1.1                                        A bill for an act&#10;1.2     relating to early childhood; establishing an allowance for early childhood &#10;1.3     learning preparedness and enrichment expenses; reducing class sizes for K-3 &#10;1.4     to meet the statutory state standard; creating a fourth individual income tax &#10;1.5     bracket and increasing the rate of taxes on that income, subject to reduction &#10;1.6     if the tax compliance gap is reduced; adjusting the income limits for the &#10;1.7     education credit; appropriating money;amending Minnesota Statutes 2004, &#10;1.8     sections 126C.05, subdivision 1; 126C.12, subdivision 1; 290.06, subdivision &#10;1.9     2d; Minnesota Statutes 2005 Supplement, sections 290.06, subdivision 2c; &#10;1.10    290.0674, subdivision 2; proposing coding for new law in Minnesota Statutes, &#10;1.11    chapter 124D.&#10;1.12    BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:&#10;&#10;<a id="go.0.1.0"></a>1.13        Section 1. <ins><b>[124D.33] EARLY CHILDHOOD LEARNING PREPAREDNESS AND </b></ins>&#10;1.14    <ins><b>ENRICHMENT ALLOWANCE.</b></ins>&#10;1.15        <ins>Subdivision 1.</ins> <ins><b>Allowance; purpose.</b></ins> <ins>An early childhood learning preparedness and </ins>&#10;1.16    <ins>enrichment allowance program is established, which will provide an allowance to families </ins>&#10;1.17    <ins>of young children, to be used for learning preparedness and to enrich, enhance, improve, </ins>&#10;1.18    <ins>or benefit the child's physical, educational, artistic, or musical development.</ins>&#10;1.19        <ins>Subd. 2.</ins> <ins><b>Eligibility; allowance amount.</b></ins> <ins>A claimant with a child who is at least </ins>&#10;1.20    <ins>six months old through age five on April 15 of the year when the allowance is claimed is </ins>&#10;1.21    <ins>eligible to receive an allowance of $200 for each eligible child. In addition, the allowance </ins>&#10;1.22    <ins>for each eligible child must be increased according to the following:</ins>&#10;<rs_table><ins>Family Income</ins><ins>Additional Allowance Amount</ins>2.3     <ins>Under $10,000</ins>                           <ins>$1,000</ins>                                  &#10;2.4     <ins>$10,000 - $19,999</ins>                       <ins>$900</ins>                                    &#10;2.5     <ins>$20,000 - $29,999</ins>                       <ins>$800</ins>                                    &#10;2.6     <ins>$30,000 - $39,999</ins>                       <ins>$700</ins>                                    &#10;2.7     <ins>$40,000 - $49,999</ins>                       <ins>$600</ins>                                    &#10;2.8     <ins>$50,000 - $74,999</ins>                       <ins>$500</ins>                                    &#10;2.9     <ins>$75,000 - $99,999</ins>                       <ins>$400</ins>                                    &#10;2.10    <ins>$100,000 - $149,999</ins>                     <ins>$300</ins>                                    &#10;2.11    <ins>$150,000 - $249,999</ins>                     <ins>$200</ins>                                    &#10;2.12    <ins>$250,000 and over</ins>                       <ins>$0</ins>                                      &#10;</rs_table>2.13    <ins>As used in this section, "family income" is equal to "income" as defined in </ins>&#10;2.14    <ins>Minnesota Statutes, section 290.067, subdivision 2a, for the taxable year preceding the </ins>&#10;2.15    <ins>calendar year when the allowance is claimed, and "claimant" means an individual who </ins>&#10;2.16    <ins>meets the requirements of section 152 of the Internal Revenue Code of 1986, as amended </ins>&#10;2.17    <ins>through December 31, 2005, to claim the eligible child as a dependent.</ins>&#10;2.18        <ins>Subd. 3.</ins> <ins><b>Commissioner of revenue duties; determining eligible claimants; </b></ins>&#10;2.19    <ins><b>payment of the allowance.</b></ins> <ins>(a) The commissioner of revenue shall include on the </ins>&#10;2.20    <ins>individual income tax form the information that is necessary to determine claimants who </ins>&#10;2.21    <ins>are eligible to receive an allowance, and must develop a method to locate potential </ins>&#10;2.22    <ins>claimants who do not file state income tax forms and inform them of the availability of </ins>&#10;2.23    <ins>the allowance. </ins>&#10;2.24    <ins>(b) The commissioner of revenue shall establish a process to transfer the allowance </ins>&#10;2.25    <ins>to claimants electronically.</ins>&#10;2.26    <ins>(c) Claims for the allowance must be submitted by April 15. The commissioner of </ins>&#10;2.27    <ins>revenue must certify the allowance no later than August 15 of the year when the claim is </ins>&#10;2.28    <ins>submitted.</ins>&#10;2.29        <ins>Subd. 4.</ins> <ins><b>Commissioner of education duties.</b></ins> <ins>(a) The commissioner shall, after </ins>&#10;2.30    <ins>consultation with stakeholders and professionals:</ins>&#10;2.31    <ins>(1) define outcomes and indicators for local early childhood boards;</ins>&#10;2.32    <ins>(2) provide technical assistance to local early childhood boards;</ins>&#10;2.33    <ins>(3) establish minimum administrative and service guidelines and standards for </ins>&#10;2.34    <ins>the local early childhood boards;</ins>&#10;2.35    <ins>(4) design and implement a method of monitoring and evaluating early childhood </ins>&#10;2.36    <ins>education enrichment criteria and local early childhood boards; </ins>&#10;3.1     <ins>(5) develop a process to review program categories recommended by local early </ins>&#10;3.2     <ins>childhood boards, and timely make a determination regarding the program category </ins>&#10;3.3     <ins>submitted by the local board; and</ins>&#10;3.4     <ins>(6) develop a process for payments to providers based on the allowances.</ins>&#10;3.5     <ins>(b) The commissioner is granted rulemaking authority as necessary to carry out the </ins>&#10;3.6     <ins>duties in paragraph (a).</ins>&#10;3.7         <ins>Subd. 5.</ins> <ins><b>Local early childhood board composition and duties.</b></ins> <ins>(a) "Local early </ins>&#10;3.8     <ins>childhood board" means the group composed of one member of the following groups, if </ins>&#10;3.9     <ins>they exist in the school district:</ins>&#10;3.10    <ins>(1) other early childhood education-related boards;</ins>&#10;3.11    <ins>(2) three parents of children age five or under who represent the economic and </ins>&#10;3.12    <ins>ethnic diversity of the community;</ins>&#10;3.13    <ins>(3) licensed child care providers;</ins>&#10;3.14    <ins>(4) early childhood education providers;</ins>&#10;3.15    <ins>(5) a representative from a program that provides physical education opportunities to </ins>&#10;3.16    <ins>children;</ins>&#10;3.17    <ins>(6) school superintendents' designee;</ins>&#10;3.18    <ins>(7) public or private nonprofit agencies serving youth and families;</ins>&#10;3.19    <ins>(8) an individual or a representative from a program that provides musical instruction </ins>&#10;3.20    <ins>or classes to children;</ins>&#10;3.21    <ins>(9) a representative from the arts community;</ins>&#10;3.22    <ins>(10) local child care resource and referral programs; and</ins>&#10;3.23    <ins>(11) the county board of commissioners.</ins>&#10;3.24    <ins>(b) A local early childhood board must:</ins>&#10;3.25    <ins>(1) assess the community's current capacity to address the early childhood learning </ins>&#10;3.26    <ins>preparedness and enrichment needs of children from six months to kindergarten entrance;</ins>&#10;3.27    <ins>(2) create and implement a method to qualify early childhood program learning </ins>&#10;3.28    <ins>preparedness and categories in the community, according to the criteria under subdivision </ins>&#10;3.29    <ins>7;</ins>&#10;3.30    <ins>(3) qualify program categories that aim to meet early childhood learning </ins>&#10;3.31    <ins>preparedness and enrichment needs;</ins>&#10;3.32    <ins>(4) create an ongoing evaluation of program categories in relation to outcomes </ins>&#10;3.33    <ins>for children and families;</ins>&#10;3.34    <ins>(5) provide an appropriate public forum in the community to evaluate whether </ins>&#10;3.35    <ins>a program category continues to meet community expectations and the criteria under </ins>&#10;3.36    <ins>subdivision 7; and</ins>&#10;4.1     <ins>(6) develop procedures to restrict allowance payments only to providers that meet </ins>&#10;4.2     <ins>community expectations and the criteria under subdivision 7.</ins>&#10;4.3         <ins>Subd. 6.</ins> <ins><b>Local school boards; charter school boards; nonpublic school boards.</b></ins>&#10; 4.4     <ins>School boards in the school district, including boards from the public school system, </ins>&#10;4.5     <ins>charter schools, and nonpublic schools, may provide comments and recommendations </ins>&#10;4.6     <ins>to the local early childhood board, with regard to the board's duties under subdivision 5, </ins>&#10;4.7     <ins>paragraph (b), clauses (2), (3), and (4). The commissioner of education makes the final </ins>&#10;4.8     <ins>program category determination under subdivision 4, paragraph (a), clause (5).</ins>&#10;4.9         <ins>Subd. 7.</ins> <ins><b>General criteria for activities.</b></ins> <ins>The early childhood allowance must be </ins>&#10;4.10    <ins>used during the 12 months following receipt of the allowance by the claimant for a child </ins>&#10;4.11    <ins>who is at least six months old through age five, to pay for qualified learning preparedness </ins>&#10;4.12    <ins>activities, or programs or classes that enrich, improve, or benefit the child's physical, </ins>&#10;4.13    <ins>educational, artistic, or musical development. The allowance may not be used for base </ins>&#10;4.14    <ins>child care costs or expenses.</ins>&#10;4.15        <ins>Subd. 8.</ins> <ins><b>Allowance is not income for purposes of other publicly funded </b></ins>&#10;4.16    <ins><b>programs.</b></ins> <ins>Notwithstanding any law to the contrary, the allowance does not count as </ins>&#10;4.17    <ins>earned income for purposes of the medical assistance, MinnesotaCare, MFIP, or child </ins>&#10;4.18    <ins>care assistance programs.</ins>&#10;4.19    <ins><b>EFFECTIVE DATE.</b></ins><ins>This section is effective for claims filed after December </ins>&#10;4.20    <ins>31, 2006.</ins>&#10;&#10;<a id="go.0.2.0"></a>4.21        Sec. 2. Minnesota Statutes 2004, section 126C.05, subdivision 1, is amended to read:&#10;4.22        Subdivision 1. <b>Pupil unit.</b> Pupil units for each Minnesota resident pupil in average &#10;4.23    daily membership enrolled in the district of residence, in another district under sections  &#10;4.24    123A.05 to  123A.08,  124D.03,  124D.06,  124D.07,  124D.08, or  124D.68; in a charter &#10;4.25    school under section  124D.10; or for whom the resident district pays tuition under section  &#10;4.26    123A.18,  123A.22,  123A.30,  123A.32,  123A.44,  123A.488,  123B.88, subdivision &#10;4.27    4,  124D.04,  124D.05,  125A.03 to  125A.24,  125A.51, or  125A.65, shall be counted &#10;4.28    according to this subdivision. &#10;4.29    (a) A prekindergarten pupil with a disability who is enrolled in a program approved &#10;4.30    by the commissioner and has an individual education plan is counted as the ratio of the &#10;4.31    number of hours of assessment and education service to 825 times  1.25 with a minimum &#10;4.32    average daily membership of 0.28, but not more than  1.25 pupil units. &#10;4.33    (b) A prekindergarten pupil who is assessed but determined not to be handicapped is &#10;4.34    counted as the ratio of the number of hours of assessment service to 825 times  1.25. &#10;5.1     (c) A kindergarten pupil with a disability who is enrolled in a program approved &#10;5.2     by the commissioner is counted as the ratio of the number of hours of assessment and &#10;5.3     education services required in the fiscal year by the pupil's individual education program &#10;5.4     plan to 875, but not more than one.&#10;5.5     (d) A kindergarten pupil who is not included in paragraph (c) is counted as <del>.557</del><ins> 0.65 </ins>&#10;5.6      of a pupil unit for fiscal year <del>2000</del> <ins>2007 </ins>and thereafter.&#10;5.7     (e) A pupil who is in any of grades 1 to 3 is counted as  <del>1.115</del> <ins>1.2 </ins>pupil units for fiscal &#10;5.8     year <del>2000</del> <ins>2007 </ins>and thereafter. &#10;5.9     (f) A pupil who is any of grades 4 to 6 is counted as  1.06 pupil units for fiscal &#10;5.10    year 1995 and thereafter. &#10;5.11    (g) A pupil who is in any of grades 7 to 12 is counted as 1.3 pupil units.&#10;5.12    (h) A pupil who is in the postsecondary enrollment options program is counted &#10;5.13    as 1.3 pupil units.&#10;&#10;<a id="go.0.3.0"></a>5.14        Sec. 3. Minnesota Statutes 2004, section 126C.12, subdivision 1, is amended to read:&#10;5.15        Subdivision 1. <b>Revenue.</b> Of a district's general education revenue for fiscal year &#10;5.16    <del>2000</del> <ins>2007 </ins>and thereafter each school district shall reserve an amount equal to the formula &#10;5.17    allowance multiplied by the following calculation:&#10;5.18    (1) the sum of adjusted marginal cost pupils in average daily membership, according &#10;5.19    to section  126C.05, subdivision 5, in kindergarten times <del>.057</del><ins> .15</ins>; plus &#10;5.20    (2) the sum of adjusted marginal cost pupils in average daily membership, according &#10;5.21    to section  126C.05, subdivision 5, in grades 1 to 3 times <del>.115</del><ins> .2</ins>; plus &#10;5.22    (3) the sum of adjusted marginal cost pupils in average daily membership, according &#10;5.23    to section  126C.05, subdivision 5, in grades 4 to 6 times .06. &#10;&#10;<a id="go.0.4.0"></a>5.24        Sec. 4. Minnesota Statutes 2005 Supplement, section 290.06, subdivision 2c, is &#10;5.25    amended to read:&#10;5.26        Subd. 2c. <b>Schedules of rates for individuals, estates, and trusts.</b> (a) The income &#10;5.27    taxes imposed by this chapter upon married individuals filing joint returns and surviving &#10;5.28    spouses as defined in section 2(a) of the Internal Revenue Code must be computed by &#10;5.29    applying to their taxable net income the following schedule of rates:&#10;5.30    (1) On the first <del>$25,680</del><ins> $29,980</ins>, 5.35 percent;&#10;5.31    (2) On all over <del>$25,680</del><ins> $29,980</ins>, but not over <del>$102,030</del><ins> $119,100</ins>, 7.05 percent;&#10;5.32    (3) On all over <del>$102,030</del><ins> $119,100, but not over $270,000</ins>, 7.85 percent<ins>;</ins>&#10;5.33    <ins>(4) On all over $270,000, 9.25 percent</ins>.&#10;6.1     Married individuals filing separate returns, estates, and trusts must compute their &#10;6.2     income tax by applying the above rates to their taxable income, except that the income &#10;6.3     brackets will be one-half of the above amounts.&#10;6.4     (b) The income taxes imposed by this chapter upon unmarried individuals must be &#10;6.5     computed by applying to taxable net income the following schedule of rates:&#10;6.6     (1) On the first <del>$17,570</del><ins> $20,510</ins>, 5.35 percent;&#10;6.7     (2) On all over <del>$17,570</del><ins> $20,510</ins>, but not over <del>$57,710</del><ins> $67,360</ins>, 7.05 percent;&#10;6.8     (3) On all over <del>$57,710</del><ins> $67,360, but not over $180,000</ins>, 7.85 percent<ins>;</ins>&#10;6.9     <ins>(4) On all over $180,000, 9.25 percent</ins>.&#10;6.10    (c) The income taxes imposed by this chapter upon unmarried individuals qualifying &#10;6.11    as a head of household as defined in section 2(b) of the Internal Revenue Code must be &#10;6.12    computed by applying to taxable net income the following schedule of rates:&#10;6.13    (1) On the first <del>$21,630</del><ins> $25,250</ins>, 5.35 percent;&#10;6.14    (2) On all over <del>$21,630</del><ins> $25,250</ins>, but not over <del>$86,910</del><ins> $101,450</ins>, 7.05 percent;&#10;6.15    (3) On all over <del>$86,910</del><ins> $101,450, but not over $229,500</ins>, 7.85 percent<ins>;</ins>&#10;6.16    <ins>(4) On all over $229,500, 9.25 percent</ins>.&#10;6.17    (d) In lieu of a tax computed according to the rates set forth in this subdivision, the &#10;6.18    tax of any individual taxpayer whose taxable net income for the taxable year is less than &#10;6.19    an amount determined by the commissioner must be computed in accordance with tables &#10;6.20    prepared and issued by the commissioner of revenue based on income brackets of not &#10;6.21    more than $100. The amount of tax for each bracket shall be computed at the rates set &#10;6.22    forth in this subdivision, provided that the commissioner may disregard a fractional part of &#10;6.23    a dollar unless it amounts to 50 cents or more, in which case it may be increased to $1.&#10;6.24    (e) An individual who is not a Minnesota resident for the entire year must compute &#10;6.25    the individual's Minnesota income tax as provided in this subdivision. After the &#10;6.26    application of the nonrefundable credits provided in this chapter, the tax liability must &#10;6.27    then be multiplied by a fraction in which:&#10;6.28    (1) the numerator is the individual's Minnesota source federal adjusted gross income &#10;6.29    as defined in section 62 of the Internal Revenue Code and increased by the additions &#10;6.30    required under section 290.01, subdivision 19a, clauses (1), (5), (6), (7), (8), and (9), &#10;6.31    and reduced by the Minnesota assignable portion of the subtraction for United States &#10;6.32    government interest under section 290.01, subdivision 19b, clause (1), and the subtractions &#10;6.33    under section 290.01, subdivision 19b, clauses (9), (10), (14), (15), and (16), after applying &#10;6.34    the allocation and assignability provisions of section 290.081, clause (a), or 290.17; and&#10;6.35    (2) the denominator is the individual's federal adjusted gross income as defined in &#10;6.36    section 62 of the Internal Revenue Code of 1986, increased by the amounts specified in &#10;7.1     section 290.01, subdivision 19a, clauses (1), (5), (6), (7), (8), and (9), and reduced by the &#10;7.2     amounts specified in section 290.01, subdivision 19b, clauses (1), (9), (10), (14), (15), &#10;7.3     and (16).&#10;7.4     <ins><b>EFFECTIVE DATE.</b></ins><ins>This section is effective for taxable years beginning after </ins>&#10;7.5     <ins>December 31, 2005.</ins>&#10;&#10;<a id="go.0.5.0"></a>7.6         Sec. 5. Minnesota Statutes 2004, section 290.06, subdivision 2d, is amended to read:&#10;7.7         Subd. 2d. <b>Inflation adjustment of brackets.</b> (a) For taxable years beginning after &#10;7.8     December 31, <del>2000</del><ins> 2006</ins>, the minimum and maximum dollar amounts for each rate &#10;7.9     bracket for which a tax is imposed in subdivision 2c shall be adjusted for inflation by the &#10;7.10    percentage determined under paragraph (b). For the purpose of making the adjustment as &#10;7.11    provided in this subdivision all of the rate brackets provided in subdivision 2c shall be the &#10;7.12    rate brackets as they existed for taxable years beginning after December 31, <del>1999</del><ins> 2005</ins>, &#10;7.13    and before January 1, <del>2001</del><ins> 2007</ins>. The rate applicable to any rate bracket must not be &#10;7.14    changed. The dollar amounts setting forth the tax shall be adjusted to reflect the changes &#10;7.15    in the rate brackets. The rate brackets as adjusted must be rounded to the nearest $10 &#10;7.16    amount. If the rate bracket ends in $5, it must be rounded up to the nearest $10 amount.&#10;7.17    (b) The commissioner shall adjust the rate brackets and by the percentage determined &#10;7.18    pursuant to the provisions of section 1(f) of the Internal Revenue Code, except that in &#10;7.19    section 1(f)(3)(B) the word <del>"1999"</del> <ins>"2005" </ins>shall be substituted for the word "1992." For &#10;7.20    2001, the commissioner shall then determine the percent change from the 12 months &#10;7.21    ending on August 31, <del>1999</del><ins> 2005</ins>, to the 12 months ending on August 31, <del>2000</del><ins> 2006</ins>, and &#10;7.22    in each subsequent year, from the 12 months ending on August 31, <del>1999</del><ins> 2005</ins>, to the 12 &#10;7.23    months ending on August 31 of the year preceding the taxable year. The determination of &#10;7.24    the commissioner pursuant to this subdivision shall not be considered a "rule" and shall &#10;7.25    not be subject to the Administrative Procedure Act contained in chapter 14.&#10;7.26    No later than December 15 of each year, the commissioner shall announce the &#10;7.27    specific percentage that will be used to adjust the tax rate brackets.&#10;&#10;<a id="go.0.6.0"></a>7.28        Sec. 6. Minnesota Statutes 2005 Supplement, section 290.0674, subdivision 2, is &#10;7.29    amended to read:&#10;7.30        Subd. 2. <b>Limitations.</b> (a) For claimants with income not greater than <del>$33,500</del><ins> 250 </ins>&#10;7.31    <ins>percent of the federal poverty guidelines</ins>, the maximum credit allowed for a family is &#10;7.32    $1,000 multiplied by the number of qualifying children in kindergarten through grade 12 &#10;7.33    in the family. The maximum credit for families with one qualifying child in kindergarten &#10;7.34    through grade 12 is reduced by $1 for each $4 of household income over <del>$33,500</del><ins> 250 </ins>&#10;8.1     <ins>percent of the federal poverty guidelines</ins>, and the maximum credit for families with two &#10;8.2     or more qualifying children in kindergarten through grade 12 is reduced by $2 for each &#10;8.3     $4 of household income over <del>$33,500</del><ins> 250 percent of the federal poverty guidelines</ins>, &#10;8.4     but in no case is the credit less than zero.&#10;8.5     For purposes of this section "income" has the meaning given in section 290.067, &#10;8.6     subdivision 2a. In the case of a married claimant, a credit is not allowed unless a joint &#10;8.7     income tax return is filed.&#10;8.8     (b) For a nonresident or part-year resident, the credit determined under subdivision 1 &#10;8.9     and the maximum credit amount in paragraph (a) must be allocated using the percentage &#10;8.10    calculated in section 290.06, subdivision 2c, paragraph (e).&#10;8.11    <ins><b>EFFECTIVE DATE.</b></ins><ins>This section is effective for taxable years beginning after </ins>&#10;8.12    <ins>December 31, 2005.</ins>&#10;&#10;<a id="go.0.7.0"></a>8.13        Sec. 7. <ins><b>DIRECTION TO DEPARTMENT.</b></ins>&#10;8.14    <ins>The commissioner of education shall adjust all formulas in taxes payable in 2007 </ins>&#10;8.15    <ins>to ensure that education finance levies are not increased as a result of the pupil weight </ins>&#10;8.16    <ins>changes in section 2.</ins>&#10;&#10;<a id="go.0.8.0"></a>8.17        Sec. 8. <ins><b>CLOSING TAX COMPLIANCE GAP; GOVERNOR'S </b></ins>&#10;8.18    <ins><b>RECOMMENDATION TO REDUCE INCOME TAX RATES.</b></ins>&#10;8.19    <ins>On August 1, of 2007 and each subsequent year, the governor must submit to the </ins>&#10;8.20    <ins>legislature an estimate of the amount by which tax compliance activities conducted by the </ins>&#10;8.21    <ins>Department of Revenue under section 9 and Laws 2005, chapter 156, article 1, section </ins>&#10;8.22    <ins>15, subdivisions 2 and 3, have reduced the amount of the tax compliance gap during the </ins>&#10;8.23    <ins>preceding 12-month period. If the amount exceeds $100,000,000 in any year, the governor </ins>&#10;8.24    <ins>must recommend to the legislature a reduction in the income tax rate established for the </ins>&#10;8.25    <ins>fourth income brackets under section 4 that would reduce the revenue attributable to the </ins>&#10;8.26    <ins>tax on the fourth income bracket by the amount of reduction in the tax compliance gap.</ins>&#10;&#10;<a id="go.0.9.0"></a>8.27        Sec. 9. <ins><b>APPROPRIATION.</b></ins>&#10;8.28    <ins>$....... is appropriated to the commissioner of revenue to pay the cost of participation </ins>&#10;8.29    <ins>in the "Fed-State" tax processing program of the Internal Revenue Service.</ins>&#10;