Some misinformation about heating fuel tax

On Saturday during the House Tax Bill debate, there was a lot of hay made about my legislation to narrow the sales tax exemption on home heating fuel. But there was a lot of misinformation about it, with other members suggesting that all Minnesotans' heat would be taxed. Not true.

According to current law, home heating fuel during the months of November through April is exempt from the sales tax. My bill would narrow this exemption for the first 850 therms (or hundred cubic feet or ccf) for natural gas and for the first 5,750 kilowatt hours of electric heat. My concern is that there are a lot of big homes out there that consume a lot of non-renewable energy while we are cutting health care, education, and so on. We could help with the deficit while incentivizing conservation at the same time.

Two commissions of business leaders and financial experts have repeatedly told the legislature that we need to consider extending the sales tax to certain things that are currently exempt to avoid the wild volatility of our budget over many years.

In the FY2009-2010 biennium, if the state collected sales tax on all residential heating fuel users, the state would bring in $320,000,000. My legislation (see text below) would bring in $34,200,000, or only 10.68% of all taxable heat.

Liquid propane, propane gas, fuel oil, wood, coal, steam, and hot water heating fuels are not covered by this provision and would remain exempt. It only covers metered electric heat and natural gas, mostly because it is much easier to calculate and collect tax through our regulated utilities instead of 850 other energy vendors.

The legislation would help to stabilize volumes during peak times which holds prices down for everyone. 100% of natural gas and most of our electricity comes from fossil fuels, so we have an opportunity to smooth out or curb the use of finite natural resources.

Some of my colleagues are saying that folks in drafty houses will end up paying the tax. Well, if that is the case, there are more FREE weatherization services available due to the stimulus package through county community action programs (CAPS) than ever before, so Minnesotans in need will have resources available for sealing older homes and even getting some new furnaces and other appliances. So there are a lot of opportunities for avoiding the tax if indeed there would be people who exceed the tax-exempt threshold. (I do not think that there will be that many.)

Rep. Olin and I worked on an amendment to exempt people on low income heating assistance (LIHEAP) from the tax. I am also working on an amendment to exempt people who are behind on their bills (for something like job loss) and are covered by the Cold Weather Rule.

Here's the text of the legislation from HF2323, 3rd engrossment.

177.15 Sec. 28. Minnesota Statutes 2008, section 297A.67, subdivision 15, is amended to read:
177.16 Subd. 15. Residential heating fuels. (a) Residential heating fuels are exempt
177.17as follows:
177.18(1) all fuel oil, coal, wood, steam, hot water, propane gas, and L.P. gas sold to
177.19residential customers for residential use;
177.20(2) for the period encompassing the billing months of November, December,
177.21January, February, March, and April, the first 850 hundred cubic feet per dwelling unit of
177.22natural gas sold for residential use to customers who are metered and billed as residential
177.23users and who use natural gas for their primary source of residential heat; and
177.24(3) for the period encompassing the billing months of November, December,
177.25January, February, March, and April, the first 5,750 kilowatt-hours per dwelling unit of
177.26electricity sold for residential use to customers who are metered and billed as residential
177.27users and who use electricity for their primary source of residential heat.
177.28(b) Notwithstanding paragraph (a), residential heating fuel sold to a customer
177.29registered with their natural gas or electricity service provider and receiving assistance
177.30through a federal or state low-income home energy assistance program is exempt as
177.31follows:
177.32(1) for the billing months of November, December, January, February, March, and
177.33April, natural gas sold for residential use to customers who are metered and billed as
177.34residential users and who use natural gas for their primary source of residential heat; and
178.1(2) for the billing months of November, December, January, February, March, and
178.2April, electricity sold for residential use to customers who are metered and billed as
178.3residential customers and who use electricity for their primary source of residential heat.
178.4EFFECTIVE DATE.This section is effective for sales and purchases made after
178.5June 30, 2009.

I don't know if this provision will survive conference committee or not, but I offered the idea as one way to help with the deficit in a means-tested way. We'll see.

Weeks of April 12 & 19, 2009

During the week of April 19th, we have been taking up our omnibus finance bills. Every two years, our finance committees put together a budget within a funding target set earlier in the session. There are about 10-12 of these bills.

Schedule: On Monday, April 13th, I met with a business owner and constituent about how S-Corps fit into the state tax code. On Tuesday, April 14th, I attended the House Taxes Committee and we heard my bill HF1118 about the solid waste management tax. We had a short floor session and did a cable TV interview. On Wednesday, April 15th we had two Taxes Committee meetings and two caucus meetings and I met with our GIS office about a map. Thursday, April 16th included a Taxes Committee meeting, a floor session, and a meeting at the North Metro Mayors Association. On Friday, April 17th we had the Taxes Committee meeting, a meeting with Rep. Dean Urdahl and his Lincoln Bicentennial Commission. Later in the afternoon we had a short floor session and a Taxes Committee meeting. On Saturday, April 18th, the Taxes Committee met and then the committee caucus met until about 9:00 a.m. to discuss the omnibus tax bill. I also went to a town hall meeting in White Bear Lake with Rep. McFarlane about health care. On Sunday, April 19th, we had a tax committee caucus in the evening.

On Monday, April 20th, I met in Tax Committee where the committee unveiled its tax bill. (More info below.) Afterwards we had a caucus meeting and a floor session, followed by a committee caucus meeting and another Tax Committee meeting where we took public testimony on the tax bill. On Tuesday, April 21st, I met with a Centennial high school student who is a page this week. Then I attended the Taxes Committee where we marked up the bill. We had a floor session in the afternoon and had a lengthy House DFL Caucus meeting.

On Wednesday, April 22nd, on the floor we voted on the agriculture and veterans affairs finance bill, the higher education finance bill, and the environment and energy finance bill. In the agriculture and veterans affairs budget, we cut ethanol subsidies by 20% and when a vote came up to eliminate the remaining subsidy (about $26 million or so) I voted in favor, although the amendment failed. Last year the amendment only got about 37 votes and this time it got 49. Find out more at this MPR story. (We received a report from the legislative auditor about biofuel subsidies and how we need to change them.) The higher education bill included a cap on tuition. After a recess we handled the environment bill, in which my legislation regarding compost and bioplastics are located. We started at 9:30 a.m. and finished at 12:15 a.m.

On Thursday, April 23rd, we took up the early childhood education finance bill, the K-12 education finance bill, and the state government finance bill.

Minnesota leads in public health: The New York Times ran a strong article about how the Minnesota Department of Health did excellent work for the rest of the country on detecting food-borne illness including the recent peanut food poisoning issue. Way to go!

35W bridge collapse fund: Survivors of the collapse praise the work of the special master appointed to administer the compensation fund. MPR did a good story.

House and Senate Tax Bills and Mortage Deductions: The House has set "budget targets" where the body decides how many dollars will be available for spending and how much will be cut, how many payments would be deferred to the next fiscal year (a "shift"), and how much new revenue must be raised. Our target for new revenue is $1.5 billion for the budget. The House Tax bill (HF2323) raises the revenue this way:

$11,535,000 resulting from conformity with new federal tax laws
$913,656,000 from individual income taxes increases and modifying a lot of income tax breaks
$122,925,000 from corporate sources, mostly closing of loopholes
$20,600,000 from changes to the estate tax
-$11,570,000 from loss of sales tax revenue (mostly due to modification of transportation taxes)
$413,272,000 from special taxes (half from alcohol and half from tobacco products)
$21,250 from "other"

That adds up to $1,501,363.

Here's how the individual income tax increases of $913,656,000 break out.

$489,365,000 from ending or modifying tax breaks for individuals
$467,700,000 from raising the highest income tax bracket to 9% on single filers making $156,000 or more or joint filers making $300,000 or more
-$43,409 from various changes in tax code

Here's the deal about the $489 million in tax breaks. A big amount of this comes from changing the current state (not federal) income tax deduction for mortgage interest and from eliminating the deduction of property tax payments. There is a lot of misunderstanding about the mortgage interest payment deduction. A homeowner would still be able to deduct up to $10,000 from their state taxable income but not beyond that. A deduction is a deduction from your taxable income, not a dollar-for-dollar subtraction from your income taxes. The House bill would replace the deduction with a dollar-for-dollar tax credit so everyone would get a credit whether or not they itemize their taxes. The idea here is that we stop subsidizing million dollar mortgages and let all homeowners benefit. This has the same net effect as raising taxes on the wealthiest Minnesotans because people who are wealthier tend to live in big houses with big mortgages. Wisconsin has tax law similar to this. Our researchers have put together a one-page summary that is linked to this Politics in Minnesota web page.

While I support progressive taxation, the parts of the House tax bill that I find objectionable include a local option sales tax and street improvement districts. Under the bill, counties would be able to levy a 1/2 percent sales tax in their county to pay for local expenses. However, the bill's language about how citizens are made aware of this possible tax increase and how they can have a reverse referendum on this tax is extremely weak, and counties are just going to levy this tax without much public input. In addition, the language about what counties can use the money for is WAY too vague and I am concerned that it will not be used for reducing property taxes. We are asking for Minnesotans to sacrifice a lot in this recession, either through program cuts or higher taxes, and I am concerned about this method to increase the sales tax, which has been raised twice in the last year already. It is for this reason that I did not support the bill in committee.

The Senate proposes raising $2.2 billion, mostly from the rolling back of income tax increases from 1998 legislation. These dollars would come from all taxpayers, not just the highest earners. I am opposed to the Senate version because even people making less than $33,000 would pay higher income taxes.

Visitors: Shoreview constituent and U of M student who introduced me to about half a dozen immigrant students; Circle Pines and Lino Lakes residents representing American Parkinson's Association; lobbyist for MN Grocers Association about HF403; Environment Minnesota about nuclear power plant moratorium; kindergarteners from Island Lakes Elementary in Shoreview; building trades lobbyist about a construction stimulus package; two constituents about GLBT issues

Constituent contacts: hard to keep up with--hopefully I will get this in soon

Weeks of March 29 & April 5, 2009

Hi, folks! With our policy committee deadlines on March 26 and April 7, we've been working late at the Capitol. It's kept me from updating you, but now here it is.

Survey: If you've sent me e-mail as a constituent during the last two years, you should have received an e-mail from me asking you to take an on-line survey. If you didn't get an e-mail on this and you are a constituent, please e-mail me at rep.paul.gardner@house.mn and I'll send you the link. I've received almost 400 responses in 72 hours.

Bonding bill: Last week we passed the House version of a bonding bill. Usually in a budget year the legislature considers a smaller bonding (or capital investment) bill to address acute needs for state buildings and the like. Rep. Alice Hausman, the House Capital Investment Committee chair put together the bill and it is about $200 million, with funds to be spent on a limit amount of state projects like "asset preservation" for state buildings--that means paying to fix up those buildings, bring them up to code, etc. The Senate has a much bigger bill that has lots of non-emergency projects in it. (I prefer the House version.) The bill is now in conference committee. I introduced a bill this year (HF2182) that would require all proposals for bonding to have specific outcomes listed publicly so that the legislature can compare these projects for merit. Too often in the past the legislature will put together a bonding bill that has projects in it where the public does not have a way to confirm the project's purported benefits. It is too late to get a vote on this bill this year but I have asked for an informational hearing.

Alzheimer's Disease statistics: I recently received a useful report on Alzheimer's disease and its impact in Minnesota. Minnesota data is on page 23. The value of unpaid care in MN is $1.685 billion with 175,000 unpaid caregivers helping out Alzheimer's patients.

21st Century Tax Commission: Last year the Governor appointed business leaders to a 21st Century Tax Commission to help promote business growth in Minnesota. The group released its report and we had a hearing on it in the Taxes Committee. The group suggests repealing the corporate tax and cutting taxes for S-Corps, limited liability corporations (LLC), and partnerships. To make up for the lost revenue, the commission recommended extending the sales tax to clothing and other exempt items. The Governor has praised the tax cuts but didn't agree about raising the other taxes. I appreciate the fact that the commission did what a lot of people don't do when they come to the Capitol--they asked for a cut in taxes in one place but explained how they would pay for the deficit it would create.

Green Acres: On the House floor we recently voted to make changes to the Green Acres law. Green Acres is a program that allows certain agricultural land to be taxed at a lower level if the owner (usually a farmer) agrees not to plant on it. The idea was to preserve non-cultivated farmland as suburban sprawl takes place. There were quite a few abuses in the program outlined by the Legislative Auditor last year, and the legislature ended up repealing the program in 2008. There was a huge amount of opposition to it from many Green Acres program enrollees, and the new law delays some of the changes and creates a new rural preserve program. One problem with Green Acres is that each county gives the farm owner the tax break and then spreads the cost of it to all other property owners to the tune of tens of millions of dollars. There is no state money involved. In Ramsey County it is a pretty small program--the increased cost for an owner of a $185,000 house is $1 a year and in Anoka it is $23 a year. But in Wright County it is $146 a year, in Carver County it's $168 a year, and in Chisago County it's $104 a year.

Next wave of foreclosures: In committee, the MN Foreclosure Partners Council spoke to us about the "next wave" of foreclosures that are likely to take place. The first wave was due to subprime mortgage resets that totaled about $1 trillion in assets nationwide. The next wave would be for the resetting of Alt-A and Option ARM mortgages in 2010 and 2011. The total amount of assets in these mortgages is up to $1.6 trillion nationwide.

TIF: Recently the Taxes Committee heard proposals by local governments for tax increment financing (or TIF). House Research has several web pages about TIF, but the basic definition is that TIF is a method of financing real estate development costs to encourage developers to construct buildings or other private improvements or to pay for public improvements, such as street, sidewalks, sewer and water, etc. TIF pretty much sets aside the new property tax revenue from the development to pay for the improvements, thereby paying off the costs but keeping the new revenue from going into that city's property tax base until a certain number of years pass. Cities come to the legislature to extend the TIF financing period (e.g., five years to ten years) or to make other changes. One of the proposals recently was for Arden Hills' proposal for the Twin Cities Army Ammunition Plant (TCAAP), or HF1468.

In 53A, here is the percentage of our net property tax capacity that is locked up now in TIF by city: Blaine 4.8%; Circle Pines 14.8%; Lino Lakes 2.4%; Shoreview 5.6%. (There was no TIF data for Lexington or North Oaks.) Here are the percentages for our school districts: Centennial 10.8%; Mounds View 10.1%; and White Bear Lake 5.0%.

Low Carbon Fuels: In committee we heard a proposal for creating a low carbon fuel standard
The advocates for this policy include the Izaak Walton League and the Institute for Agriculture and Trade Policy, and they have a set of fact sheets on-line. This would be one of the several dozen proposals we have for how the state can reduce its carbon emissions. The idea is that gasoline could have reduced carbon intensity that would require some reformulation. The two refineries in the state, Marathon and Flint Hills Resources, and their labor unions are staunchly against the policy. We received an interesting map of Canadian and U.S. crude oil pipelines and refineries. I couldn't find it on-line but did find a similar map here. Most of the crude oil in Minnesota comes from Canada. What was frustrating is that no one in the hearing--either pro or con--could tell us what would need to take place chemically to reduce carbon in fuels or what it would cost. We either heard that it was good for the climate or that it was bad for jobs.

Letter in the Shoreview Press: Last week a letter from Joyce Thompson of Shoreview appeared that expressed displeasure at the conduct of our Health Care & Human Services Policy Committee. She came to the Capitol to protest against a bill (HF1341) that would update the state's DNA newborn screening program.

First some background on the bill. For several decades the Department of Health has had a program that has helped save the lives of many children (including the son of Rep. Paul Thissen, who is the bill's author) by requiring that hospital staff take a DNA blood sample after birth. The sample is then screened for more than two dozen genetic diseases, many of which are fatal if not detected. Opponents to this program argue that parents did not know that their child's DNA was being sampled and that the Department of Health kept the samples. HF1341 would require that hospital staff notify parents that the sample will be taken and that parents have the right to opt-out of the testing and to request the destruction of the DNA sample. DNA samples that are still in existence would be destroyed and those that are kept until destruction will have a serial number that is kept separate from the name of the child. The Health Department can only "link" the number and name by appealing to an independent review board. I am satisfied that this legislation now provides an appropriate balance between saving lives and data privacy. However, the opponents still believe that government may have some nefarious purpose for the DNA samples--what that purpose is is not clear to me.

As for the committee, Rep. Tom Emmer (R-Delano)--an opponent of any kind of screening--saw that the committee was going to support the bill and just before the vote moved to strike out several substantial sections of the bill. In this committee, we have what is called a 24-hour rule. All amendments to a bill must be given to the committee 24 hours in advance so that we can actually read the amendment to figure out how it would change the bill. Democrats and Republicans alike have had to comply with this rule. The vice-chair of the committee, Rep. Tina Liebling (DFL-Rochester), told Rep. Emmer that he was out of order and Rep. Emmer started to lose his temper. After we had a vote to uphold the ruling of the chair on the 24 hour rule, he then stomped out of the room, shouting, "I'm out of here!" and other words to that effect. Rep. Emmer knows this topic very well and apparently didn't prepare. As for the issue of signs in the committee room, we also have a rule about not allowing signs in committee rooms and in the House gallery. This is a little like not allowing signs, buttons, stickers, etc. for candidates at your polling place. You can have signs in the Rotunda, in the hallways, etc., but just not in places where members vote.

Schedule for Week of March 29th: Monday included two caucus meetings and a floor session. On Tuesday, I did a cable TV interview, attended the Health Care & Human Services Policy committee (HCHS), presented my HF403 bill on bioplastics to the Environment & Natural Resources Finance Committee, and spoke to a group of ISAIAH members at a church in Circle Pines about health care. Wednesday included a committee caucus meeting, the House Taxes Committee (presentation of the Governor's 21st Century Tax Commission report), a floor session, an HCHS Committee meeting, the House DFL Caucus, and an evening meeting of the HCHS Committee. On Thursday I presented my HF1373 bill in the Government Operations Committee, and attended a caucus meeting, a floor session, and HCHS and Environment & Natural Resources Policy Committee meetings. On Friday, we had a committee meeting for Taxes on tax increment finance district (TIF) proposals.

Schedule for Week of April 5th: On Monday, Senator Olseen and I visited Northern Technologies International Corp. in Circle Pines to talk about the bioplastics industry. In the afternoon, I attended two caucus meetings and a floor session, and presented my bill HF1584 in the Taxes Committee. On Tuesday, I attended the Taxes Committee and presented HF1333, attended a floor session, presented my bill HF625 in the House Government Operations Finance Committee, and chaired the Environment & Natural Resources Policy Committee where we had an informational hearing on Rep. Hortman's bill on creating a low carbon fuel standard. On Wednesday, Senator Rummel and I attended a half-day workshop at the Humphrey Institute of Public Affairs' Center for Science, Technology and Public Policy. Several legislators met with industry and environmental group representatives to talk about how to make better policy regarding chemical risks. It is part of an ongoing dialogue. On Thursday and Friday, the legislature was on Easter/Passover Break.

Visitors: Shoreview resident about property taxes; several utilities about my bill HF1584; staff from All Parks Alliance for Change and MN Manufactured Housing Association about my bill HF356; lobbyist and staff from Ramsey County about parks funding; lobbyist from City of St. Paul and Como Park staff about Como's bonding request

Constituent contacts: coming soon--this stacks up a lot!