In the waning days of the 2016 session, Gov. Mark Dayton and top lawmakers still haven’t reached agreements on the biggest outstanding issues.

Despite this week’s exchange of offers on transportation funding, negotiators have set that issue aside to focus instead on taxes, bonding, and how to spend the state’s $900 million budget surplus.

Dayton drew a new line in the sand with a list of spending requirements, telling Republicans that he won’t sign a tax bill unless he gets what he’s after in a supplemental budget. He pared back his original supplemental budget proposal, but his spending priorities haven’t changed. He wants money for universal preschool, rural broadband, and racial equity initiatives. On transportation funding, Dayton said he’ll leave that issue to House and Senate negotiators to try to figure out.

DFL Senate Majority Leader Tom Bakk (DFL-Cook) said he thinks an agreement on the size of a tax bill is within reach. He also thinks the governor’s spending requirements are doable. However, Bakk is not as optimistic about a transportation bill. With Republicans unwilling to support metro area transit projects, Bakk said transportation is no longer in play.

Supplemental Budget

The supplemental budget conference committee met Sunday evening to begin their adoption of “same and similar” language.  They continued Tuesday adopting policy language in the various articles, as they awaited joint budget targets. House Speaker Kurt Daudt (R-Crown), Senate Majority Leader Tom Bakk, and Governor Mark Dayton began discussing the budget framework Tuesday afternoon. House Republicans have proposed spending $65 million on the supplemental budget, Senate Democrats and Dayton have both proposed spending more than $450 million. The conference is awaiting joint targets to begin the real work.

Transportation

According to legislative leaders on both sides of the aisle, everything hinged on finding common ground on a transportation package. Governor Mark Dayton unveiled two revised transportation funding packages on Monday. One plan included a 5 cent per gallon gas tax increase. Both plans would increase the license tab fees, use existing general fund revenues, raise the sales tax in the metro area by half a cent to fund mass transit, and generate $600 million per year for roads and bridges. Daudt said he was pleased to see the governor use general fund money and leave out the gas tax in one proposal, but criticized Dayton’s proposed tab fee increase as a different kind of tax increase. Dayton said he won’t accept less than $600 million per year in new transportation funding. He said boosting license tab fees is the only way to get to $600 million without raising the gas tax.

House Republicans countered on Tuesday with a compromise transportation counteroffer that ensures a $6 billion investment in road and bridge funding over the next 10 years.  The offer utilizes key components of Governor Dayton’s transportation plan, as well as the House Republican plan passed in 2015 that remains in conference committee to increase transportation funding by $600 million annually. One half, or $300 million, comes from the House Republican proposal to use existing funds to pay for road and bridge improvements. The remaining half comes from two sources identified by Governor Dayton; $200 million from trunk highway and general obligation bonds and $100 million from adjustments in license tab fees.

In addition, House Republicans announced a joint target compromise with $450 million of the state’s $900 million budget surplus toward middle-class tax relief including reducing the state tax on social security income and veterans benefits, a tax credit for contributions to college savings plans and student loan payments, property tax relief for farmers, and a dependent care tax credit supported by Governor Dayton. It uses $300 million a year in GF revenue, $200 million a year in bonding, and $100 million a year in license tab fees. The House offer does not include any money for transit. Daudt stated that he wants to see agreement on roads and bridges first. Bakk said transportation might have to be set aside this week so negotiations can focus on a supplemental budget bill, tax bill, and a bonding bill.

Bonding

DFL leaders had been pressuring House Republicans to release their capital investment proposal so negotiations could begin. Gov. Dayton has a $1.4 billion bonding proposal, calling for huge investments in rail-grade crossing safety and water quality infrastructure. Senate DFLers failed to pass a $1.8 billion bonding bill by a single vote May 5.

House Republicans, Tuesday, announced their intention to introduce an $800 million bonding bill. Capital Investment Committee Chair Paul Torkelson (R-Hanska) said that it is the average size of the bonding bill in the past 10 even-numbered years and a $200 million increase from House Republicans initial bonding offer. He noted that the proposal prioritizes local road and bridge projects, water infrastructure supported by Governor Dayton, and asset preservation at Minnesota’s Higher Education institutions.

The proposal would authorize roughly $800 million in general-obligation borrowing repaid by state tax revenues, and another $70 million in trunk highway bonding. It includes $227 million for local road and bridge projects, $137 million for the University of Minnesota and Minnesota State Colleges and Universities system, and $130 million for water and sewer projects.

The bonding bill proposal from House Republicans is bigger than an earlier $600 million House GOP bonding price tag, but it’s significantly short of the $1.4 billion that Dayton wants.

The bill was approved Wednesday by both the House Capital Investment and House Ways and Means committees and was taken up on the floor on Thursday where it failed to garner the DFL votes needed to reach the supermajority to pass. House Democrats criticized the Republican plan as regionally and politically biased, focusing on Republican and rural districts at the expense of the metro area.

A House and Senate bonding conference committee, headed by Torkelson and Senate bonding chair Sen. LeRoy Stumpf (DFL-Plummer), is meeting this morning to consider portions of the current plans put forward by the House, Senate and governor.

Taxes

The Taxes conference committee met on Wednesday. The last time the group gathered, a year ago, they were looking at a House proposal of $2 billion in tax relief; however, this year, the House Republicans are looking to $450 million in relief.

With no compromise on spending targets there was little the group could do except adopt some noncontroversial items that don’t require dollars.

At a Tuesday press conference, Davids said he expects the House revised omnibus tax bill to contain provisions to reduce taxes on Social Security and veterans benefits; provide a tax credit for contributions to college savings plans and a dependent care tax credit.

The conference met again late Thursday evening and will continue working today.

Real ID

Minnesota has been denied an extension that would have given residents two extra years to get an upgraded driver’s license. The U.S. Department of Homeland Security told Dayton in a letter released Monday that it won’t approve a waiver until the state passes a law to overhaul its licenses pursuant to federal security standards.

The Senate has passed its version that would begin distribution of the new licenses in January 2018.  The House also passed their own version. The two bills differ and a conference committee was appointed. The conferees met yesterday and passed some similar language but the big sticking points are a requirement of citizenship for any compliant or non-compliant license/ID and the effective date. The House version requires an October 2016 enactment.