Budget Showdown

Governor Mark Dayton has expressed dismay at the direction lawmakers are veering in their budget plans.

On spending state money, lawmakers are widening the chasm. The May 18 legislative adjournment deadline is pressing down on politicians. In plans for funding state government operations, health care, education, energy programs and tax plans, the two parties are so far apart that talk of a special session — even of a shutdown — has begun.

Senate Finance Committee Chairman Dick Cohen (DFL-St. Paul) said he did not expect such distance between DFL and Republican plans, given the predicted $2 billion surplus.

The Governor is troubled by the insertion of policy measures in key budget bills. Minnesota Governors cannot line-item veto policy out of larger bills — line-item vetoes are reserved for spending items. So, the Governor is faced with a tough choice of vetoing spending bills or approving policy provisions he doesn’t support.

Gov. Dayton has indicated that he is willing to toss out budget bills until they send him clean, policy-free versions of their plans. If that takes a while, the Governor said he is willing to wait.

Transportation

With only a few weeks left in the legislative session and an ongoing debate over transportation funding, the Minnesota Chamber of Commerce’s own analysis says that long-term funding needs may be overstated by as much as $4.5 billion over the next 20 years.

The analysis is based on a 2012 Transportation Finance Advisory Committee report that has served as the backbone of a largely DFL argument that the state needs $6 billion in new revenue over 10 years to support roads and bridge construction. Gov. Dayton and DFL lawmakers have argued in favor of a new gas tax to generate the revenue.

The Chamber specifically points to a 5 percent inflation factor used by the Minnesota Department of Transportation to estimate funding needs. The report was prepared by Accenture. “That’s at the upper end of inflation factors used by the Federal Highway Administration and others in assessing transportation needs,” the Chamber wrote in a press release. “Using a more reasonable 2.5 percent inflation factor, which is closer to what other organizations use, would reduce the projected $12 billion, 20-year unmet need for Minnesota roads and bridges by $4.5 billion.”

Senate Democrats on Monday passed a transportation bill that relies on tax increases to pay for road, bridge and transit projects. The final vote was 36-27. The Senate bill would increase the tax on gasoline to pay for road and bridge projects and add a Twin Cities metro area sales tax to pay for transit. Senate Transportation Chair Scott Dibble (DFL-Minneapolis) said the increased transportation funding is needed to pay for ongoing maintenance and new projects.

House Republicans have proposed a transportation bill that relies on borrowing and dedicating sales taxes on auto parts, leased vehicles and rental cars to pay for road and bridge projects.

Before the Legislature passes a transportation bill, Senate Democrats and House Republicans will have to negotiate to reconcile their differences in conference.

MNsure

Governance of Minnesota’s health insurance exchange could be in for a change, but MNsure will not be scrapped.

The Democratic-led Minnesota Senate defeated GOP attempts to dismantle MNsure. Several MNsure-related amendments to a budget bill debated Friday failed on party-line votes.

The underlying bill would make some changes to the insurance marketplace that had its share of kinks in its first two years. Most significantly, it would turn MNsure into a state agency instead of continuing to operate as mostly an independent entity.

Majority House Republicans are pushing for more dramatic restructuring. The House-Senate differences must be worked out in conference ahead of the Legislature’s adjournment in May.

House HHS Budget Bill

Following seven hours of debate, House Republicans passed a health care budget bill early Wednesday morning by a vote of 72-60. Included in the bill are:

• Nursing home payment reforms providing for new formulas to change the way facilities are paid and would require 90 percent of the rate increase to trickle down to their low-wage employees;
• Those on public programs who are aged, blind or disabled would be able to keep more of their income before triggering a spend-down of their assets;
• A proposal carried in both legislative bodies would establish the ABLE program, allowing people with disabilities to save up to $100,000 without losing government benefits, and enable them to make withdrawals for expenses such as housing, health care, and employment training;
• Implementation of child protection task force recommendations; and
• Creation of a statewide mental health crisis phone line.

One of the more controversial provisions cuts an insurance program, MNCare, for tens of thousands of low-income Minnesotans and rolls them into MNsure offering them state income tax credits to purchase a private qualified health plan on the exchange.

The debate was not without shenanigans. Rep. Tina Liebling (DFL-Rochester) had drafted an amendment to state that “If the commissioner of human services determines that implementation of sections 34 and 35 will not achieve the projected savings, the commissioner shall, within existing resources, sell the department’s blessing of unicorns to recoup the shortfall in savings.”

DFL Minority Leader Paul Thissen had a fiscal note from Minnesota Management and Budget and called to send the bill back to Ways and Means. He also offered a Liebling amendment to require a federal waiver for Minnesota (like the GOP wanted two years ago); the vote was 0 – 133 (thus the DFL have the GOP on record voting against a federal waiver).

K-12 Education

The Republican-led Minnesota House passed a $157 million increase to education spending Saturday. Republicans want to focus on education reforms they say will allow school leaders to use discretion in how they spend their money. But DFL members, who run the Senate, put top priority on increasing school funding, especially focused on programs they believe will close the achievement gap.

After more than four hours of debate, the House bill passed with a 69-61 vote.

A big concern of school leaders is more money for general school operations; that amount rises just .6 percent per year in the Republican bill. The Senate has a 1 percent increase per year in its bill. School district lobbyists insist anything less than a 2 percent per year increase in general education funding would result in staff and program cuts.

In the House bill, $40 million goes toward increased preschool spending, with much of it dedicated toward scholarships parents can use on programs they choose. The House bill also includes several policy changes including eliminating teacher seniority as the key factor in layoff decisions and streamlining the way teachers are licensed. DFLers support some of the licensing updates, but oppose changes to teacher union rules.

Senate DFLers have proposed $365 million in new education spending, and Gov. Dayton wants $695 million. Senators approved a $17 billion education budget on Wednesday by a vote of 39-28. Under the bill, the existing School Readiness program for four-year-olds would receive an additional $65 million over two years. Gov. Dayton requested $348 million in the upcoming biennium for his universal preschool plan. The bill also provides an additional $5 million for early learning scholarships.

Gov. Dayton said he wants more spending for schools. He warned legislators that he is not backing down on his universal preschool proposal. He said House Republicans were trading money for education for money for tax cuts.

Taxes

Not surprisingly, a tax bill released by Democrats in the Minnesota Senate Monday proposes much smaller cuts than the $2 billion plan House Republicans have offered.

The Senate bill provides about $200 million in direct tax relief. It extends an education credit for parents and provides property tax relief for homeowners who see their taxes go up more than 10 percent. It also increases Local Government Aid as a way to try to hold down property taxes.

Senate Taxes Chair Rod Skoe (DFL-Clearbrook) said he also wants to help veterans struggling to find work after serving in the Middle East. The bill gives a tax credit of up to $2,500 to businesses that hire veterans.

The Senate bill also would increase state aid to cities and counties, which Republicans oppose. Democrats also would raise property taxes for railroads to offset the cost of grade crossing improvements.

The plan does not include a proposal by Gov. Dayton to increase the tax credit for child care.

DFL leaders in the Senate said they wanted to be cautious with their tax bill, especially given that some of the biggest tax cuts in the House bill are phased in, so that their impact is greater in future budgets.

The $2 billion Republican tax cut includes a temporary personal income tax exemption and cuts to the statewide business property tax. It also cuts taxes on veteran retirement benefits and Social Security income. Democrats said the proposal offered the biggest savings to big corporations that would benefit from the phase-out of the commercial statewide property levy. House Republicans passed the tax plan Wednesday by a vote of 74-58 late in the evening mostly along party lines.

Rep. Greg Davids (R-Preston), Chair of the House Taxes Committee, said he believes he and Senate Chair Skoe can reach a deal in the three weeks that remain in the session.

Light Rail

News Monday that the proposed Southwest Corridor light rail project’s estimated costs had reached $2 billion led critics and supporters to question if the proposed Minneapolis-to-Eden Prairie line was worth the money.

State and local taxpayers have already poured close to $60 million into planning the Southwest line. Gov. Dayton says he won’t back spending any more unless he’s “satisfied that its cost can be justified and properly managed.”

He also called for an outside review to examine how Metropolitan Council staff underestimated the project’s cost and whether the Council is up to the task of managing the project. Met Council Chairman Adam Duininck told reporters he’s re-examining whether light rail is the best option for improving transit in the Southwest metro.

The Met Council on Monday said environmental tests revealed the soils along the 16-mile line were more polluted than originally believed. The ground was also less stable than planners assumed, which means pilings would have to be buried deeper into the bedrock below.

Those problems are partially to blame for the project costing $341 million more than the prior estimate and pushing the total to $2 billion. Staff have also now pushed back opening day for the proposed line by a year to 2020.

The ballooning budget also means the Met Council will have to reapply for federal funding from the Federal Transit Administration. The budget calls for the federal government to pay half the cost.

The project faces legal obstacles as well. Residents of Minnetonka and Minneapolis have filed lawsuits over the project’s potential environmental impacts. A federal judge is expected to rule on the lawsuit shortly.

Sunday Sales

The House voted down an amendment on Tuesday as part of a larger liquor bill that would have allowed local municipalities to decide whether to allow liquor stores the option of opening on Sundays. Minnesota is among 12 states that still ban Sunday sales.

Other supporters of Sunday sales argued that the state is losing business because of the ban. Rep. Steve Drazkowski (R-Mazeppa) said economic activity is being suppressed.

But opponents of the amendment also raised economic concerns. Rep. John Considine (DFL-Mankato) said the local liquor store owners he’s talked to don’t want to be open on Sundays.

An amendment repealing the ban on Sunday sales failed in the Senate earlier this month, but picked up six more votes than last year.

The larger House omnibus liquor bill, which passed on a 127-4 vote, does allow craft brewers to sell beer growlers on Sunday. There’s also a provision that allows bars and restaurants to begin serving drinks at 8 a.m. on Sundays.