May 28, 2015

Minnesota Legislative Update: 2015 Legislative Session Wrap-up

After 10 years of budget deficits, the Minnesota Legislature convened in January to set the state’s biennial budget with a projected $1.9 billion surplus. This surplus spurred hope of an orderly session and predictions of tax relief, increased education funding, and a comprehensive transportation funding package addressing Minnesota’s deteriorating roads, bridges and transit systems.

As the 2015 regular session adjourned May 18, numerous unresolved policy and budget issues remained, necessitating the fifth special session since 2001 to complete the state’s biennial budget. Action on an omnibus tax bill and a comprehensive transportation funding package was deferred until the 2016 Session. Legacy and bonding bills fell by the wayside as the House and Senate rushed to finish by the constitutionally mandated midnight deadline. Three of seven major funding bills needed to fund state government were ultimately vetoed by Governor Dayton.

Neither Governor Dayton nor House and Senate leaders were able to obtain their stated top priorities during the regular session.  House Republicans were unable to deliver tax relief to citizens, businesses and rural Minnesota. Senate DFLers were unable to secure significant new funding to finance a comprehensive transportation package. Governor Dayton was unable to secure funding for a universal pre-kindergarten program, prompting his veto of the K-12 omnibus finance bill.

After a short break over Memorial Day weekend, Governor Dayton and House and Senate leadership have again started negotiating a global budget deal. The biggest obstacle will be accommodating the Governor’s demand for an additional $250 million for his universal pre-kindergarten program. A $1 billion bottom line surplus was agreed to by legislative leadership as a condition of deferring action on tax and transportation bills till 2016. Additional education spending will reduce the $1 billion surplus.

In addition to increased funding for his pre-kindergarten program, Governor Dayton wants a number of environment and energy policy provisions contained in the Jobs & Energy and Agriculture & Environment omnibus finance bills removed or revised. He also would like to pass Legacy and bonding bills, restore voting rights for felons, and repeal the option of counties to utilize private accountants instead of the Legislative Auditor. House and Senate leaders have expressed concern that the Governor’s increased list of demands will complicate reaching a global budget agreement.

Once agreement is reached, Governor Dayton will call a limited special session to pass legislation necessary to enact the budget agreement and prevent a partial government shutdown. Like budget negotiations, the logistics of a special session will be complicated as the entire Capitol, including House and Senate Chambers, are now closed as part of the ongoing State Capitol Restoration Project. Both bodies will convene in State Office Building hearing rooms without the benefit of modern voting and bill processing technology.

A partial state government shutdown will occur if Governor Dayton and legislative leadership fail to reach an agreement by July 1. The shutdown will affect those agencies funded in the bills vetoed by Governor Dayton.  Employees in those agencies will begin receiving lay-off notices June 1.

Bonding

Even though significant capital investment bills are generally not considered in the first year of the biennium Governor Dayton proposed an $843 million bonding package in April. There was little discussion of bonding at the Legislature until mid-May. During the final days of session House and Senate leadership negotiated a small $98.7 million bonding bill.  It included bonding funds for avian flu testing, flood hazard mitigation, Capitol restoration, and local road & bridge programs. The Senate passed this bill on the final night of session. The House did not have time to consider this bill before adjourning.

Commerce

Commerce reform in the 2015 legislative session consisted primarily of liquor and gambling legislation. The omnibus liquor bill, SF1238, was signed into law on May 1. The bill includes provisions helpful to the craft brewing and microdistillery industries. Microdistilleries are now allowed to sell one 375-milliliter bottle per customer per day of the product manufactured on-site. Growlers can now be sold on Sundays at small breweries and brewpubs. Advocates of Sunday liquor sales will have to wait another year, as the House and the Senate both rejected amendments to authorize Sunday sales.

After two years of debate the Legislature passed legislation prohibiting the sale of lottery tickets either online, at gas pumps, or at ATM’s. The new law requires the State Lottery to cease these sales and prohibits future sales expansion until expressly authorized by the Legislature. Although Governor Dayton vetoed a similar effort near the end of last year's session, he allowed Chapter 45 to become law without his signature, citing the overwhelming support in both the House and SenateEarly in the legislative session, funding for school facilities, an increase in the per-pupil formula, teacher quality, retention, and licensure, and early learning became the prominent issues in education committees.

Early Education

In the final omnibus bill to by the House and Senate, HF844, $85.8 million was directed to the early learning scholarship program for FY 16-17, and $33.8 million for the school readiness program. Funds were also put into the existing Parent Aware for School Readiness program that determines quality ratings of care providers for scholarship recipients and other programs. The existing cap on early learning scholarships of $5,000 per child, for fiscal year 2016 and beyond, is allowed to be increased by 15-20 percent to match tuition or fees based on the Parent Aware star-rating held by the respective program. Governor Dayton vetoed the bill because it did not include money for universal pre-school for four-year-olds. He is negotiating to increase the funding to introduce the voluntary program.

Environment

A number of environmental and energy policy changes were enacted by the Legislature, several of which were vetoed by the Governor. In the Agriculture & Environment bill, HF846, that the Governor has since vetoed, funding was included for avian flu relief in addition to the Governor’s buffer proposal. The Jobs & Energy finance bill, HF1437, also vetoed, was brought forward in the last fifteen minutes of session, and many legislators expressed concerns they weren’t sure what they voted for upon its passage.

Wetlands
Existing state laws require the replacement of depleted or eliminated wetlands. Legislation passed this session, later included in the omnibus Agriculture & Environment bill, creates an in-lieu fee program, where users can pay the Board of Water and Soil Resources to develop replacement wetlands in areas of need elsewhere in the state.

Wild Rice/ Sulfate Standard
A compromise was reached between Governor Dayton and legislators over the enforcement of Minnesota’s sulfate standard. Minnesota’s sulfate standard – 10 milligrams per liter – has not been enforced until recently. In March, Governor Dayton expressed concern that this standard is outdated and hurts mining operations in the state.  The MPCA has been working on a new approach for sulfate rules, which involves looking at the conditions in individual lakes and waters. The compromise reached with legislators will allow water permits to move forward without sulfate limits until new rules are adopted. Once adopted, the MPCA would have the ability to reopen water permits and enforce the new standard.

Pollinators
Bees and monarchs attracted a lot of attention from legislators and activists this session, with concerns about the use of neonicotinoids and other insecticides and the lack of habitat for pollinating insects. Labeling language was included in the Agriculture Policy bill, HF1554, which the Governor has signed, that prohibits  nurseries and plant retailers from advertising  that plants are beneficial to pollinators if they have been treated with any systemic insecticides. The vetoed Agriculture & Environment bill contained dollars for Monarch habitat conservation and milkweed promotion, two provisions designed to help pollinators.

Buffers
Mid-session Governor Dayton proposed an initiative aimed at protecting Minnesota’s waters from erosion and runoff pollution. This became one of his top priorities. After protracted negotiations between Governor Dayton and legislative leaders an agreement was reached requiring 50-foot buffer strips around public waterways and 16.5-foot buffers around ditches used for drainage. This language was added to the Agriculture & Environment omnibus finance bill with funding directed to come from Legacy Amendment proceeds. The Agriculture & Environment omnibus finance bill was vetoed and the Legacy bill did not pass leaving this proposal in limbo.

Flame Retardants
Four flame retardants used in furniture, carpet, and children’s clothing were banned. As introduced, firefighter-backed legislation would have banned ten flame retardants but, ultimately proponents and opponents reached agreement to ban only the four. The other flame retardants will be studied and it is anticipated that legislation banning additional flame retardants will be introduced next session.

Other Chemical Management Issues
The Toxic Free Kids Act, which provides information about products containing certain Priority Chemicals found in children’s products passed the Senate but ultimately did not survive the conference committee process. Similarly, legislation to prohibit and phase out the use of microbeads and micro plastics in personal care products sold throughout did not survive conference committee despite passage in the Senate.

Health and Human Services

Despite distinct differences between the House and Senate, the legislature came to an agreement on a health and human services package totaling $12.5 billion over the biennium. SF1458 includes major funding increases for nursing homes and mental health initiatives, as well as further review of MNSure and MinnesotaCare. HF1535 includes significant changes to HHS policy.

MNSure & MinnesotaCare
While House GOP initiatives ranging from the repeal of MNsure, and subsequent move to the federal exchange, to the elimination of the MinnesotaCare program were not included in the final omnibus bill, these public programs did see some reform. For instance, a federal waiver will be requested that would allow for premium tax credit eligibility for those purchasing plans outside of MNsure and the establishment of task forces to further evaluate their future utility. Also included are slight rate increases on Minnesota Care users and a requirement for earlier release of MNsure premium rates. Finally, a $500,000 task-force investigating the future of MNsure is provided for in addition to the reclassification of MNsure as a state agency.

Child Care Assistance Program
The HHS omnibus bill includes an additional $10.02 million for the biennium to reduce the Basic Sliding Fee waitlist for the Child Care Assistance program. For the year 2016, these funds will be distributed proportionately to counties based on the average of the previous six months of waiting list needs.

Dental
In addition to a 5 percent rate increase for dental providers, the legislature also approved an early dental prevention initiative aimed at increasing awareness across communities of color and recent immigrants on the importance of infant and toddler preventative dental care. The program appropriates $312,000 over the biennium for this initiative.

Chemical Dependency
The Legislature adopted a 2 percent increase in the chemical dependency provider rate requiring $3.64 million in funding over the next biennium. Additionally, individuals who seek out withdrawal management services for drug or alcohol addictions will be treated regardless of ability to pay (plans to further address needs would be required within 12 hours). The bill also includes funding for Steve's law, which allows for opiate antagonist availability and administration without legal ramifications, as well as funding for an opioid prescribing improvement program aimed at the reduction of dependency stemming from opioid-based painkillers. Finally, the bill also includes $300,000 in grant money to establish chemical dependency prevention programs in secondary schools.

Taxes

The House and Senate Tax Committees heard over a hundred proposals this session. So, not surprisingly, there were significant differences in the tax proposals passed by the House and Senate - both in terms of fiscal impact and policy.

The $2 billion tax cut package passed by the House contained a number of tax relief measures. The largest was a $538.6 million one-time personal income tax exemption. Another $450 million was spent to begin phasing out the statewide business property tax. The House proposal also included new income tax deductions for Social Security income, military retirement pay, college loans and farm property. A tax deduction or refundable tax credit for contributions to college savings plans, an increased threshold for estate taxes, and an expansion of the child care tax credit were also proposed. The House package also called for an $85 million cut in local government aid to Minneapolis, St. Paul, and Duluth. There were also provisions allowing for a reverse referendum in the event of an increased property tax levy.

The Senate’s tax package was much smaller – approximately $460 million – and included property tax relief, with a shift in the base of commercial-industrial and seasonal-recreational property tax totaling $93 million. The bill also included expansion of the K-12 education credit and veterans’ jobs credits and created a refundable tax credit for contributions to Minnesota’s college savings plan and a tax credit to spur workforce housing development in Greater Minnesota. Additionally, the Senate used $225 million to pay back accounting shifts that occurred during tougher budget years.

House and Senate conferees started meeting in early May to address these differences.  The Friday before the Legislature adjourned legislative leadership agreed to defer action on both the tax and transportation bills until 2016 leaving the federal tax conformity bill passed early in session as the only tax bill to pass in 2015. With adjournment the House and Senate tax bills will be returned to their respective Chambers with the House having the option to either appoint new conferees when the Legislature reconvenes in 2016 or constructing a new tax passage once the 2016 February forecast is released.

Transportation

This session Governor Dayton, House Republicans, and Senate DFLers all proposed major transportation proposals to deal with Minnesota’s deteriorating roads and bridges and transit systems. But while all agreed on the need for significantly more transportation funding, the Governor/Senate DFL and House GOP disagreed on both sources of funding and where funding was needed most.

Governor Dayton's proposal generated $11 billion in new transportation and transit funding over the next decade. The Governor’s proposal relied on a 6.5 percent increase in tax on gasoline at the wholesale level in addition to an increase in license tab fees and $2 billion in trunk high bonds to fund improvements to roads and bridges throughout the state, along with a 0.5 percent sales tax increase in the metro area for transit funding. The Senate DFL plan was nearly identical with the exception of a larger 0.75 percent metro area sales tax increase for transit.

The House Republicans proposed approximately $7 billion in new funding over 10-years. This plan included no tax increases but rather a reallocation of general fund revenue generated from current sales taxes related to auto parts, leased motor vehicles, and rental vehicles. House Republicans also proposed an additional $2.35 billion in bonding to be used almost exclusively on the state’s roads and bridges.

Other potential funding sources were also discussed, including local transportation utility fees for local maintenance and a parking facility tax for metro area pedestrian, bicycle, parks and transit improvements.

By the time legislative leadership agreed to defer consideration of a transportation bill until 2016, it became evident that House Republicans were not going to accept any new tax or fee increases to finance transportation and transit improvements. House and Senate negotiators were able to agree to a "lights on" transportation package (SF1647).  This package appropriates $30 million in one-time spending from the general fund, including $28 million in appropriations to the Metropolitan Council for transit projects and operations, and $2 million for a suburb-to-suburb transit pilot project. Additionally, MnDOT reserves are spent down by $182 million over the next biennium to fund various state road construction projects.

2016 Session

The Minnesota Legislature will reconvene on March 8, 2016. Because of the ongoing Capitol Renovation the Senate Chamber will not be available in 2016. The Senate will meet in a hearing room in the new Senate State Office Building. House leadership anticipates that the House Chamber will be available next session.

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