April 07, 2017

Minnesota Weekly Legislative Update: What to Expect After Spring Recess?

The legislature heads into its spring recess today, Friday, April 7. The House and Senate have spent the last several weeks finalizing and debating their budget and tax bills. When they reconvene on April 18, 2017 they will shift activity into conference committees. This next stage of the legislative session brings the House and Senate together to work out the differences between their budget bills, and work with the Governor Mark Dayton’s administration on acceptable compromises.

Conference committees for budget bills and tax bills will consist of five members of the House and five from the Senate. They will meet for several weeks and when they have agreed on a budget, they will repass the bills and send them to Governor Dayton for his signature.

In the last several years, the path to compromise and agreement between the House, Senate and Governor Dayton has been difficult. For two years, there has not been a comprehensive tax, capital investment or transportation bill. Again this session, it appears there are many disagreements between the House, Senate and Governor Dayton.

We have highlighted three areas of the budget that will be important parts of the budget negotiations: 

Tax Relief

The House and Senate have made it clear their top priority this year is tax relief. The Senate bill cuts taxes $900 million and the House cuts $1.3 billion. Governor Dayton had recommended $300 million in tax cuts.

Both the House and Senate bills provide relief to farmers, businesses and property owners. Other key provisions included in both bills are estate tax conformity, social security subtraction increase, a freeze on the annual inflator in the state general levy and an agriculture land bond credit. The main difference between the House and Senate is the Senate reduces the first tier income tax rate from 5.35 percent to 5 percent by 2018.

The DFL and Governor Dayton have been critical of the size of the tax cuts the legislature is proposing. They argue that large tax cuts impact the amount and type of spending allowed under the budget bills. Expect tax issues to impact all areas of the budget negotiations.

Education

Education, specifically money on the general education funding formula and money for early childhood education, has been a hot topic for the legislature and Governor Dayton. This year, there are significant differences in all three proposals.

Governor Dayton has proposed a 2.0 percent increase each year in the general education formula allowance, while the Senate proposes a fund increase of 1.5 percent each year and the House a fund increase of 1.25 percent each year.

Regarding early education, Governor Dayton proposes to spend $175 million to expand the Universal Preschool program. The Senate funds both Universal Preschool and scholarships for individual students  at close to current levels. The House, led by Chair Jenifer Loon, R-Eden Prairie, eliminates the Universal Preschool program, funds scholarships and learning readiness.

Finally, both the House and Senate have included tax credits for individuals to contribute to a foundation that awards scholarships to qualifying students. It also expands the eligible expense deduction to include tuition. The DFL and Governor Dayton are opposed to these credits and deductions which they refer to as “vouchers.

Transportation

Both the House and Senate shift approximately 400 million of existing general fund dollars from sales taxes on rental vehicles, auto parts, repairs and the leased motor vehicle sales tax to provide funding for roads and bridges. The House proposal authorizes $1.3 billion for fiscal years 2018-2021 in trunk highway bonds, and the Senate authorizes $300 million in bonding.

There is no new revenue for transit provided in either bill, although the Senate does allow the metro CTIB counties to raise local sales taxes for transit expenses. However, the House cuts metro transit funding substantially and prohibits the use of any funds for light rail study, project development or construction without legislative approval. The Senate requires all LRT operating expenses be paid from non-state sources unless certain conditions are met.

In contrast, Governor Dayton recommends a gross receipts tax on gasoline and an increase in tab fees for roads and bridges. Additionally, he proposes a .5-percent sales tax in the metro area to fund transit.

Upcoming Important Dates

  • Legislative Break. The House and Senate will be in recess starting Saturday, April 8 through Monday, April 17. No Committee, floor, or other action will take place in either body that week.
  • Adjournment. The legislative session has a constitutional adjournment date of May 22 this year.

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