reform state government for the better.

The results were staggering. By March, our economy had made a $6 billion turnaround. Minnesota had reduced future projected spending by $5 billion, and that mammoth deficit has become a $1.3 billion surplus. State reserve accounts that had been empty were replenished.

More good news was found in the state employment statistics. At the start of the 2011 session, unemployment rates were 7.5 percent. One year later that number had dropped to 5.7 percent, and according to the Department of Employment and Economic Development, more than 41,000 Minnesotans have found a job since January, 2011.

With this in mind, lawmakers continued efforts to reform government and make Minnesota a better place to do business.

We focused on tax reform, by providing business owners and homeowners with tax relief, enhancing funding for job creation and tax credit programs that encourage our employers to grow their business and hire new employees.

We also froze 2013 Local Government Aid levels at the 2012 figure, and allowed cities with less than five thousand residents to receive their 2012 or certified 2013 payments – whichever amount was higher.

Some of these efforts were successful, and some were not, which was disappointing.

Another disappointment was Governor Dayton’s reluctance to pay back the extension of the school payment shift.

In 2011, lawmakers and the Governor agreed to further extend the payments of money owed our schools as a way to help balance the budget. When our economy turned around, and we had refilled our reserve accounts, the remaining funds were used to buy back nearly half of that shift extension.

Legislative leadership tried to pay back the rest this year. With $1 billion sitting in reserves, we thought it was prudent to use $430 million out of budget reserves and return it to the schools, but Governor Dayton vetoed the plan.

The Legislature also thought the time was right to end the Vikings stadium debate once and for all, and on the last day of session we did just that.

Under the proposal, the Vikings would be responsible for $477 million of construction costs, Minneapolis would add $150 million, and the State of Minnesota would contribute $348 million through expected revenue generated through the creation of electronic pulltabs.

My personal decision to vote for the stadium was based on analysis of the financial investment versus the return. This would be the same way I would look at a request for the state in regards to the expansion of a major industrial park. The Vikings organization alone has a $200 million dollar payroll that the state receives income tax on. With other revenue generated by the sales of tickets and merchandise, the revenue generated will help offset the cost.

As with any session, this one was filled with ups and downs. But in the end, lawmakers leave St. Paul on a positive note, knowing we’ve enacted good reforms and that our economy is headed in the right direction.

Before the start of the 2012 session, the Legislature had four goals: economic recovery, creating jobs, easing the property tax burden, and beginning to pay back the school funding shift extension enacted last session.

As April begins, I am pleased to announce that the Minnesota House has approved legislation that achieves all of these priorities.

Last session, the Legislature reformed government spending. The results of these policies have been unbelievable, as our unemployment numbers have improved dramatically, and our state has gone from a $5.1 billion deficit to a $1.2 billion surplus in less than one year without raising any state taxes.

Most of the surplus was used to replenish Minnesota’s rainy day accounts in the form of cash reserves and budget reserves, while $318 million was used to repay the school shift extension.

Last session’s school shift change meant the schools received 60 percent of their expected revenue during the current biennium, and 40 percent the next biennium. Historically, the split has been 90-10, but two years ago under different leadership the Legislature chose to enact a 70-30 split. This maneuver amounted to $2 billion worth of borrowing from our schools. Last session’s extension borrowed $700 million more.

The first positive result of the economic recovery is that recently the Minnesota House passed a bill that starts to pay back the debt it owes to our schools. It eliminates the 60-40 shift, and would also make the first repayment toward the 70-30 shift enacted in 2010. Very simply, it would take $430 million from the $1 billion we have sitting in the bank and return it to the schools.

By enacting needed reforms and spending state funds more sensibly, our economy has turned around. This gives the current Legislature the opportunity to do things right by paying back the shift it enacted during the same biennium, while also beginning to pay back the shift we inherited before the start of the 2011 session.

More good news - on March 21, the Minnesota House passed a comprehensive job proposal that will create more job opportunities for Minnesotans by easing the financial burdens our business owners face and encouraging policies that will allow them to expand their workforce.

When we held our Reform 2.0 hearings across the state last fall and winter, business owners told us the key to job creation was for the state to stop overtaxing them and allow them to keep more of their profits so they could use it to invest in their businesses, which would in turn create the need to hire new employees.

Legislative leaders believe the key to economic recovery in Minnesota is to focus on Minnesota business and employment growth, which will stimulate long-term economic activity. The recently approved Tax Relief and Job Creation Act will make this happen.

Let’s start with the business property tax rate. Under this bill, we would eliminate it in 12 years (the plan would start in 2014), allowing businesses to invest in growth and employees, not burdensome taxes. As for tax year 2013, the bill would allow a 70 percent exemption of the first $150,000 on commercial and industrial business property taxes. This would result in Wabasha County businesses seeing up to a 19 percent reduction in their property taxes if this plan becomes law, while Goodhue County businesses will receive up to an 18.6 percent cut.

How else would we help our small business owners? This legislation would prevent them from having to wait for a refund if they buy equipment that makes their business more efficient, as this bill would give them an upfront capital equipment exemption.

We also look to invest in companies willing to take a chance on innovation. The bill increases funding for the Angel Investor Credit and the Research and Development tax credit. Doing this helps make Minnesota a more attractive place to do business and enables companies to create high-paying jobs throughout the state.

It has always been an honor to be your Representative. There have certainly been trying times but at this point in time it is a pleasure to be able to report back to you that the data shows nothing but positives from the policies we've been implementing over the past two years. By paying back our debts, providing some business tax relief, and putting more people to work before this session ends, we will continue our fiscal turnaround and ensure the long term economic health of our state.

In an effort to find ways to improve Minnesota’s small business community, Minnesota House leaders formed a Small Business Caucus, made up of a bipartisan group of representatives from across the state. As one of those appointed to serve, I’m pleased to announce our legislative agenda for this session.

Many of our small business owners have asked us simply to remove some of the barriers that prevent them from being more efficient. To address this, we are proposing several bills that will hopefully make things easier for them, including providing relocation cost relief for business affected by eminent domain; requiring the Department of Employment and Economic Development to provide a permitting and regulatory ombudsman to assist startups and small businesses; and allowing them under certain conditions, to voluntarily request advisory inspections and remediate violations before penalties are imposed.

Over taxation is another common complaint from the small business community. In response, we are offering legislation that would reduce property taxes on small businesses by exempting the first $150,000 of value from the state property tax; repealing the accelerated pre-payment of state sales taxes for small businesses; and allowing an upfront sales tax exemption for capital equipment purchases rather than the current requirement to submit paperwork for reimbursement

Finally, we often hear about the need for investment. Some of the proposals in this area include expanding and enhancing the Angel Investment Tax Credit program; assisting small businesses with health insurance costs by continuing to support Section 125 group plans, continuing rewards for those paying 50% of the premium cost, and removing an unworkable mandate; and equalizing the small business penalty interest rate with the personal penalty interest rate.

Republicans and Democrats realize that small businesses and startups are a driver of our economy and a foundation of our communities. Our goal is to listen to them and take common-sense actions at the Legislature to help our small businesses not only recover financially today but prosper into the future.

State economists recently briefed lawmakers on Minnesota’s fiscal situation, and once again, the news is good.

According to the February forecast, Minnesota’s budget outlook has improved by $323 million. This surplus is in addition to the $876 million surplus that was projected – and reallocated – from the November forecast.

Minnesota’s financial experts say more than two-thirds of the forecast gain came from a $230 million reduction in projected spending. Forecast revenues also increased by $93 million, including an increase of $71 million for income and sales taxes.

Again, Minnesota lawmakers will not be going on a wild spending spree with this $323 million surplus. Under current law, the first $5 million will be added to the budget reserve, bringing it to $653 million. The remaining $318 million will reduce the school aid shifts that have been enacted throughout past legislative sessions.

This is the second straight economic forecast that’s been significantly positive for Minnesota, following years of multi-billion dollar budget deficits. I’m not sure what negatives can be said about this news. Its clear Minnesota is now trending in the right economic direction.

In one year, we’ve taken a $5.1 billion deficit and changed into a nearly $1.2 billion surplus – a $6 billion turnaround. Unemployment is significantly lower than the national average. There’s no doubt the reforms we’ve enacted are working, and we must continue down this path to success.

It’s important to note that this legislative majority is not making needed changes solely for a two year cycle. The reforms we are implementing are designed to help us over the next ten to twenty years, putting Minnesota’s government in position to handle the ups and downs of the economy. Two straight positive forecasts are a trend, not a mirage, and I’m pleased Minnesota’s finances are back on track.

Those who know me well understand that I am passionate about K-12 Education. As a former school board member, and as the current Vice-Chair of the House Education Finance Committee, I have tried to make a positive impact in the lives of our children and those who teach them.

But it’s clear that if our kids are going to receive the world-class education they desire and deserve, Minnesota is going to need to reform its education system.

In 1992, national assessments showed that Minnesota was a top leader in the performance of our students in reading. Twenty years later, 24 states have passed us because our reading scores have remained flat. Our achievement gap also remains a persistent problem. These statistics simply cannot continue.

In our House Education committees, we spend a great deal of time looking at ways we can improve. By analyzing the high performing systems across the

United States

and the world, we find that their teachers receive continued development, which improves their instruction and ultimately student outcomes. We also notice that they raise standards, as well as measure and report their outcomes, creating accountability.

A number of studies have found that effective teaching is the number one school-based driver to improve student achievement. One study in Tennessee found that if two eight-year-old students were given different teachers -- one teacher a high performer, the other a low performer – their performance diverged more than 50 percentile points (almost three grade levels) within three years.

This is why the Legislature has been focused on education reform that improves teacher effectiveness.

Recently, the Minnesota House approved a bill that addresses this issue. The legislation removes statutory language requiring school districts to focus solely on employee’s seniority during layoffs, and elevates teacher performance when a district is forced to eliminate employees.

In other words, the last one hired shouldn’t automatically be the first one fired.

This is good common sense for any job position – teaching or otherwise. Seniority should not be the only reason you keep your job if layoffs need to occur. Currently if you’re the most effective teacher, but not among the longest-tenured in your district – you’d be out of a job solely because of the date you were hired. Job effectiveness needs to be the driver of those decisions.

Let’s be clear; we have many tenured teachers who are among the most effective in our schools and would be the natural leaders of the teaching corps. This bill does not remove seniority from the discussion altogether, because there is value for a district to have experienced teachers who know their school well. But it does say seniority can no longer be the only provision a district can take into account if it is forced to make retention decisions.

Further, to those that say this bill would lead to school boards making purely financial decisions, you should remember that we’re trying to do what’s best for the kids, not what’s best for the district’s pocketbook. This is one of many bills designed with the children’s best interests in mind and helping the education product improve. It’s also important to remember that there is a chain of command with administration and school boards. I have complete faith that they will do what is in the best interest of our children.

This is one of the first bills that will address education reform this session, and there will be several more designed to improve student achievement debated on the House floor.

In his State of the State Address, Governor Dayton highlighted many reforms approved last year in education that I’d worked on for the past two years, areas such as accountability, measurement, and evaluation. I was pleased with his support then, and am hopeful his support for education reform will continue in 2012. The test scores prove Minnesota can no longer afford to be complacent, and that the time for action is now.

Should state government get involved in the way your daycare provider helps raise your kids?

Since Governor Dayton signed an Executive Order calling for an election to determine whether private in-home child care providers should unionize, the question isn’t all that far-fetched.

What’s wrong with letting all the daycare providers have their say, you ask? Nothing, except that the Governor’s order purposely prohibits more than 60 percent of providers statewide from casting a ballot.

Of the 11,000 providers across the state, Governor Dayton limited this election to the 4,287 licensed in-home child care providers who currently receive state subsidies. In other words, 7,000 of them would be banned from having a say on a choice that will affect their business and livelihood.

It’s worth noting that a temporary restraining order was issued against Governor Dayton’s daycare unionization executive order in January, so the final outcome of this potential election remains up in the air. Because this issue remains undecided, the Legislature feels it’s important to protect in-home day care providers who oppose unionization from potentially being forced into it.

On Thursday, the Minnesota House approved a bill preventing state deductions from child care assistance payments. Without it, it daycare providers who receive state subsidies could be forced into unionization without their consent as union dues could be deducted automatically if any future election is successful.

I’ve heard from many daycare providers on this topic, and they’re not happy. They want the freedom to run their business like they always have. They don’t want Governor Dayton or some union boss deciding how the provider should maintain their facility, and they don’t want government adding even more paperwork and red tape to their day to day operation. Parents are equally concerned, wondering if unionization will force them into higher daycare rates.

This bill won’t stop a daycare unionization election from taking place, but it does ensure that any provider who opposes it – or doesn’t even get to vote on an issue that directly affects their livelihood – will not have union dues automatically deducted at the state level before their paycheck arrives.

Undoubtedly, job providers across Minnesota breathed a huge sigh of relief when they learned that lawmakers would not raise taxes to solve the budget deficit last session, and would instead focus on reforming government and improving the business climate in Minnesota.

By showing job creators that the new Republican-led legislature was going to lead by using common sense, unemployment rates are dropping, and more Minnesotans are headed back to work.

Let’s connect the dots. According to statistics provided by Minnesota’s Department of Employment and Economic Development (DEED), Minnesota had an unemployment rate of 7.5% in January, 2011. It also had a $5 billion budget deficit to eliminate.

One year later, after enacting countless reforms that are saving billions of dollars and refusing to raise taxes, these numbers are improving significantly.

On January 19, DEED announced that Minnesota’s unemployment rate is now 5.7%, which is especially impressive when compared to the national unemployment average of 8.5%. Economic officials also projected that Minnesota also has a nearly $1 billion surplus.

Our economy is driven by tax collections, paid for by job providers, everyday workers, and consumers. As you know, Minnesota is not known as a bastion of tax freedom. Our state ranks 43rd in business tax climate, and our corporate tax index comes in at 44^th. Minnesota’s workers face the 8^th highest tax burden in the nation.

Job providers aren’t scrambling to relocate in Minnesota because of our tax friendliness. In fact, they often do the opposite.

Business owners want clarity from their state government, and can’t afford to sit around wondering what taxes may be raised and what cumbersome new regulations may be passed into law. And make no mistake, when business owners get a tax increase, we all end up paying the price. As the Minnesota Tax Incidence Study explains, business taxes are "partially shifted onto consumers through higher prices or in some cases to labor in lower wages."

Last year, we gave Minnesota’s job providers that clarity, and we’ll do it again this year through our continued reform efforts.

Most business owners tell me they’re overtaxed and overregulated. They are tired of dealing with unnecessary regulations that hinder their ability to conduct business. That’s why the Legislature aims to pass legislation this year creating a Small Business Regulatory Review Board, in order to identify and eliminate duplicative mandates.

In addition, the Legislature will seek to direct property tax relief to job creators in this state, rather than raising their taxes. We would also like to continue our investment in business programs that spur research and development.

In short, our goal is to change the business climate in this state. And we realize increasing taxes will only destroy this effort.

Governor Dayton is to be commended for his willingness to join legislative leadership in reforming government last year. These decisions led to our current budget surplus and improved unemployment rates. If he maintains this commitment to reform in 2012, I’m confident Minnesota’s economy will continue to improve, and the number of job opportunities in this state will continue to increase.